A new definition of household and family as an economic and legal unit
Summary: The writer looks at a more appropriate way to view, tax and attribute legal rights to those who have made a commitment to each other to share. The sharing is usually of assets, property, some admitted joint responsibilities but also is a sharing of a vision to be together to face the future. They share a goal, vision, purpose and their commitment is to each other and to the success of their shared vision.
The writer argues that the family/ household unit is an anchor to society. It anchors the mental health and financial security of its immediate members and even for singles living apart from it, is an anchoring influence and back up support emotionally and sometimes financially. It is a support network that is permanent in most cases and provides a stability that is vital for individuals to thrive.
The writer argues that when the tax system ignores the function of this unit, it omits something that is functioning and relevant . When it penalizes this unit, it risks harm to the fabric of the economy itself. The writer makes the case to have a tax system that without forcing formation of household units/ families does not devalue them or penalize them for those who wish to establish them. She says is important for government to recognize the financial benefit to the economy of the functioning of households/ families in not requiring state funding because the unit is at work. One way to incorporate this recognition in current tax framework is outlined – to identify similarities in function between household family operations and some non profit, not for profit and other business categories and to then formally permit households to have such rights.
In the past, individuals and families were divided as tax categories and it was deemed in the public interest to have society as a whole support the establishment of family, to help with the costs of rearing children and to also ensure there were legal protections for the vulnerable young. The law set up obligations of parents to provide for and protect their offspring and to ensure their health and safety, ensuring they had the necessities of life. This obligation though onerous was supported with societal help often through tax benefits. A family wage was often set in place so the earner of the household ws given more salary to recognize that he or she now had others who did not earn but whose wellbeing depended on the income.
Many societies set up other acknowledgments of the importance of the stability of the child’s home, by making sure that it was not only legal required but also financially possible to have an adult tending the child when young. Many nations set up a household-based tax system to tax less those whose earnings were spread over others, as distinguished from the situation of a single earner with no child dependents. Some nations established a tax means to permit the earner to deduct some tax payments to ensure that his or her spouse also was recognized for the care role, and this ‘spousal deduction’ was added to the tax form to ensure that the caregiver spouse also could thrive.
To recognize the value of a child’s optimal health and education, the state set up compulsory and often free health care, vaccinations, and schooling to grade 9 and then later to grade 12 as the definition of basic standard education evolved. To fund this state help all taxpayers contributed through general taxes. It was deemed of value to all that a significant group of adults had children and raised them well so they could perpetuate the society, become the future doctors, bridge-builders, and workers. The next generation was recognized for the essential contribution it would one day make also as taxpayers in their own right, funding national programs, national defence, communication systems, and even the social service, health care and education programs all depended on.
However, over time there have been some currents of thought that have muddied this system of obligations and support for those who raise children. The definitions have evolved to the point where some support systems have eroded, due to inconsistency and confusion about what deserves societal help.
Here are some of these new currents:
1 the definition of family has changed. It no longer is assumed to be one male, one female and any of their dependent children. This definition has been deemed flawed for several reasons:
-it ignores same-sex couples whose unions are now legal
-it ignores the status of children who were born before marriage or outside of marriage . For some time these children were even stigmatized as ‘illegitimate’ and had little status under the law. They suffered financial hardship.
-it ignores the status of adopted children
-it ignores the status of children from blended families, children from a previous relationship or marriage
2. the definition of marriage has changed. It was assumed that the couple was only married if they had had a legal ceremony of commitment. However with more and more couples living together without official marriage ceremony, the courts have worked hard to try to ensure there are legal protections for those in such relationships, to ensure there is no hardship or misunderstanding of sharing. Protections were set in place for any children of the relationship and the legal obligations of parents were confirmed.
3. the status of the ‘family’ on separation or divorce became more commonly controversial. The high incidence of divorce created a significant challenge to considerations of the original family as sharing finances and dispute about continued obligation to financially support ex partners. The status of children of divorce was also in dispute given that financial and legal obligations continued but it was less clear who would then be in person providing the actual care. The obligations of child ‘support’ tended to focus only on financial support and the role of the person providing hands- on care was less recognized. Awarding of joint custody also changed assumptions of which parent would provide child financial support .
4. with so many single parent households which consider themselves a complete family, the definition of family should be reframed to be sensitive and avoid assumptions. However all the while admitting that a woman or man are enough alone to raise children, in terms of competence, the economic rights of the child to get support from both parents and to have access to and know both parents are also strongly defended in the law. This sense of completeness but also need may need clarification. It may most easily be attained by looking at the rights not of parents but of the child.
5. the women’s rights movement addressed the inaccuracy of calling any spouse a ‘dependent’ of the other. Though the goal may have been to recognize partners as equals, the tax status was less often seen then as mutual dependency or co -dependency, but more often as the two being individuals only, equivalent to single. This status may have given women and men both a sense of individual personhood and autonomy but it also did not value the caregiver role and required both partners to be earners to prove their individual merit. This confusion in the definition of ‘dependency’ with an aversion to use of the term, was often adjusted to define there to be no dependency or interdependency. In banks joint bank accounts were often still recognized by many businesses started to exclude spouses from any status in the afffairs of each other, even to pay library fines. The individual privacy of each person’s health records was deemed private and spouses were no longer given access or information even if both partners approved it. The definition then of ‘independent’ woman to also assume not partnered and not sharing income with another clouded the tax appropriateness of current policy.
6. The increasing rate of nontraditional households, of two aging sisters living together, of skip- generation families with grandparents raising the children, with blood relatives more distant cohabiting was not easily recognized. Grandparents were rarely eligible for the support the state would have given to parents. Adoptive parents may not get the benefits of birth parents without significant legal hurdles.
7. The increasing rate of nonstandard households of friends who live together to save money, roommates long term, even aging neighbors who share a home, was not recognized even though they had made a conscious decision to share lodging, lifestyle and at least some property and assets.
Given these new circumstances, governments have struggled to create a fair legal and tax system that has no gender bias, no bias for or against marriage, and no bias about the birth status of children to devalue children of adoption. A fair consideration may be a new respect for the existence of children, their need for legal and economic protection and a respect for those adults how make a conscious decision to take on these protective roles. Where the tax system adjust to value the decision to share income that may be the more logical basis than making it based on formal marriage or on gender or blood relation or on the definition of ‘family’ from earlier times. This is not to devalue such family or spousal or other commitments at all or to discourage them but simply to look at the core nature of the commitments and to value it, whoever is making it.
B. A new understanding of the basic economic unit
If a taxation system looks only at the individual as the basic taxation unit, this is an error. At several points in life the individual is not capable of operating even for its own interests. Newborn babies are helpless and dependent. The sick, the frail are at some intervals unable to provide for their own needs even as adults. The elderly are often no longer able to provide for their own needs alone. So having an individual only as the unit of taxation ignores a basic reality of human life span. There are intervals where others help.
The taxation unit then must include those others, when the one who needs help is assisted and together there is enough food, clothing, housing and needs are met. In an effort to ensure women were seen as equal to men, an overcorrection was made to deny any recognition of dependency. However there is dependency in some situations and the economic unit cannot always just be the individual.
The economic unit is however not the entire community. People do not share their earnings each week with the neighbors. They do not cook dinner each night for everyone on the block. Most communities are organized historically where the sharing and helping is provided based on biological relationship and genetics, plus bonds formed through voluntary commitment to form a household. Parents provide for their children. Adults provide for their sick and for their frail elderly relatives. A household may welcome grandparents or cousins and help meet some of their needs for a time or mutually, based on a bond linked to kinship. The functioning economic unit then is the household in most societies.
C. a new understanding of the nature of household-family operation
Earlier economics did recognize the household as economic unit, the ‘family’. However a basic assumption about its operation was that it was only serving its own members. It was a unit unto itself, feeding, cooking for, doing laundry for each other. They were a unit of interdependent members who had provided no benefit to those outside the unit. They were like little islands.
The concept then of the household/ family unit as an island, existing solo and without contributing to the community was shown to be in error. Not only was it contributing, but often its contribution was at personal cost. The gift to the economy exceeded the remuneration.
This assumption was based on the idea that they were could manage without others and others could manage without them. They were seen to have no benefit outwardly to the community. If you cooked a meal for your family, only that family benefitted. If you cleaned the house you did it for yourself and nobody else outside the household benefitted. It was seen then nearly as a self-focused, even selfish endeavor to ‘just’ take care of your own household.
When work was defined only in terms of goods bought and sold to the greater community, those whose work was only within that household were considered to not be of outward benefit, and therefore were not ‘working’. The economy of the community did not recognize anything done within the household as of use to those outside that household.
As a result of that assumption, the mutual support the members gave each other was deemed just personal, done from moral and affectionate choice and obligation and beyond any concern of legal or monetary recognition. If a woman made a meal for the family she was not producing anything of value to those in the community and if a man built a shed that only he used, it was deemed of no value to the greater community.
Because of that assumption of no outward serving role, the family was seen as somewhat lazy and neutral in the life of a community.
That however is where traditional economics erred. The household as an economic unit does in fact have a product that is of benefit to the wider community. It is a product so vital that it has been just assumed and economists were blind to the need to admit it. The product is people, healthy, energetic, educated, moral people who go out and serve in the community.
The creation of people, as the vital elements of a community is so mundane that traditional economics forgot to notice it – but someone has to have children to outlive current people, each generation, in order for the society itself to go on.
Just having a child is not however the entire product because the child is not born yet fully able to contribute. The child needs to be nurtured, fed, taught useful skills, taught moral values like honesty and dependability. The child must be protected from danger, given healthy nutrition and nurtured through illness in order to grow to become this contributing member of the greater community as an adult. So the role of the household/ family is actually a crucial part of benefiting the greater community, by not only providing raw materials but developing them to optimal ability to serve. This means that the household is far from neutral as an economic unit. It is vital.
Looking at the household / family as only self-serving, an island unto itself was a mistake then. Even households with only adult members continue to provide the basic necessities so that the members can then go out into the community and serve there. It is in the home that the adults get adequate nutrition, rest, and emotional sustenance. The adults who go out into the community to serve as clerks, truckers, factory workers, lawyers, doctors, teachers, engineers, scientists are healthy enough to do this work, are rested enough, confident enough to do it, because of the nurturing maintenance they get from their household/ family/ emotional support system.
In times of illness, unemployment, career upheaval, it is that household/ family that continues to provide anchor support to the adult who normally is out in the community serving others. This support strengthens them to be able to return to service.
Traditional economics viewed the household without noticing these anchor roles. It saw the household as static, internally active but externally of no value and in that it erred.
There was even an assumption that the household had an unfair financial advantage since it could get the meals prepared, the house clean, the laundry done and the children taken care of ‘free’ and did not have to pay someone else. Such an assumption however is based on the idea that those roles are done magically, without any effort or cost, no income sacrifice and no purchase or products. The person in the household who makes the meals , does the laundry, tends the children is doing a role that could be paid, that a person could be employed to do and that would therefore create a job for some third party and give them income. But exactly because it is a task worth pay, the fact that it gets one without any pay means that someone is required to do it without being valued or remunerated. Historically since it was women who did those roles, unpaid, the assumption this was not valuable monetarily became a key obstacle for women’s rights. The work of women actually does have value. The women who did it gave up income they could have earned elsewhere and income they may have deserved even for that role.
It is now becoming clear with more men cooking meals, with more men tending children and more dads-at-home, that the roles done there do require energy, skill, patience and time and that they also have a financial cost. There is a cost to buy the food and cleaning agents and toys. There is an income sacrifice incurred when the man is not getting paid at some other job because he is home doing the care roles there.
