On family situations

Kevin Milligan makes a case as to why income taxes should be applied at the family level. But I can't help but think that his argument actually describes precisely why income splitting is about the worst possible tool to do so:

One of the goals of income taxation is to -- gently or more forcefully, depending on your taste -- soften the inequalities generated by the market distribution of wellbeing. But does someone’s wellbeing depend on their family situation? For example, if someone is earning $20,000 per year and living alone, is that person better or worse off than someone with the same income living with a spouse earning $100,000? It seems likely that the ability to share food, housing, and other costs renders the person with a high-earning spouse better off. These family circumstances push toward the argument that the family is the right unit to measure wellbeing. Ignoring one’s family situation -- as strict individual taxation would do -- seems like we would be throwing away important information for assessing wellbeing.

Of course, the problem with income splitting is that it doesn't "soften" the presumed advantage of the individual with a high-earning spouse at all. Instead, it rewards the individual with a high-earning spouse by allowing an election to apply a lower rate to the spouse's higher earnings - while the individual earning $20,000 on his or her own gets no opportunity to turn that low income into a tax advantage.

In effect, Milligan looks to be making a case to make a general practice of adding all household incomes, and applying income taxes to the total. Which may well be worth some further discussion - but suggests that income splitting to provide added benefits to families with a single high earner is utterly misguided.