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Dual-income households subsidizing single-earner families

When I teach public policy, I encourage my students to ask three important questions. Why are we interfering with the market? How does the policy redistribute resources? How might these policies change the way people behave? My students, like most people, prefer to start by asking how a policy benefits them personally. Popularity among voters is often the framework politicians use to think about policy-making, but it isn't a good framework for sound economic policy.

With these three questions in mind, I've started compiling for my students a list of Canadian policies that might influence family structure and the allocation of resources in a household. I'm surprised by the number of Canadian policies I've found that encourage family structures in which married couples have one member participate in paid employment and the other remains out of the labour force.

One of the best examples is the Canada Pension Plan's (CPP) survivor benefit. There is a good reason for interfering in the market here – private markets do a poor job of insuring individuals against the risk of losing a spouse. The problem is that the CPP survivor benefit is capped so that your CPP retirement pension plus survivor benefit cannot exceed the maximum CPP retirement pension.

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In practice, this means an individual from a single-earner couple can receive the maximum CPP retirement pension, and after her death her partner will receive a full survivor benefit (60 per cent of the retirement pension). An individual from a dual-earner couple – that made the same individual CPP contributions – can also receive the maximum CPP retirement pension. However, after her death her partner might receive no survivor benefit at all.

Effectively, the CPP contributions of dual-earner couples are being redistributed to single-earner couples. By providing this insurance against the loss of a spouse primarily to single-earner couples, we are encouraging this choice for family structure – whether or not that was the intention.

Another example is the Allowance for the Survivor – the part of the Old Age Security (OAS) program that provides a benefit to low-income widows and widowers age 60-64. The purpose of this policy is, of course, redistribution – we hate to see Grandma left in the poor house after the untimely death of her husband, and we're not going to make her wait for OAS benefits at age 65. But why not? We expect Grandma to fend for herself at age 60-64 if she were to divorce her husband. If she had a career of her own and continues to work, we don't think she needs our help at all. The Allowance for the Survivor is designed to benefit the traditional single-earner couple, and might even encourage those who stayed out of the labour force to stay in bad marriages.

My list continues. The Universal Child Care Benefit is taxed back for dual-earner couples but not single-earner couples. Pension income-splitting reduces the tax liability of couples with one career pension but not those with two. And then there is the simple fact that we don't tax the value of home production in our income tax system.

Fifty years ago it made sense to design policies with a single-earner family in mind – whether or not women wanted it, this was the norm. But today, the majority of families are dual-earner couples. Why are dual-earner couples agreeing to subsidize the choices of single-earner couples? Perhaps it's time to revisit some important elements of Canadian public policy, and think about rebuilding some parts of the system with something simpler, more efficient, and more in touch with the needs of today's family.

Tammy Schirle is an associate professor of Economics at Wilfrid Laurier University

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