This means that though traditional economics assumed that the care of a child at home was free and that only those who paid a caregiver – sitter, nanny, childcare worker- incurred ‘child care expenses’ that in fact all parents incur childcare expenses and every location where a child is being taken care of is a child ‘care ‘setting. It costs money to feed, keep safe, clothe, educate, and tend a child, both in purchase of furniture and products and in income sacrifice for whoever provides care.
D. Problems of not noticing the economic role of the household/family in the economy
Traditional economics was not only blind to the value of the household to the economy. It also b y ignoring it, dismissed it, devalued it and then discouraged its operation as irrelevant. This shift from ignoring to discouraging has been destructive to the entire economy.
When the operation of a household to have and raise children, to nurture and sustain adult workers in the community is assumed negative for the economy, movements being to ensure all adults at all times are not doing only those functions. There is pressure put on all adults, men and women to at all times be outside in the community and not nurturers back in the home.
-it becomes less affordable to take time to bear children and birth rate drops
-it becomes less affordable to take time to raise children and those trying to do so end up in poverty and those who try to earn in community end up missing time they would have liked to provide
-it becomes less possible for the sick to get care in the home since there is often no one there
-it becomes less possible for the elderly to remain in the household because there is no one able there to meet their needs
The result then is:
-birth rate drops
-care of children is offered only by paid caregivers outside the home
-care of the sick is offered only by paid caregivers and health care and hospital costs go up
-care of the elderly is offered only by paid caregivers and nursing home costs go up
What happens is an interesting wake up call for traditional economics then, to have not put into a budget items that it never used to enter – care of the young, sick, handicapped, frail elderly, dying. Those were functions that economists were able to ignore because they were done in that household that was an island of uselessness to the community. It turned out it was not actually useless. It had been doing vital support and maintenance roles. To lose them was going to be a huge new bill to have to now fund paid workers for all those tasks.
The costs of childcare, health care, home care, hospital care, nursing home care staggered budgets as it became evident that traditional economics had not really noticed the value it had received till it lost it.
This new cost alone was difficult to meet but a quick solution was to ensure that all adults were for sure earning full time as long as possible to pay tax to meet those new costs. Forcing adults out of the home to do the only type of work seen as meaningful, had now become a vicious circle that required them to do so to meet the costs of not having them there.
But there was an even bigger problem. When birth rate dropped, within a generation there were fewer workers and within two generations, a lot fewer workers than there would have been. The balance had shifted so that costs were going up to do what households used to do without pay, and yet there were fewer and fewer to pay those costs.
The household/ family has always been an emotional refuge for its members. At any age or stage of life home was somewhere a person could go to get a shoulder to cry on, a place to stay in crisis, and practical help as much as was possible to give. It was an anchor, not that people regularly went back home to live there but that they knew it was a back up plan. This enabled them to take risks in career, to devote time to creative enterprises that may turn out well or not. It gave them courage to innovate, and to seek their own education and career path despite setbacks. Without that anchor support, without the sense that there was a place to turn to, people flounder. The high rates of emotional and mental health crisis among the homeless, and the high use of opiates and deaths due to overdose are evidence that this basic sense of a place you can turn to is less stable for many. When the household functions well people barely acknowledge it but when it is not there, the gap can create massive risk for individual mental health, and by extension for community costs to handle the fallout.
E. Actual benefits to the community provided by the household/ family economic unit
Traditional economics looks at production of goods and services which in the marketplace is done by business usually. However the other vital side of selling is buying and a business needs consumers. The household/ family unit is a vital part of the paid economy because it purchases food, housing, clothing, shoes, toys, appliances, vehicles. It is the ingredient small business relies on and big corporations rely on- the customer. As such it cannot be said that the household is an island unto itself.
- Creating the flow of the business economy as consumers and purchasers
-The household has to purchase many items – food, clothing, houses, appliances and because it is not just an individual the purchases are usually larger than for an individual. Meals served for a group are more varied, celebrations are more costly, housing is larger than were each purchasing alone.
-The household unit also purchases not for themselves alone but for each other, so not only basic needs are met but thoughtful attention is given to additional items that may be of value. The household unit becomes a purchaser of gifts for members and items that as a group can be appreciated such as a boat or snowmobile or tent. Purchases increase because there is a group.
- Creating the flow of the business economy as clients, paying spectators
The household unit becomes a major source of income for restaurants, for the entertainment industry, concerts, theatres, amusement parks, museums, recreation centres. The group often celebrates time together by purchases that alone members may not make and this creates a boon to the community economy.
- Funding social programs as donors
Charities and fundraisers rely on the contributions freely given of donors. The household able to share income and make some economic savings, not needing six cars for six people but only one or two, is able to contribute more to social needs of the community. Charities to fund raise for medical research, building hospitals, helping the blind and fundraisers to help immigrants, the hungry, families in crisis at home and abroad, depend on such donations to do their good work.
- Providing social programs as volunteers
An individual earning full time has little extra time or energy to help others in distress. If however there is an adult who has flexible time more predictably, that adult is more likely to be able to help others in crisis. The cancer patient who needs a ride to the hospital, the blind who appreciate being read to, the lonely who need someone to visit them and care are all enabled more when there is a household with members who can offshift each other and free up that time. Individuals cannot set that up as easily as can households. In such a way the household is able to provide coaches for sports events, volunteers for community events, bakers at funeral and wedding receptions. These unpaid roles strengthen community and enhance quality of life for other. They may include basketball coach, hockey referee, volunteer firefighters, medical clinic assistant, nursing home helper, translator, front desk clerk, prison visitor, event coordinator, camp helper, relay and race helper, parking attendant, bingo volunteer, events planner, seniors’ home visitor.
- Providing a funding base for bank loans for others
The savings of the household when put in banks provide the essential funding base for banking. Banks with this money are able to make investments, to provide loans for students, new home buyers and small businesses. The money of the household economic unit in savings then is an anchor to the functioning of the larger community.
- Providing emotional and practical support to the community
When there is a fire, flood, ice storm, ordinary members of the community pitch in to help neighbors. They provide emergency lodging, emergency food, emergency clothing and practical help cleaning out basements. These roles are only possible when there are adults with some flexible time to fill in those gaps.
In minor crisis, illness in the family, bereavement, or good news of promotions or births, it is the community that often provides encouragement, flowers, baking, and a shoulder to lean on. This is possible done by individuals but when there is a household unit, the sharing of what they have is easier and the time is more flexible because their lifestyle already is a sharing.
Such support has a profound value in keeping people hopeful, in anchoring them in a will to live and it is the household /family that often provides this anchor.
In regular situations also, when a neighbor needs emergency care of a child, a pet, when they need someone to check their house while they are on vacation, water the plants or mow the lawn, it is often the household /family nearby that is called on. These unpaid services ensure a community where the larger group also is able to function well and ensure the health and safety of the larger community.
In any community there is benefit to the presence of neighbors and their watchful eye, to notice fires or hazards on other’s property, to notice and alert each other to fallen trees or flooded areas and to by this watchful eye discourage vandalism and crime. If individuals are always away from their lodging this informal watchful eye is less vigilant in the community but the household by its flexible schedules and many members tends to notice and provide an added level of safety for the greater community. The neighbors also by their casual presence notice vagrants, those under medical distress, lost children and pets and can help ensure safety at a level that is much less costly that formal security monitoring.
F. The decision to set up a household /marriage unit – pros and cons financially for the persons and for the state
The decision to share one’s life is not always the same as the decision to marry but it involves commitments about not just sharing accommodation, food and travel but also sharing dreams, goals, and an agreement to share what comes in life, to share the same standard of living, to share the ups and downs of finances, employment hurdles, health crises together. This is then both a financial decision which is where the tax department is involved, but also a commitment of values decision which may make the household sharing decision more akin to the decision to operate for a shared emotional benefit, not unlike a not for profit. It is a decision not all about money.
Many studies have been done to look at the advantages of making this commitment to share over the decision to remain single. There are generally both financial benefits to the sharing and some costs. One must examine also if society benefits or not as a group from members being in sharing relationships. What arrangement costs society more?
The financial advantages of setting up a household of sharing/marriage/ cohabitation over living alone and being single
-cost of housing is shared with another
-cost of food is shared with another
-cost of furniture, appliances, entertainment devices is shared with another
-transportation may be shared so costs are lower – car, hotel room
-the couple that halves some of their household costs by sharing can sometimes use their shared money to save more than can the single person.
-the couple can share household duties and have more leisure time than were each single and doing all the tasks alone
-the couple can buy groceries in larger supply at reduced cost without risk of food wastage or milk going sour
-the couple can often share the benefits of each other’s health insurance
-some auto insurance companies offer lower rates to married people than to singles
-in some places it is possible to declare that you share income and to file jointly, allowing redistributing income so that each pays a low rate rather than a higher rate if the income were earned solely
-in the US some gifts between spouses can have a benefit that Is not taxed, unlike money received by a single person.
-the bereaved spouse can often inherit money without having to pay tax
-the bereaved spouse can often receive some of the deceased’ s retirement or pension benefits
Chestnut Financial in the US found that a single person oftenpays 23% of their monthly income on rent, while a married couple pays only 9.3% of its monthly income on rent. The single person pays 8.3% on food, while the couple pays 5.6%.
Ohio State University found that after getting married people experience an increase in their level of wealth. After ten years couples had an average net worth of $43,000, compared to $11,000 for those who stayed single. However if the couple divorces, ten years after the divorce their median wealth is below $10,000. Divorced people have 77% less wealth than single people of the same age.
The neutral aspect of sharing compared to being single
-adults have to eat either way and food costs in a restaurant are usually per person
-adults have to be clothed and clothing costs are still per person
-adults have individual admission to museums, sporting events, and have to pay individual registration fees for most government services
-cost for air fare are per person
-if each owns a car, costs are not reduced if two have two cars
The financial disadvantages of setting up a household of sharing/marriage/ cohabitation
-for more room the couple usually seeks larger accommodation – eg. Two bedroom, two bathroom
-within a few years the couple usually seeks purchase of property not rental so needs down-payment and has to incur home insurance and home maintenance fees
-many couples spend thousands of dollars for the wedding and many end up in debt just from the wedding ceremony
-the entertainment bill may be lower for evening nightclubs but there is likely more home entertaining and the couple may need a dining room, larger kitchen table
-with sharing commitments of time, the couple may incur new costs to attend events of the other’s business, social events, and have to drive them to meetings so there are more travel costs and possibly more clothing costs
-because of the decision to share residence and life, the decisions about education and career may limit choices about job options, promotions and relocations. Though this may involve a salary hike for one, it may involve a salary loss for the other.
In the case of marriage ending however, there may be financial loss that far outweighs benefits that having the cohabitation provided
-there is now cost for two lodgings, two sets of furniture
-the costs of insurance, transportation, food, all have to be borne by each and are not shared
-there are legal costs of arranging the separation or divorce and for ongoing consultation or counselling
-there are costs of support to the other spouse.
There are often more financial costs to setting up household sharing/ marriage than there are direct financial savings over time. However society also has a vested interest in the sharing arrangement because those who share risk and income benefit the economy . How?
Benefits to society of the shared income/ family unit:
-when people take care of each other when sick, there is less demand for formal health care, and less use of hospitals when recovering from surgery.
-when people take care of each other through bouts of unemployment, the state does not have to pay for the interval as often.
-when people take care of neighbors and relatives in local crisis, during fire or flood or blizzard, there is less call for the state to fund such care
-when there is a need for volunteers to read to the blind, drive cancer patients to hospital, coach sports teams or bake for fundraising events, those most likely to have the free time or flexible time for this are ones who in their own home have someone helping free them up for such time. The state does not have to provide as many social services if the household is also providing them free.
-when people take care of their own frail elderly and dying the state is called on less and has to spend less money to provide such care.
-when people are there for each other, in daily contact and noticing each other’s needs, there is less loneliness, less mental health distress and this ensures that adults are able to function healthily because they are getting regular emotional support. The state benefits from having adults still able to continue their paid roles and their education because there is a quiet background support team in the home providing encouragement. This means that state not only does not have to fund such support as much but it also does not lose productivity of its paid workers.
The value of this household unit then to bolster and supplement the government budget is large. It is the value of unpaid labor itself, which has been estimated as one third of the GDP.
G. The decision to set have children and its pros and cons for the people involved and for the state
Once children enter the picture there are similarly both benefits and costs. In the case of child-rearing however, the financial costs far outweigh any financial gain to the household. There are emotional gains and other joys but financially children are a cost. One also must look at whether a child is an expense for the parents alone and the child is their property, similar to a yacht they purchased, or if it is a different status than a possession, and has its own benefit to society. Most societies see children as not possessions at all but as responsibilities of the parents and society jointly to ensure they can become productive and well-functioning adults. In that regard the costs of having and raising children are seen as having to be borne by parents and the community jointly since the community will benefit from these adults. There are estimates that it costs $180,000 – $233,000 per child to raise a child in the US or Canada to age 18.
The financial advantages of having a child
-in earlier times a child was likely to help with household labor and reduce it for the household eventually
-in earlier times a child was likely to help with farm labor and reduce it for the household
-in earlier times a child was likely to eventually earn money and be able to contribute financially to the household
-having a number of children enables older ones to sometimes be caregivers of younger ones and to reduce the care demands on the parent.
-having a child can enable family members to more flexibly provide care of each other in times of sickness and still maintain the balance of stability of the household to have food and clothing and shelter. There may not necessarily be income loss if one member is sick if there are several to help. This reduces cost to the community of health or hospital care.
-in older age in earlier times it was considered that a child will help provide care of aging parents if that becomes necessary. This reduces the cost to the community.
-some governments provide some tax support given that it is assumed that having a child reduces ability to pay tax. There may be a birth bonus, a child dependent deduction, a child tax credit or family allowance. These amounts are of some help but do not cover the costs of raising a child which are still mostly borne by the parents.
The financial costs of having a child
-the cost of feed, clothe and house a child to age 18 is a legal obligation and very costly
-the cost to supervise, tend and ensure safety and wellbeing of a minor child is a legal obligation and the caregiver is rarely able to also earn money at the same time. So the care of a child becomes an income loss or income sacrifice for one parent or both, short term or sporadically or longer time.
-most people when they have a child move to large residence, often 2 or more bedrooms. There is often need to have also a place for more furniture , toys, and a play area. This means housing is more costly than for a single person
-the more children a household has, the greater the likelihood the housing costs will be even larger, with a need for more bedrooms, more bathrooms, and more use of laundry and kitchen appliances. This increases the cost of all the risk of higher maintenance costs.
-with a child there are more limits on where the household can reside since the residence usually has to be near a school. These residences may be more expensive that housing in other areas such as industrial areas.
-the cost to educate a child even if there is free public education, often involve school fees and fees for sports and clubs. Many parents also would like preschool and after school care of the child and many would like the child to attend classes outside of school for the arts, for music, or for sports. These all have a cost.
_the cost of travel with a child is high. Very young children may travel at less than adult cost but fares for air travel, buses, and fares for seats on a bus or train often are per person, regardless of age. The small reductions or family rates for admission to some museums or sporting events do not usually offset the higher per person cost of most events.
-the cost of entertainment of a child can have economies of scale where children pass down and share toys and equipment but eventually each child needs their own sports uniform, their own sneakers, skis, their own cel phone and computer.
-to give birth to a child enters a parent into the legal unpredictable situation of unknown outcome of the child’s health, disability, or personality. There may be health care or legal costs ahead and yet parents take on this commitment and this risk, with hope. The state does not take on as intently the costs that may be incurred.
-having a child usually spurs parents to adopt a more future- focused attitude to money and many start savings accounts, put away money for special gifts, events, travel or education. This means that earnings are now more earmarked for needs and there is little discretionary income. Many parents also use some of their money to support charitable causes and many invest in life insurance now that they have a child. These are all costs.
-having a young child and raising them is time consuming and the adult has much less leisure time for personal relaxation or travel. There is a loss of potential for options of other income or hobbies for a time and this could also be seen as a voluntary but admitted sacrifice, of time.
-if one of the parents takes time away from paid work, full time or part-time, this is often financially penalized. The household income loss is severely felt in the household budget since income may be cut in half. However many governments do not consider this income loss a ‘cost’ of childrearing and few permit it to be listed as a cost. There are some financial helps to parents with children such as dependent deductions or tax credits but they usually go to all children regardless of parental employment status. There is little recognition of the role of tending the child. Some governments recognize the at home parent as now a ‘dependant’but allot to that person financial benefit much less than minimum wage. So the cost to take care of a child directly is a huge financial cost. Many households that try to survive on less than two full incomes find their food, clothing, travel and housing budgets severely cut, their savings exhausted. They often have only one company health or dental insurance plan to cover costs of the family’s care so they do not get the double coverage of dual income households. The state therefore by not recognizing the value of direct care of a child in the household makes it very costly to provide it.
The costs of having and rearing a child far outweigh any financial benefits. Children are not able to give back for many years and most of the time never repay their parents for financial outlay. The benefit of the existence and health development of children then is not mostly to the parents but to the children and to the community they will live in.
Benefits to society of someone having children
To have and raise a child financially is a selfless act parents undertake. It provides no ‘profit’ to the parent and there is no financial transfer of benefit even to the child. The benefit is nonmonetary but eventually has repercussions for wellbeing that may be emotional, and even financial. So the ‘gift’ the parents provide is long term.
With society also, the child is at first a cost, both to the household and to society. The caregiver of the child who is legally obliged to tend the child cannot therefore earn at another full time job simultaneously so the upbringing of a young child requires sacrifice of income. This means it is not just unpaid work but it is reverse paid work. The caregiver gives up income and has to take from personal savings in order to be able to continue to feed and clothe the child. When couples share the costs that does not reduce them but only shares them so that both parents are giving up something – money or time or both, from a single life, in order to provide for the child.
For society however, this care of a child is not a long term loss at all. It is a massive long term gain. The economy requires income in order to meet expenses and meet commitments to provide defence, health care, education, transportation, communication, roads, bridges, and infrastructure. There have to be taxpayers and each generation as some people age and die, there have to be new taxpayers coming on board to ensure the tax base is maintained. When people have children they provide that very tax base, in perpetuity.
The benefit to the state is not only its biggest asset but also is its main requirement to function. The society would cease to exist if its members die and it needs to have new members renewing its population to exist. That means that the having and raising of children is not only useful to society but is vital. Someone has to have children. And since they take time to grow and need care, someone also has to take the time to raise them.
Since parents historically do this without pay, this represents a huge boon to the national economy obtained free. Were a person to calculate debt owed, the debt is in the direction of the state owing parents for their huge gift and contribution to the economy. Historically however the state has not traditionally acknowledged this role of child-bearing and child rearing much. Some societies have set up a birth bonus or small financial allowance, credit or tax deduction to help with a few of the costs. But the general tone of traditional economics has still been that those who are taking care of children are outside the useful economy, not working, not laboring, not contributing. This is where we see the chief error.
It is an error because to fail to recognize the value of having and raising children has led to fewer people having and raising children. It has become for many either unaffordable at all or so hard to afford that it is also a route to poverty or hardship that is endured at great personal cost. These consequences have made practical hurdles that are added to the feminist devaluing in the 1960s of the child-bearing role. The idea that women can both have paid careers and have children is a more recent goal but it has not been attainable in practical terms because the mechanisms so far are flawed.
If the state is to ensure its tax base and keeping births at a replacement rate necessary for the economy to be sustained, it needs to not just give token acknowledgement to the need of children for care and set up places to take care of them. The needs of children are not just a spot or place to be parked. The child’s needs include the nurturing, learning traditions, culture and language of the parents, and the nonstop assurance of the parents’ love and presence in crisis. The tax system does not yet recognize the multi faceted nature of the care of a child and does not tax or fund it appropriately to enable it.
When children have a support system, parents and family, to turn to when in crisis, they are less likely to experience profound feelings of alienation from society, less likely to erupt in violence, less likely to turn to alcohol or drugs to console themselves. When the parents and family are there for them, the child and teen and young adult are less likely to feel the need for gang membership, less likely to be vulnerable to child predators and child luring and less likely to engage in or be devastated by teen bullying. The benefits to society of the family as anchor are broad, in ensuring that teen runaways, numbers in prostitution, numbers overdosing on drugs and numbers attempting suicide are kept low. The wellbeing of the next generation and therefore of the economy viability is sheltered when the family can provide this support. Not only is money saved from the state not having to increase funding for police, drug enforcement, homeless shelters and social services currently, but the potential and productivity of wayward teens is not lost and they are able to become upstanding citizens and taxpayers.
Federal budgets usually only count money received and money spent but money that did not have to be spent is a huge and logical item that the household/family contributes to that budget.
G. Actual benefits provided by the household /family economic unit environmentally
Since the household shares, five members often need 4-5 beds but they share the same refrigerator. They do not need 4-5 washrooms or kitchen tables but share. They do not need 5 separate cars but share trips and therefore use of energy. Their home energy is not the cost of heating five residences but of one. In this way the household/ family incurs extra costs of providing for a group but also as a group can then use energy responsibly. By sharing residence and food the household /family unit has less food waste than five individuals might have in preparing or purchasing meals individually and by travelling together on vacation or errands they share the vehicle and all get to destination at the cost of one getting there.
H Benefits provided by the household /family economic unit in terms of saving the community from expenses for services the household provides for free
If the household/ family is not able to function freely the needs of people who cannot provide for themselves must be met by the society at large,and the tax system. Care of a child with the flu or a headcold, recovering from a broken limb or a teen having an emotional slump may have to be provided outside the home and at facility paid for by government. If hospitals right now have a patient recovering from surgery or an aged patient no longer able to live on their own, they incur huge costs to keep that person in active care there, because there is no other option.
Traditional economics counts money spent, costs, expenses. It rarely counts money not spent, savings incurred because the task was done without having to pay for it. However that is the realm of the household/family unit in history in the economy. It provides care of the young, sick, handicapped, emotionally distraught, frail elderly and dying, for free. It has always done this and this means simply that it has been a cost saver to the government of significant proportions. It is not an amount generally admitted or tallied but if the household /family unit is not able to function, this will be a cost that is newly experienced, and that is happening. It is somewhat costly to ensure the household/ family unit can function and provide this informal care as needed. It is much costlier to not allow them to do so, and to only enable professionally paid care in government run settings.
I. Crossover benefits of the household/family unit to the economy in the paid economy by creating more traditional products and providing services needed
In earlier times, women took extra garden produce to market and sold it. Craftsmen in the home took extra wood products to market to sell them to others. Cottage industries enabled seamstresses to work in the home and create textiles and clothing that could be sold.
In this way the home has often been part of the paid and money economy also. It main product and service was still the anchor support in all the above- mentioned ways but it also sometimes created a product that could be sold.
In addition the home has always been a way to provide informal service to others, sometimes for pay, sometimes not. A person may give piano or violin lessons, may teach painting or a craft, to people in the neighborhood, for free, or for a small fee. Members of the household may tutor each other in math or reading or may tutor neighboring children in the skills, again possibly for free, possibly for a small fee. The care of others’ children as an emergency back up was usually done free, but if it became a regular pattern to tend the children of a neighbor, this may become a paid for service.
In this way people have always ‘worked from home’ both in unpaid roles and also sometimes in roles that got remuneration. In the twenty first century the ‘work from home’ option post-pandemic is becoming even more popular and many people now earn and are paid, though in the home.
Such shifts in workplace and even work hours have challenged however the traditional economic assumptions both of 9 to 5 jobs and of office and factory workplace. The ability to telecommute and have Zoom meetings has changed the landscape of office culture and also of assumptions of the home as an island excluded from economic activity.
There are therefore now two reasons to look again at traditional economics assumptions and adjust them. The person who has a paid job may do this work from his personal taxi or Uber vehicle, from a local coffee shop, from a hub office from which many telecommute, or from home. The term ‘home office’ no longer is the main office building of a corporation but may also be the office of an ordinary person working from their home. They may be doing this work on a more flexible schedule also, adjusting not only to career demands but also to personal commitments. A parent who works from home may be able to take the child to the dentist, pick the child up from school, take the toddler to the park for an hour, during the daytime, a feat less likely at all in earlier economies.
These factors mean that earlier assumptions also of who is a part-time worker seem illogical since most adults are full time busy with tasks they are obliged to do, but only some of those tasks are done with pay. The question of whether a person works needs nuancing to include unpaid roles. The question of where a person works needs nuancing since even the home now is a location both of unpaid work and sometimes of paid work also.
There is another aspect of the home that is also not recognized in traditional economics. Many creative products, paintings, works of music, scientific discoveries and innovations did not occur at an office. They often occurred to people during their free and unstructured time, at home. The great works of novelists and the great breakthroughs of archaeology were often done away from the paid job. If governments want an economy to develop new products, to be creative, innovative and foster better products, it needs to ensure they have this creative down time. The standard paid work day of 8 hours does enable time to rest and time for leisure but only on a treadmill that does not free up the mind to intense study of a new idea. It is when we value the flex time of the household /family unit that we can enable adults to have this extra time, thinking and creative time. The state need not pay them for this down time but an economy that permitted the household members to pinch hit for each other could enable that creative time.
It is not too late to stop this movement to discourage the household/ family as a unit in the economy.. If twenty years ago an answer had been found, there would be more children to now be earning outside in the community. Every twenty years we wait, we lose some of a generational answer for economic balance.
But we could start now. The answer is in valuing again that economic unit, the household/ family that did provide historically the nurturing that enabled work in the greater community. If economists and tax departments recognized the value of this economic unit and enabled it, rather than penalizing it, we would have an answer.
This does not mean economists should force any lifestyle on people. They need to simply open their eyes to a reality that always existed, and to now make it part of the big picture they tally. The role of the household/ family unit was always a key part of the economy, just uncounted. It is estimated that if counted, its anchor role would account for one third of the GDP.
The second step is then to accommodate it, to enable it, to let it exist. There need be no pressure to form such an economic unit, no pressure on men or women to form couples, to marry, to have children, to have one of them home to cook or to tend the sick. There would still be a wide range of lifestyle options – not marrying, not having children, having children and using care paid for by others, hiring helpers when a family member is sick or elderly. However there would also be the option, made affordable, to have the household provide some of those anchor roles and be valued for doing so.
How could this be done?
One way is with reconfiguration of the tax system. There has to be affordability for the household to exist, and the role of the person there doing anchor nurturing of others must be seen as the role of a contributing member of the community, not a selfish or lazy person. This means ‘work’ itself must be redefined to include this nurturing role.
The household must be treated as an economic unit for those who choose to not live as single adults. There must be stated principle that these people will be sharing their wellbeing, their lifestyle, their goals and are making a commitment of mutual support that may cost them time, energy and sometimes money. There must be a stated principle that recognizes that having a child reduces ability to pay tax and that the contribution of the existence and nurturing of the child is of such vital future benefit to the community that the community will forego some tax revenue now to enable the nurturing.
In the same way the costs and time and energy required to tend a sick or aging or frail household member must be recognized also as vital service not just to that person but to the community, since the nurturing role ensures their wellbeing without high costs of professional paid care from the community.
These recognitions are new to economic theory however. Since traditional economics only sees work as happening if money changes hands and if the product or service is given outside the household, it requires a broadening of definition of work. It requires noticing work that is not paid, work that is done at personal financial sacrifice so not only does money not change hands but there is lack of money.
It requires noticing that the household/family unit was all along an anchor to the entire community and that its product and service are the only thing that sustains community long term. To recognize this role requires redefining GPD itself, and looking again at the categories of economic units to make sure to include the household/ family as one of them.
K. a major hurdle to making an improved tax system
- At arm’s length
One of the main reasons that households and family units are not able to get tax benefit as units is often expressed by the legal principle that they are ‘not at arm’s length’. This expression has business implications in particular and is based on a desire of the tax department to not let people evade tax and to discourage fraud.
Transactions between family are not considered the same as business transactions in tax law. They are considered somewhat more likely to not use the same assumptions.
At arm’s length transactions
-transactions between two parties who are unrelated
-the parties agree to do business acting independently, not under undue influence of or pressure from each other.
-the parties act voluntarily and are under no compulsion
-the parties act in their own self-interest.
-the parties have equal bargaining power
-the parties have equal access to information about the transaction
-the transaction happens in the open market. They agree on terms that are fair in the market
Not at-arm’s length-transactions (arm -in-arm transactions)
-the two parties have a personal relationship with each other, are family members of close friends
-one party is in a position to unduly influence the other so there is risk of compulsion. Eg employer and employee, parents and children, management and family members, trustee and beneficiaries of a trust, wards and legal guardians, companies and their shareholders who are also family members.. It is assumed that family members are in this position of bias and that any of these relationships will not be fair market transactions because of the risk of bias.
-in transactions it is assumed the seller may sell at too low a price to be sympathetic to the buyer or that the buyer will pay too high a price to be sympathetic to the seller. In either case the amount of income the seller gets is not the same as they would have received on an open market and they pay different tax on it than they would have paid. The tax department therefore is concerned it loses out on taxes by such transactions. It is also concerned that if there are many such transactions, the fair market value of merchandise may be affected itself.
The state is concerned that people might try to evade taxes by underpricing an item sold to family.
The state is also concerned that the public may be defrauded if information about underlying bias is kept from them when there are financial transactions.
-if a homeowner is in distress, he may try to sell his $400,000 house for $350,000. A buyer might offer to buy the $400,000 home for $200,000. The desperate homeowner may be willing to sell just to get out of debt. However if the buyer is actually working with a relative who sells houses and buys the home and then with his relative resells it for $400,000 there is concern that the desperation of the homeowner is being manipulated to create huge profit for the buyer. The seller is not told of the other intent of the purchase with the purchaser’s relative’s business.
-if a homeowner is in distress he may try to sell his $400,000 home on which he owes $300,000. He may have talked with the bank to enable him to get out of the debt and sell the home for less than it is worth, as long as the bank still gets its $300.000. However if the seller actually lines up a relative to purchase the home at $300,000 from the bank, that relative may just use this negotiation as a trick to then give the home title back to the original owner. Such fraudulent activity is made illegal by not permitting relatives to be part of the transaction.
-if a property is offered for sale at a high price and the purchaser is a relative and gets a loan to buy it, and then the purchaser defaults on payments after a few months, the lender can seize the property and sell it. However if the original price of the sale was way higher than the property was actually worth, the lender has been tricked because what he now owns has much less value than he thought. It is assumed that the fact relatives colluded to trick him is the problem and that they operated not at arm’s length.
On a larger scale, the goal of the government to require people to pay fair tax. The principle is that there is a social contract, set up by legislators and elected government that people will get the benefit of good government, health care, education, defense and social programs in a free society, and to get it they are willing to pay taxes. The paying of tax is part of the agreement and government inspects to make sure owed tax is paid.
Government also aims to protect the public from fraudster from fraudsters. The desire to always have business transactions done at a fair market rate ensures that people are paid at least minimum wage, that everything is ‘open and above board’, not done under the table and outside the view of government . There is a concern that government may lose tax for instance if people buy and sell merchandise without paying part of the selling price as tax. Government has an ongoing program to inspect and audit tax returns to ensure that it is part of transactions, that earned money is declared and tax is paid on it and that income from all sources is declared, even investment income, or income from another country. The great concern about transactions not at-arm’s-length seems part of this general focus on ensuring all required taxes are paid.
The tax department looks at tax returns and has access to international transfers of funds over a certain amount to make sure all income was declared accurately. It tries to detect the ‘underground economy’ where people earn but do not declare tips and gratuities so they do not pay tax on them. It looks at car repairs where the repair shop did not declare the income or create a trace of it because it required it be paid in cash not by cheque or credit card. It looks at homeowners who rent out a room for cash but do not declare this income and at gifts given to potential purchasers that are not declared but are spoken of as incentives to buy. It looks at transactions of exchange of goods or bartering where no cash changes hands.
Obviously the government is interested in transactions of a size large enough to make an impact. It does not look generally at garage sale purchases or income from lemonade stands children operate. It focuses in particular in tax audits on the incomes of large corporations and of high income earners where if there is greater likelihood that if there is failure to declare income, the amounts may be large.
Tax evasion is seriously punished. If records are falsified, if there are false claims about income, if expenses claimed are inflated, or if a person fraudulently claims they are entitled to a refund or benefit, when these activities are discovered, the person has to pay the tax owed, plus interest, plus any civil penalties and then also a fine and there may be a jail term. In Canada tax evasion can be punished with up to 200% of the tax owed having to be paid to government and a jail term of up to five years.
Tax fraud is an offense under the criminal code where deceit and intent to defraud government of taxes owed can be punished in Canada by up to 14 years in jail.
Ensuring everyone pays their required taxes is a logical goal of government. However there are a few oddities in the application of this principle to transactions between family members.
a.The at arm’s length principle was intended mostly for business transactions and business law.The goal of ensuring tax is not evaded and that the tax department is not defrauded has guided the at arm’s length principle mostly about businesses, and applicable mostly between parent companies and subsidiaries, between companies in various parts of the world and ensuring they each pay fair tax in their own country. The overriding principle for business has however been now applied and very broadly to family members, and this application may be overstretching.
b.The concern of government has been to protect the public. If a government branch claims to have fair open hiring but it behind the scenes hires family members of the director instead of more qualified other applicants, this nepotism is illegal. To require a company to not hire family however may be an overcorrection. The family link does not quality the person but it also should not disqualify them if the real criteria is job competence. It may be that we have focused on defining ‘family’ and kin relationships as always suspect and vilified and penalized them too much.
In courts nowadays, spouses can be called on to testify against spouses. In earlier times they were often exempted due to assumption of bias or danger to them based on what they might say or on assumption of coercion. The desire to protect family members however also was assuming that their testimony was never going to be true or accurate. That assumption seemed an overreach. What is fairer in justice seems to be to ensure that those who testify are protected from coercion, whoever they are. The legal system also can hear evidence and then based on that decide if they believe the witness or not, but that is not logically based on the blood relationship of the parties alone.
The concept of at -arm’s length’ therefore is a very active part of business tax law. To make it however a part of tax law regarding the family/ household unit seems a misapplication.
c..The state itself sets up ways for people to pay the lowest tax possible legally. To try to pay low tax is assumed as normal for citizens. Yet the wealthy have more access to accountants who can help them find deductions and credits that the poor may not know about.
In many cases, for benefits for instance for a dependent child or handicapped family member, or GST credits, or death benefits, it is on the onus of the taxpayer to figure out what they could legally get as benefits. The poor, the newcomer who speaks the language poorly, are less likely to know of such benefits and many benefits as a result go unclaimed. One might consider then that fair taxation principle should require the state to inform the public of benefits that records indicate they are entitled to.
d..Another concern is that though the family is assumed under the ‘at arm’s length’ principle to always be prejudiced in its dealings, in Canada the state actually sets up formal ways that families can reduce taxes. The family trust and the professional corporation permit earners to redistribute some of their income to family members, so those family members earn at a lower tax level and the household then is able to pay lower overall tax. In those situations the state actually sets up a way for family to be biased, and to reduce tax. This is an inconsistency but of course a pleasant one for those who can do it. The problem is that it is a benefit that is only permitted for wealthy families. One might suggest then that if it is possible and legal for earners to redistribute income with family members in some cases, it should be more available for all earners. It is not. That results then in it being a biased system favoring the rich.
e..In a free society many actions are considered personal- to marry, to have children, to divorce. The state does not force people to do those things. However it does create tax consequences for them, ones that often operate as financial penalties. It may even create tax penalties for some lifestyle decisions where the money involved is actually treated unequally. In Canada of three households each having two adults and two children, if the total income is $100,000 for each, they still may pay vastly different amounts in tax. Household A if the income is earned by two earners each making $50,000, pays the lowest tax. Household B if the earners make $70,000 and $30,000 pays higher tax and Household C if the adults make $100,000 and zero pays the highest tax rate of all. Because the household is not allowed to be taxed as a group but only as individuals they are deemed in different tax brackets and penalized for the person with higher income. Household C can pay 30-40% higher tax than Household A, on the exact same income. This could be seen as a significant tax penalty based solely on lifestyle and earning style. Therefore the state is intervening already in the taxation of lifestyle decision. A fair taxation system should not penalize legal lifestyle decisions.
f.. In a democracy the owner of property has considerable freedom and rights about how it is handled. If a person owns a kitchen table they can paint it, rebuild it, or burn it for firewood. It is theirs to decide. They are not legally allowed to do illegal things with it such as to throw it into the river or onto the highway. However they can give it away to the neighbor, or sell it at a garage sale or donate it to a nursing home. To be able to make those decisions about one’s own property is part of democratic freedom. When the at-arm’s length principle is applies to transactions between family members, where a ring is given to a daughter or a car is sold to a son, or a house is sold to a nephew, the case could be made that the agreed on price is actually up to the two parties and not the state. When the state is so concerned that fair market value operate that it investigates as possible fraud any sale of a large item between family members in case it is losing tax, some might suggest that this is overstepping. If the real goal is fighting tax evasion and tax fraud is to catch those operating illegally, and intentionally trying to evade tax, the case could be made that attention is better focused on businesses and large crime.
g..The assumption of tax impropriety if the two parties are related as family, is an interesting assumption. It could be looked at as a violation of some basic human rights since it judges people’s actions not on the action but on a factor outside their control, such as race, or skin color. Under the Canadian Charter of Rights and Freedoms:
15. (1) Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.
To have a tax system that penalizes family members could be seen to violate this charter given that race and ethnic origin are part of family status.
If we create a taxation unit of the household unit/ family as this paper is suggesting, that does ask for a discrimination admittedly, but not a penalty. Tax law makes discriminations all of the time, to classify levels of income and levels of taxation and treat them accordingly. Tax law is permitted to make fair discriminations, mainly based on income and financial considerations so that for instance the rich are assumed to have to pay more tax than the poor because they can afford to pay more. The problem with the at arm’s length principle is where it assumes unfair practice solely due to a kin relationship. What may be more useful to make illegal is what is already illegal- the inflating of claims, the making of false claims of benefit, or the misrepresenting of amounts of a transaction.
The ability of people to inflate a selling price is not limited to relatives. It is illegal whoever does it. The ability of people even strangers to offer more than the asking price is rare, but also can happen when there is sympathy for the distress of the seller. It is not always true that blood relationship caused the unfair pricing, or true that having no blood relationship always creates fair market value. What is illegal is illegal whoever does it and what is kind is kind whoever does it.
h..The at arm’s length principle assuming the kin relationship itself is biased could be seen as an antiquated and somewhat patriarchal view of persons as property of the male head of house.
The assumption that the man ran the home, that he owned all the property and that the spouse was fully dependent on him, saw the at home spousal role as subservient and lesser. The woman was seen as an appendage of the man, and part of his entourage as it were, part of his identity. So she was not seen as an individual in her own right. She took his last name, she was not permitted to own her own property or have her own bank account and she became akin to a child is status. In many countries even when a couple worked at a paid task together, a family farm or a small grocery store, it was considered in tax law that the income was the man’s and that her help was just her role, and not worth money. She was obliged to provide practical help to him, to cook and clean for him and to help him do his job, without pay herself.
However the laws have changed in that regard. In Alberta the Murdoch case eventually defined the farm wife as a partner in the farming operation and entitled to financial compensation for her role in that capacity on divorce. Tax law also changed so that spouses at a small grocery store could both have income from it. The fact they were married was no longer an automatic disqualifier to each having financial recognition or to in formal ways one for instance paying the other a salary. Those transactions in earlier times would have been seen as’ not at arm’s length’ but with the growing realization the woman was a full person in her own right and her work was akin to the work of any other stranger, and she just happened to be a spouse, the relationship was permitted to legally involve financial transactions between the two.
Divorce law also changed so that the contribution of a spouse to the household functioning was recognized even if her contribution had been in labor not in money Seeing the couple as joint, as interdependent financially but not just as one person, the man was a significant change to the concept of ‘at arm’s length’. However the change did not happen during marriage, where sharing was still usually not recognized as between equals, but only upon divorce.
In the law in Canada for instance, a woman can pay a nanny to tend her child. She can pay a daycare worker to tend her child. The salary is given, the costs are declared as expenses by the mother and as income by the nanny or daycare worker. The tax department adjusts the taxes of the mother to allow some deductions for her childcare expenses, and the tax department taxes the salary of the nanny or daycare worker. However the woman is not allowed to pay her husband, her sister, a grandmother, or aunt or any other family member to provide care of the child. Even though the care of the child involves the exact same tasks in all situations – feeding, diapering, teaching, taking on outings, ensuring safety ad health – the identity of who is the caregiver is the determining factor to whether the payment is considered a childcare cost at all. The family member caregiver is not permitted a salary that is declarable or taxable, because they are not ‘at arm’s length’.
In the 1980s Kids First Parent Association of Canada challenged this restriction. A man paid his spouse a fair market rate babysitter salary to tend their children and declared this as a childcare cost. She declared it as income and was willing to pay tax on it. However the tax department would not permit this transaction, because it was not ‘at arm’s length’ and the issue went to court. In the Income Tax Court of Canada the judge ruled that according to present law, the couple had violated tax law. But he also said that there was clearly a discrimination in the tax law. He however was not in a position to address this discrimination but only to rule on present tax law.
L. Possible categories for a solution:
There is a need to recognize that adults often make a conscious decision to share income, housing, lifestyle, standard of living and vision for the future. This is a decision that for some is made as a forever decision and permanent commitment but sometimes it is a decision that is adjusted over time. Regardless of the later change, the current status of sharing must be addressed and acknowledged in the law. Where children are involved and others dependent and unable to earn on their own as single adults, there is need to ensure that those who are legally obliged to protect them and provide for them also are enabled to do so financially. A tax system that recognizes when income is shared must be continued so all members of a household are not erroneously assumed to be single and independent earners.
There are several categories already that may be of use as we consider the new status or definition.
1. Legal person
-any person or legal entity that can enter into contracts, sue, be sued, own property.
-some legal persons are not people. They may be companies and corporations
-a human person is called a natural person, a physical person
-a nonhuman person in the law is called a juridic, juridical person or a legal or fictitious person eg corporation, firm, some government agencies. It has certain rights and privileges and responsibilities and it also has liabilities. In this way one or more natural persons can act as a single entity (body corporate) for legal purposes. It is treated separately from its individual members. It can incur debt, own property, has to pay tax but can shield its members from personal liability eg. Cooperatives, corporations, partnerships, companies, sovereign states
-a legal person had legal capacity, can enter into contracts, sign treaties.
(Comment: Though individual members of a household could not be expected to each take on the legal debt of one member, in practice when a house is purchased the people who are the household unit all share in the burden of having to pay for that house by its consequences. The bills owed for food and utilities and household maintenance incurred by the payer of the bills are also paid for indirectly because of repercussions to the entire household. In this way the household unit/ family does function somewhat like a corporation. Since the law already permits a legal person to be something other than a single individual human, but an entity with rights such as a company made up of persons,this creates a window of current tax law that ma e open to viewing the household unit/ family as a legal person(
-An entity formed to create profit
-It operates with the goal of making money, selling a product or service
-the owner earns income from the business
-the owner may pay shareholders and investors from the profits
(Comment: the family is not created to make a profit. It is therefore not a business. It does not operate with the goal of making money or selling a product or service. However the household unit/family does provide a service, to its members and to the wider community as a payer of tax and a supplier of social support and free volunteer labor. It is therefore also not just one individual but an entity)
-a business of fewer than 5 employees is a microbusiness in Canada.
-a business with between 5-100 employees is a small business
-a service company with between 5-50 employees is a small business
-A small business s a company that has an authorized credit limit in Canada of half a million dollars or less. If the credit limit is between $500,000- and $1 million it is a medium sized business. If the credit limit is over $1 million it is a large business
-a small business is a company that has $5 million or less in annual revenue
( Comment: If the household unit/ were considered akin to a small business it would be among the smallest. It does not however have an authorized credit limit or a limit in annual revenue. Many families however also operate a small business on the side, as farmers selling produce or livestock, as entrepreneurs who offer services or sell crafts in the community and use the proceeds to help support the family. Some families also set up a formal business with family members and this is apparently one of the most common business types in the world. The mom and pop corner store, the father and son who are both carpenters, the family plumbing company with family members an employees are very common endeavors that cross the barrier between family and business also. It is not a strict division)
-a legal entity separate from its owners. It is said to have its own legal personality distinct from its members
-board members are exempt from personal liability for corporate debts
-owners or shareholders are taxed on profits and the corporation is taxed separately on profits
-a group of people with a common goal formalizes their relationship according to legal requirements
-the organization may go on forever. If the members change, the incorporated body continue to exist until the organization is dissolved according to the law
-it can own property in its own name.
-there are many regulations for keeping records, listing directors, holding meetings
-the name of the company includes the word Incorporated or Limited or Inc or Ltd. at the end of the name
-it may issue shares or not. A nonshared company may acquire real and personal property at an unlimited cost value
-it has the legal right to do most of the things a natural person can do with some restrictions
-the board must have no fewer than 3 directors aged 19 or over who have the right to make bylaws and rules about its operation
-it can enter contracts, loan money, borrow money, sue, be sued, hire employees, own assets and its pays taxes
-it can be created by an individual or a group of people who have a shared goal.
_the goal of a corporation may not always be to make a profit
-often shareholders share the ownership of the corporation.
-some corporations return profit to their shareholders wile others such as nonprofits and not for profits, charities and fraternal organizations do not return profit to their shareholders
-a private or closed corporation may have a single shareholder or several
-a publicly traded corporation may have hundreds of shareholders
-the application can list up to 15 names of provisional directors.
-the members approve the bylaws
-the company states what the organization intends to do
-the bylaws say who can be a member, where head office is, duties of officers, time and procedures for meetings, voting procedures, name of bank, borrowing bowers, audit of financial records
-Owners can’t be held responsible for the debts of the corporation
-it can own assets
-it can sue and be sued
-it can borrow money
-it elects a board of directors
-it has annual meetings
-it adopts bylaws
( Comment. The household unit/ family is not a corporation in that it is not formally so named, and it is not created to make profit, is not publicly traded. However the household unit is also somewhat like a corporation in that it is a group of people with a common goal, it can go on forever as new members join or die or change. Since it can be created by an individual or a group of people who share a goal, it starts to sound somewhat like a household unit/family on a small scale. The goal of a corporation is not always to make a profit and a private corporation can have a single or several shareholders so it can be small.
The household unit/ family does not enter into legal arrangements as a separate entity when buying a house or car or setting up a telephone account. And yet in some ways it does, given that on title are often two names of family members or on phone contracts, names of several family members.
The household unit/family does not as an entity loan money or borrow and yet on the contract often are names of both spouses. The impact of the debt incurred is felt on all family members as they have to adjust lifestyle to repay the debt. As in a corporation, children and individual family members are protected from individual liability incurred in a court and legal sense.
The household acquires real and personal property that is shared so although there may be no formal designation of a corporation, the function is similar in the sharing of property.
A corporation has many formal requirements of a board of directors, annual meetings, written bylaws none of which are usually part of the household unit /family life. However the fact these functions are not formal does not mean they do not exist. There are in fact informal designations all the time for the rules of operation of the household, curfew hours, sharing and borrowing rules, use of car and refrigerator rules and other codes of discipline and language and etiquette that are not of its function. )
4. Joint ownership
-joint ownership of property is the owning of property by 2 or more individuals, eg. Husband and wife, or two business partners, friends or family members. They have equal rights and responsibilities to the property.
(Comment: The concept of joint ownership could be very useful in the framing of a household/family unit to eliminate conflict between adults about ‘head’ of household. It is not as useful if there is one adult with children or if there are adults who do not share ownership of the residence, such as parents and grandparents but the legal concept may be of use for some arrangements )
5. Limited liability corporation LLC
-owners cannot be held liable for debts of the company
-investors are protected from personal responsibility for debts or liabilities of the company
-profits are earned by owners and owners must pay tax on the profits not by the LLC
(Comment: The household unit/family can incur debts but not all members may bear full responsibility for them. Adults who take on a debt do, but their children do not. However the children do bear the consequences of debt so they are affected by not responsible. This is then a grey area because other business relationships may not have the same consequences from debt of a few members.
The household/ family unit however does not make a profit so the taxation of profit is not relevant. However the household unit/ family does have income and pay tax. To have each pay individually ignores the fact that they share finances and standard of living so taxing them as if single does not fairly recognize their commitment to view each partner and each member as contributing and useful albeit in nonmonetary ways. The sharing of income between adult co-residents does imply a recognition that what each does is useful, that they are interdependent and possibly their interpretation that they are equal. It is logical to tax them as a unit since they operate as a unit, as one ‘person’ for many purchases. The government of Canada also does recognize the household unit when it returns benefits, such as GST rebate, or when it calculates eligible deductions for children’s care. It reduces the benefit based on household income, so it assumes there is sharing.
In that way it is only consistent that government tax the household as a unit ( permitting income splitting ) so it also returns benefits based on the household unit (lower if they by total income require fewer benefits). Or alternatively it is logical to not permit the household unit and to tax only as individuals, but then it should also return benefits as individuals.
The fact that in Canada taxation is based on individual income only, and benefits are turned based on household income is inconsistent on the part of government. The fact that such a mixed approach taxes people the highest and returns the fewest benefits must be addressed for its fairness)
6. Registered charity
-it is exempt from income tax
-it is created for charitable purposes and devotes its resources to charitable activities
-no part of its income goes to the personal benefit of any of its members
-it aims to relieve poverty, advance religion, advance education or some other way benefit the community in a way that the courts have determined to be charitable
-it cannot operate for profit
-it cannot operate for the private interest of its members
(Comment: The household unit/ family does pay tax given that the adult earners within it pay tax. However as an entity unto itself the ‘x family’ or ‘x household’ is not a taxation unit currently. However there is a logic to considering it such, though it would still pay tax.
The household unit/ family is not a charity. People do not contribute money to it and get tax receipts. Money earned by members can go for the personal benefit of some of them more than others – eg. One gets a motorcycle and one does not. However the household /family unit does operate in many ways like a charity which is why a new designation may be appropriate.
The household unit is created to face life together and may share not only values but a religious outlook and shared social goals, not just to reduce their own poverty but also to ensure they can benefit the greater community. Maintaining the household unit/ family not only feeds, clothes and educates the members but ensures they are able to go out and serve in the greater community. The household unit/ family then functions in some ways as the raw resources to enable charitable work and is part then of charitable work.
The members of the household/ family unit often do charitable and volunteer work babysitting, tutoring, coaching neighbors and families, without charge. The members of the household/ family unit are freed up to provide this charitable service often in large part because some of their own needs at home, for cooking, cleaning, legal obligation to tend children are being met within the home by other members. The household unit/ family by off shifting each other’s commitments is able to flexibly do charitable work. Members who help out in crisis, in floods and blizzards and storms may offer their homes as shelter to victims or may go out and help them in the area of problem. They are able to find the time and resources to do this partly because the household unit/ family usually has the size of dwelling that can welcome emergency guests and the flex time that can free up emergency service)
7. Nonprofit corporation
-organization formed to serve the public good – charitable, religious,. Education or other public service
-in the US it has tax-exempt status because its mission is to support a social cause and provide a public benefit – eg. Hospital, university, national foundation
-it is organized and operated solely for social welfare ,civil improvement, pleasure, recreation and not profit
-no part of the income of the organization current or accumulated can be for the personal benefit of any of its members or shareholders.
-organization not formed for creation of profit itself
-it can receive donations from people
-it can apply for and receive grants to support its cause
-no real estate taxes are paid in US if a building is bought or sold for it
-public service announcements for it can be aired free in the US on radio or TV stations willing to accept them
-members of the board of directors cannot receive payment for their service. They must be volunteers
-if the nonprofit corporation shuts down or is closed down, its assets must be given to another nonprofit not distributed amongst its board
-it may be subject to tax on property, income and taxable capital gains
-board members are exempt from personal liability for corporate debts
-it is exempt in the US from federal and state taxes on any income the corporation earns
(Comment; Classifying the household unit/ family as a nonprofit corporation has some logic. The unit is not able to receive donations and issue tax receipts. It if not exempt from tax. However it has very many elements of a nonprofit corporation. IT shares a goal often and arranges itself not just for the good of members but for the public good, because the two goals intertwine. When it feeds and educates its members and instils values of honesty and dependability it nurtures responsible citizens who are productive tax payers and valued contributors of both paid and unpaid work outside the home. Its nurturing is both practical and philosophical so it functions as a part of how society has a nonprofit sector.
The household unit/ family unit does promote social welfare, support social causes and recreation much the same as a nonprofit operation does. It does not make a monetary profit from its efforts to feed, clothe, educate its own members.
The members of the household unit/ family are not paid to be there. They are in essence then volunteers, as in a nonprofit.)
8. Not for profit corporation
-it is not exempt in the US from federal and state taxes on any income the corporation earns
-in the US it does not earn profit for its owners. All money earned through its business activities and donations goes right back into running the organization
-in the US it is not required to operate for the benefit of the public good. It may simply serve the goals of its members. Eg sports club.
-in the US it may be exempt from sales tax and property tax
-those who donate money to it cannot deduct this donation on their taxes (in US)
-it operates with the goal of making money.
-it will not carry on any business or trade for profit of its members. On dissolving, surplus funds are given to other non-profit organizations.
-In Canada it is a group organized for the purpose of social, religious, charitable, educational, athletic, literary, political or other such activities
-it can be formal (incorporated) or informal (unincorporated)
-it can only issue official donation receipts if is it registered with the tax agency as a charity when it receives contributions
-it has to pay harmonized sales tax when it makes purchases from supplies who are required to charge the tax
-it may be able to claim a refund on the harmonized sales tax ispayx
-it is required to charge and remit the harmonized sales tax on any property or services it sells
-the people involved in it cannot use the organization to make personal financial gain
-it is possible to incorporate them and they usually do not have capital stock or issue any shares
-it can make money . it can engage in activities that result in income or profit. However the profits must be held in trust for the organization and can only be used in carrying out its goals and objectives
(Comment: The household unit/ family does not operate with the goal of making money .People do not live together as a business expecting income for the union ,The unit is not exempt from tax. However in many ways it does operate similarly to a not for profit corporation.
Money that comes into the home is most reinvested back into the family/household unit, though some can be outreach for the greater community.
It, like a not for profit, cannot accept donations others can deduct on their taxes.
It does operate as a unit for shared goals that may be social, educational or even religious sharing and that involve shared goals about athletics, and often even about leisure time. These activities often are not money-making ventures.
It has to pay tax on the purchases it makes.
A nonprofit can make money and engage in activities that result in income. In this way the household unit/ family is particularly similar to a nonprofit because members of the household unit/ family often do earn.)
M2 terms for all categories
-property owned by a person or company, that has value and is available to meet debts, commitments or legacies
-items of economic value that are expected to provide a future benefit
-items that provide current, future or potential economic benefit and are owned by or owed to the owner
-current assets are expected to have short term benefit and can be converted to cash within one year – eg. Cash, accounts receivable, inventory
-fixed assets are factories and equipment that have longer term benefit. They may lose value and depreciate if they become worn
-financial assets are investments in other institutions such as stocks and bonds
-intangible, nonphysical assets are items with no physical presence that have value such as patents, trademarks, copyrights, goodwill and reputation
(Comment: The household unit has assets, being physical possessions and often a vehicle, and property. This is available for legacy and during their lives is vital to the functioning of the household unit/ family. In the law a person is entitled to a bare minimum of possessions to not be seized by the court even in cases of bankruptcy, in order to ensure they have the means of survival and means to go out and have a job and get out of debt. A person’s bed and refrigerator and vital clothing cannot be seized by a sheriff in any legal action to recover debt owed. If a person needs their car for their paid job, the car also cannot be seized. A television can be seized In similar way a household unit/ family does require some basic necessities to function. The right to lodging is not a right in Canadian law and we currently have a large homeless population. There is no ‘right to food’ and we currently have a large number of people who go to food banks and soup kitchens in order to have enough to eat. The homeless and food insecure live precarious lives day to day and are less likely to be able to predictably arrange and be depended on to present themselves for a paid job and do a full shift. The homeless population and those who are food insecure are less able to get good medical care, eat healthy food and are therefore much more likely to cost the tax system money in their use of emergency supports, ambulances, social service intervention. They are more likely to be victims of crime and more likely to be targets of drug dealers. In this way though homelessness and food insecurity are not the problem of the middle class or well fed, they actually are their problem also because in the end having a segment of the population that is suffering and then costing the government money, also drains their funds. It is in everyone’s interest to ensure that all people have shelter and adequate food. Though this would be a huge change in law, defining the household unit’s assets to include shelter and food would be useful to ensure some stability for those at risk.
Though the tax department looks generally at financial assets, and items that can be converted to cash, the tax law already does admit that there are intangible nonphysical assets such as good will and reputation. There is therefore a category that is abstract that is recognized as having value to a company and for the household unit/ family one of these nontangible assets may be its function as a caregiver and emotional support for its members. To deprive a child of this support deprives the child of an asset quite critical to their wellbeing. If we enlarge the definition of assets to include some of the emotional support and practical nonfinancial help family members provide each other, we might better protect the members from loss of that support. It is when that support is lost, though it is often nonfinancial, that mental health problems are more likely)
-gross proceeds of a business transaction minus the costs of the transaction (net proceeds)
-the excess of revenues over expenses
-gain realized from a business or investment over and above expenditures
(Comment: The household unit/family does not make a financial profit by its operation. There is no product that is sold and no service that by definition is marketed by a family to the community. Therefore there is no likelihood of revenues from that or of revenues exceeding expenses. What most often happens is that income is received, expenses are paid and if there is an overage, it is not viewed as profit but as working capital. It can be re -invested in the household unit/.family to purchase clothing or food, or to get a new car or larger lodging but it rarely is not generally gain for one member only. If the household unit/ family has declared that it shares income, then it also shares over age of income over expenses. There is non personal gain. What is more common in practical terms is that the typical family in Canada has more expenses than income and to survive borrows money. The level of household debt in Canada in 2022 is at its highest historic level ever at 112.% of GDP. People owe more than they earn and are mired in debt. Though it may be tempting to blame them for mismanagement, what is more logical since it is a strong and nearly universal problem is that the tax system has not adequately recognized the costs of raising a family. If there is any money left over when income one month exceeds expenses, it is likely spent to pay down debt. Canadians are encouraged to save their extra money for their own children’s post-secondary education and for their own retirement and there are some tax incentives in place already to encourage that. However if you have no money, being allowed to save it is not of use. What would be more appropriate would be a tax system that recognized the lower ability of the family/household unit to pay tax given its huge necessary expenses in the care of its vulnerable members. If the tax system lowered the tax for the household unit/ family, then the family may have some money left over at the end of the money and would be able to contribute more to the savings accounts as government would like them to do.
-any law that helps reduce the tax you have to pay
-a reduction in tax owed that enables a person to save money
-a. a deduction- basic personal deduction or standard deduction (US) . It is higher in the US for married than for single people, to recognize two people both eat and need shelter. It can also be a specific itemized deduction for repayment made for student loan, for political contributions, for charitable donations and for some times of savings accounts or retirement that government wishes to encourage. It is calculated to reduce income as tax owed is calculated. Then the tax rate also applies to it so that a deduction of $500 may not in the end be worth $500 but only a portion of that.
b. tax credit – after total tax owed is calculated this amount is inserted to reduce tax owed by that amount. So a $500 tax credit is worth $500. There are refundable tax credits where a person pays the tax and then at the end of the year gets that credit back in a cheque from government. There are also nonrefundable credits where if the tax owed is less than the credit deserved, the person does not any overage back in a cheque.
c. exclusions and exemptions – tax is not owed by certain people or in certain circumstances. An inheritance for example is not taxed in some countries.
-individuals claim some benefits to reduce their tax or get some money back. However a common use of benefits is for employers to reduce their own tax by deducting the benefit they paid the employee. Employers in Canada may be able to deduct car allowance, cell phone allowance, board and lodging payments for employee, child care expenses of employee, counselling service or disability funding for employee, gifts in cash or stocks or gift cards that the employee can convert to cash, housing allowance help for the employee, loans to the employee for home purchase, overtime meal costs of the employee, moving expenses paid for employee, parking, recreation and professional membership fees paid for employee, travelling expenses of the employees spouse paid for by employer, tuition fees and tool allowances give to the employee
(Comment: In popular expression ‘benefit’ has many meanings not all of them financial. The household unit/ family confers for its members benefit of stable home life, mutual emotional support, shared recreation and entertainment and practical help in crisis. They provide amongst themselves mentoring and guidance and informal education and skill development. Those all are not counted in tax systems however. Were they counted, the family would have to ‘pay’ somehow for getting this benefit and not having to pay a professional for it.
The state however could also be seen to be getting a benefit from the household unit/ family and that benefit is actually financial. The state does not have to provide emergency housing or counseling or recreation and entertainment at huge cost to the federal budget. The counseling and emotional support, care of children, frail elderly and the sick is also provided for free by the household unit/ family so the state does not have to pay for it. This not having to pay then saves government money and provides them with a huge financial benefit. However that also is not currently admitted in tax systems.
The deduction that can be claimed for ‘childcare’ illustrates a basic assumption of the tax system that might be useful to question. The person can only claim the costs of these are receipted, paid to a third party not family and if they are paid so that the person can go to paid work or study to get a job for paid work. In other words the deduction is not a recognition of the value of children or the importance of their care at all. It is not even a recognition of the salary paid to a third party as receipted cost. It also has to be incurred as a cost so that the claimant earns money. In other words the value of ‘childcare’ in the tax system is to forgive it as a burden or obstacle to be overcome so that a person can do their paid work instead. In that way it is akin to funding crutches to forgive having a broken leg, and still enable a person to do paid work. This assumption about deductions, that they only matter if they enable earning money, is a typical bias of the tax system that only ‘sees’ and values paid work. However it is that basic assumption that is a problem because it then ignores the value of care of children itself, as an activity, or the value of children themselves, in their vital anchor role to future society and the economy.
The tax plans that only count flow of money count only a benefit received that has a cash value in the market place, money spent to take care of a child, money spent to contribute to a political party or charity. However one might notice that the system also does admit there is a category of unitemized spending with some trust involved that the person is entitled to not have to pay tax on a few basic items for survival. In this basic exemption are included food and clothing and other expenses as the person deems necessary. It is the recognition of personal choice here that should be noticed and the trust implied that the person can make good decisiosn for their own basic needs. That trust is however only sporadically present. It is present for instance to let a person decide to eat at home or in a restaurant. It is not there for a person to decide if they want the spouse or the childcare centre to tend the child. That second decision is not left to trust and in some countries only the childcare centre use is deductible. One might question the fairness of that.
What is also interesting is that the employer is allowed to provide a lot of benefits to workers. The rationale is that to hire them he or she needs to enable them to arrive so there may be relocation and moving expenses. The employer has to enable them to come to the office so there may be parking and transportation expenses .The employer may need them to work overtime and there may be meal expenses so the employer covers those but also then wants the state to reimburse him/ her for that. The list of deductions an employer can claim is very broad including tuition fees, travel costs of employee’s spouse, household purchase loans and gifts. This means that a lot of the ‘lifestyle’ of an employee is being funded by the employer ostensibly as a business cost, to keep the employee able to do the paid job but also to keep them happy, and committed to that job and to retain them. Those benefits however are amazingly similar to what a household unit/ family tries to provide its members. And in the case of the household unit/ family they state does not enable deduction of those costs.
This creates some oddities. A person can get the employer to pay for their hotel stay, round of golf, dinner and ticket to the theatre, if it can be framed as necessary for the job – and yet this may be the same hotel stay, round of golf , dinner or ticket to the theater cost paid for by family without the ability to deduct it. It means that the paid worker gets many benefits that the family and household unit does not get and that the tax system by tying benefits only to business operations, actually penalizes household units and family if they also have expenses moving, buying a house, getting counselling, eating meals after a long time working. The tilt of the tax system then is of concern. It provides not only deductions and benefits only to some situations not others but also unfairly as a whole benefits business over the household unit/ family. Why it does this is very likely based on the theory that only business ‘makes money ‘or is of benefit to the economy. However this paper attempts to make it clear that the household unit/ family actually provides a huge financial benefit to the society and to disadvantage it and discourage its formation causes a loss for that society.
Tax law looks at such benefits accrued to the individual and in some cases permits them as tax deductions. It does not generally look at the other direction of the relationship- the benefit the state gets from an activity. If a person is entitled on a business trip to deduct the cost of a hotel room at $150 a night, travel at 20 cents a kilometer by car, and meals for the day at $100, the company may for instance be willing to pay $80 for a 200 km return trip plus $250 for hotel and meals, totalling $330. If the employee stays at a hotel that costs $100 a night, and eats at fast food restaurants for only $50 a day and takes a bus for the return trip costing $70, the employee spends only $220 and deducts only $220. What the business notices but the tax department does not, is that the employee saved the company $110. This category of money saved functions also as a benefit to the company in trying to keep costs down. Government in a parallel way has benefitted financially from the operation of the household unit/ family in not having to spend for health care, early education, social services, unemployment benefits and likely even policing. There is a category in government budgets of tax expenditures, money admitted as forfeited by government that it would have been entitled to, that it voluntarily gave up, such as deductions allowed, exclusions and exemptions, tax credits or a preferential tax rate for certain activities. The government already somewhat admits it benefits from some activities in nonmonetary ways. However it has not yet formally recognized the huge benefit it receives in this way from the household unit/ family. Statistics Canada routinely estimates that unpaid labor, were it counted, would be one third or more of the GDP, but that it is not counted. The proposal here is in essence to count it)
4.Product, goods , services
-a good distributed commercially that is tangible personal property, or the result of a fabrication or production process or that has passed through a distribution channel to get to the consumer
-a service that is a provision of what a buyer wants or needs and the profit margin must be justifiable for the service to be provided
(Comment: The product of the household unit it not tangible personal property. However it is even more profound that that – it is a person. It is the family that produces children traditionally and they are a very concrete result of the union. They are of benefit to society in perpetuity as future earners, inventors, workers and taxpayers and in their own turn nurturers of their own replacements also. SO the product is so glaringly concrete that to ignore it is like not seeing the forest for the trees. The fact that people are the product however has not been recognized in tax law. It may seem a crass way to put it but to ignore the reality of this massive product’s value is simply inaccurate.
There is also a service that the household /unit provides not only to its own members but to the greater community. The tax department historically has seen it as providing service only to its own members as if it is a personal indulgence to have meals cooked at home and not have to purchase them at a restaurant . The tax department has looked on the tending of household members, feeding, taking care of them as a hobby not as a vital service to the members and has not valued the role as a service.
It has also not recognized the cost of giving this service, the sacrifice of income by the caregiver. The tax department has acted as if it might tax the household more than an individual because it did not have to pay to have someone clean the yard but did it itself. However such a view of labor to only count costs paid out and to ignore income foregone has been a major flaw of such economics, blinding it to much of the work done in the country and much of the contribution people make to each others’ wellbeing.
In addition, the household unit/ family has historically provided vital service to the greater community in helping neighbors, doing volunteer work, supporting charities and being an anchor to others in times of distress. This service is also unpaid and therefore uncounted in traditional tax law but it actually is a huge savings the state receives, since the state does not have to fund that outreach in the community)
-anything owned by a person or entity
-property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies
-real property is interest in land, real estate, growing plants
-personal property is owned material that is not land or real estate or growing plants
-common property is owned by more than one person
-community property is joint ownership between two individuals
-separate property is owned by one person only despite that person being in a community
public property is property owned by a government or government agency
(Comment: One could say that the household unit/ family has much common property and some items of personal property. It has separate property as well as common property and it is up to the members to designate amongst themselves what is shared and what is personal. Often the home is shared and the appliances and vehicles, household effects and sports vehicles but items of clothing and jewellery may be personal or shared. Books, computers, cel phones may be purchased by the household unit/ family with the understanding that some are referred to as belonging to an individual member but the household also often retains a sense of ownership and responsibility for the upkeep, repair and replacement of disposition of those items. Therefore a household unit/ family is a blend of property ownership and as such merits its own designation as at a tax unit, given its complexity)
-cost of production are the cost of materials, labor and other expenses directly related to manufacturing a product
-cost of production is the cost incurred by a business to produce a product or offer a service.
It may include labor, raw materials, consumable supplies.
-in economics cost of production is the expenditures incurred to obtain the production such as labor, land, capital needed to produce the product
(Comment: The household unit/ family has significant costs of operation. If one considers the product as people, children, and the service as upkeep to ensure that all members are healthy and able to serve others, and if one considers the additional service of work in the community, then the costs incurred by the household are akin to business operating costs. Since the definition includes labor one might note that there is a window here for tax law to recognize that the labor of cooking a meal for or doing laundry or the household is also useful work -even if unpaid directly. Since the definition also notes that costs may be consumable supplies this also gives a window in current tax law to consider food as a necessary expense of the household unit/family and were it a business, even a deductible expenses. Current tax law does not recognize such costs as costs. In particular in the area of ‘costs’ for care of children, current tax law is blind to the labor of taking care of them and to the costs of feeding and clothing them and to the costs that end up as consumable/ used supplies such as outgrown children’s shoes. When a tax system ignores these as costs and only counts ‘costs of childcare’ as money paid to a third party, it fails in its accuracy. It is vital in a fair tax system to notice all costs and costs incurred in the home by the household unit/family may be more easily notice in tax law if they were seen as analogous to business costs)
-anything that confers value or benefit to its owners – eg. Factory, machinery, intellectual property such as patents, and financial assets
-cash that is put to work for productive or investment purposes
-money available to pay for day to day operations and to fund future growth
-capital is the key to functioning of the business or family
-capital assets include real estate, land, investments, valuable possessions, machinery, inventory, warehouse space, office equipment, patents, every item owned by the company (minus its financial liabilities)
-the use of capital in a business or family or an economy shows how efficiently it uses its resources
-capital is used to invest in things to create value. It is ‘allocated’ with spending, hiring labor, purchasing buildings.
a. working capital of a business- the ability of the company to pay its debts and obligations due with one year. This is its ‘liquid’ or available assets to fulfill daily obligations. It is all the assets the company has minus its current liabilities (how much it has left after subtracting what it owes right now)
b. equity capital of a business – the company issues shares in the company either through a closed group of investors or on the public stock exchange. The investor provides equity capital to the company and in return will be paid dividends.
c. debt capital of a business – the business borrows to get capital. It may borrow from banks or may borrow from friends, family, online lenders, credit card companies and government loan programs. It has to repay these loans often with interest. Some corporations issue bonds to get investors to loan money to the operation. When debts are repaid they often also need to be paid with interest.
(Comment: The household unit does not always have a lot of available money to pay for day to day operations. Given the current statistics of high levels of household debt, high costs of rent and mortgage and high costs of groceries and fuel, it is evident that many households/ family units struggle each month and often live with debt that increases over time. That itself is a crisis that the proposal of this paper seeks to address. Were the household unit/ family taxed appropriately for its nature and function, there would be more cash available and the debt load would decrease. The household unit often has tangible assets of valuable possessions, real estate and what could be considered as analogous to warehouse space, equipment, inventory were it a business. The household unit does not issues shares. The household unit /family does however often borrow to get capital, from banks or from friends, family, online lenders, credit card companies and government loan programs and one might notice that when it does so even if the borrower is stated as one individual the rationale often given is for the benefit of the household unit/ family. This suggests that though the current banking system and tax system officially and formally identifies only the earner or earners of the household /family unit as the ones seeks the loan, that the rationale often is assumed to be informally, for the unit and the group. This means we have a system that only needs to take one more step to formally recognize what it already partly and informally recognizes.)
M3 categories that may relate to family
_It may be a married couple of same or opposite sex and the children if any of either or both spouses
-It may be a common law couple of opposite of same sex and the children, if any, of either or both partners
-It may be a single parent of any marital status with at least one child living in the same home
-all members of a ‘census family’ must be living in the same home
-a census family includes children by birth, marriage or adoption. There is no age limit for the children as long as the child is living in the same home and does not have their own spouse, partner or child living in the home (therefore not a 3 generation household)
-an economic family refers to two or more people who live in the same home and are related to each other by blood, marriage or common law or adoption. The couples may be of opposite or same sex.
_an economic family can include foster children.
-co resident siblings are not a census family but are an economic family
(Comment: the term ‘family ‘has become controversial due to gender assumptions and role dominance but once those assumptions are removed, there is still an vital element to the designation, more broadly understood, as a unit that shares residence, standard of living and some goals. It shares income and recognizes an interdependence where the wellbeing of one affects the wellbeing of the others both practically and emotionally. The unit should be recognized in tax law for those factors because they make a unit that does function differently from the role of an individual with no attachments or dependents.
There is a problem deciding how broadly to redefine the term however. The requirement they all be blood relations is not quite fair given that marriage and adoption and fostering are also sharing members. The concept of the same household residence is useful in terms of sharing major costs of housing, food, utilities but is not fully appropriate in terms of recognizing when money is spent and time is devoted to nonresident members, aging seniors, dependent teenager children at university residence, or members in long term care due to illness. The concept of how broadly to extend the definition for siblings, aunts, cousins is also contentious but in some situations the sharing and economic dependency are the functioning reality)
-those persons who reside in the same home who have reciprocal duties and provide financial support for one another
-it includes foster children, legal wards even if they do not live in the household
-it does not include persons sharing the same house when the living style is primary that of a dormitory or commune
-household members are persons who for any period of time are living or have lived together, sharing occupancy of a dwelling and engaged in a sexual relationship or minors of adults who are dating or have dated, or are in a romantic relationship.
-In the US it can include members who are aged 11-64 years with a medical physical or mental disability or chronic illness that have high energy burden
-in a family trust or professional corporation, assets can be shared with family members, whether or not they live in the same household. This means the concept of ‘family’ and ‘household unit’ may overlap but can lose some of the rigidity of earlier definitions.
To avoid the highly volatile and controversial nature of defining the family, it is useful to also include within that designation of a unit that shares income, the more general expression ‘household unit’. The term ‘household ‘ already encompasses persons of the same blood family and those in a committed relationship whether it be called formal marriage or not. It does not require the state to meddle into personal aspects of the relationships when the factors that matter for taxation purposes are ability to pay tax and the voluntary decision of those in the household to share income and address expenses with a common commitment. This designation enables the state to not discriminate on bases contrary to the Charter of Rights such as religion or marital status or gender. It is for the twenty first century a useful term
It is possible to use this openness to definition to look at families where members are not currently all in the same physical home. One situation is a family where a teenage child is off at boarding school or in student resident at university. Another is the situation of couples who are married but not currently cohabiting. This can happen if one is in medical care or in prison at overseas serving military commitments. It can also happen if the couple is part of the new practice of apartnering, living alone together, where they have separate residences for whatever reason but share commitment and goals and often some finances. The override then of what is ‘family’ and what is ‘household unit’ would depend then on the actual practice of sharing made by the parties involved)
-a person who relies on another for financial support
-a person who lives in the same resident as the claimant who relies on that person for financial and physical support
-a person whose care costs may be subsidized in part by government deductions or credits
-may include the child, or grandchild of the person, either biological, adopted or step child
-the parent or grandparent of the claimant
-the brothers or sisters, brothers-in-law or sisters-in-law of the claimant
-the nieces, nephews, aunts or uncles of the claimant
(Comment: The term dependent has been used to recognize solely financial dependency in most cases of the care of children or the handicapped or even spouses. The expression then tends to ignore other roles people have including unpaid contribution that is equivalent to cash for the group. The adult household members may consider themselves interdependent and equals, not as one depending solely on the other. To recognize this interdependency in function and emotionally and to achieve all the unpaid tasks of a home, is a key way to recognize the historical role of women who were undervalued for this role. To see the earner as depending on the nonearner as much as the nonearner depends for money on the earner is a step forward into realizing the actual functioning of the household unit. Tax systems are supposed to be grounded in actual practice and in actual practice, none is a ‘dependent’ and helpless or noncontributing in most cases. The law does recognize that a dependent may also rely on another for physical support though this expression may not be broad enough to actually capture the nonfinancial ways that people provide support-cooking for, cleaning for, ensuring health of, and emotionally supporting other household members, not just physically lifting them and transporting them. However the concept seems open to a slightly wider definition. )
4. Family business
-a commercial organization in which decision- making is influenced by multiple generations of a family related by blood, marriage or adoption
-it is the oldest and most common form of economic organization. It can include corner shops, trucking firms, plumbing firms up to multinational publicly listed organizations with thousands of employees
-privately owned or family controlled enterprises may not have obligation to make all of their information public
-they are a prime source of wealth creation and employment
-the person not a government , corporation, management trust or mutual fund is the controlling shareholder or has at least the highest percent of voting rights compared to other shareholders
-family businesses include Walmart (US), Volkswagen Group (Germany) Samsung Group (Korea) and Tata Group (India)
-a family controls more than 50% of the voting rights ( for publicly listed firms the family has at least 32% of the voting rights)
-two ore more members within the management team are drawn from the owning family
-there may be owners who are not family members. However family members are involved in the operations of the business in some capacity and usually one or more family members are senior officers or managers
-there are often 3 priorities that may conflict : emotional capital and uniting the family/ social capital and the firm’s reputation in the marketplace/ financial capital and the performance for wealth creation
-some family members may never own shares in the family business or work there.
-there are 3 roles and some may hold several of these at once: family member, owner, employee
(Comment: The typical household unit/ family does not operate as a business selling produce or services. However many aspects of the expression ‘family business’ may apply to it. It is the oldest and most common form of economic organization and tracing back through history most household units in earlier societies did provide food, make their own clothing and provide security for the members. The individual was not the unit of function but the group and it was for the group benefit that hunters and gatherers and those back at the hearth all contributed. The unit was often dubbed ‘family’ but it was common to have an extended concept of it to include the older generation, relatives of relatives, and the tribe or group. Often extra produce, livestock, cloths or crafts were marketed to neighboring groups or traded so the household unit actually did some forms of ‘business’ also, in today’s terms.)
5. Professional corporation
-a corporation that provides professional services and is regulated by a governing professional body such as a law or medical society
-the person follows a prescribe moral and professional code of conduct and has mastered a high level of expertise in a subject area.
-Only those in professions regulated by these bodies can incorporate -e g. physicians, dentists, veterinarians, lawyers, accountants, architects, engineers,
-however there are other professions that may or may not be eligible -photographers, journalism, chiropractic, land surveying, real estate brokerage, nursing, martial and family therapy,, mental health counseling, social work, athletic training, acupuncture, nursing home administration
– If a person pays a personal tax rate the highest rate can be 46%. However if they are a professional corporation they may be able to use a small business corporate tax rate of about 16%.
-the tax on some earnings can be deferred to a later date
-income splitting is a tax option so that salary and dividends can be pay to family members. The tax they pay is then at a lower tax bracket. Income can be split between spouses and with children.
-income can be taken from the company as dividends and then taxed at a lower rate than regular income
-if a business is sued, the owner may be liable including all his personal assets. If however the business is a professional corporation if it is sued, personal assets may not be at risk.
-if a person borrows money, creditors can sue to retrieve it but if the debtor is a professional corporation there is more protection from creditors.
-the person can issue non-voting shares to family members in some provinces. In other provinces this is not possible.
-a profession is a field of employment requiring special education and requiring knowledge of a particular discipline. Labor and skill involved are predominantly mental or intellectual rather than physical or manual.
(Comment: The term’ profession’ has become more broadly defined in recent years and the tax department seems open to considering some roles as professional that previously were not- such as physiotherapists. The criterion of definition seems to be loosening to look at if there is professional training, a professional organization that enforces standards and professional certification. However in general parlance a professional is considered a term to designate someone competent, experienced and with an ethic that befits the high standards of the role. Those roles are not tax deductible but if we enlarge the definition to simply recognize competence, and not look as much at professional training, we may also notice that a person who cooks 3 meals a day every day for 20 years for a family of 5, is likely quite good at the role. A person who has taken care of four teens through the years 13-19 and helped them through the ups and downs of adolescence likely knows a lot more about how to do this than a twenty year old. In this regard then professional competence could be recognized among many of the members of a household even if they only have experience but not formal training. The recognition of only formally trained professionals tended to be male centric since women were not permitted into those roles of lawyer, doctor. In a more sensitive environment to women’s rights, it is appropriate to recognize that those who shopped for healthy groceries at low cost over many years often became very good at doing so and that their role, though unpraised was crucial to keeping the household unit/ family able to pay its bills. The ability to change a diaper, feed a baby a bottle, teach a child to walk, handle toddler tantrums is not an innate skill but develops usually not so much by book study but by mentoring and experience. These realities of what skills are needed for a society to function well are being noticed more as there is a move to not value the woman at home who tends the child but to suddenly very highly value her substitute – a childcare worker or nanny. This third party to the household however may not actually be trained or even as experienced as the mother at home. So we have moved so far to the definition of professional to require formal training that we have ignored intense informal training. An athlete who is amateur and one who is professional are so designated not by competence but actually by source of income. This means the definition has become nearly blind to competence itself as a criterion. However there is a window opening to see the adults in a household unit/ family as expert at their roles, and in that regard competent, trustworthy and akin to professional. The tax recognition of a professional corporation to permit sharing of income between family members to reduce taxes owed seems a nod to valuing the professions given this privilege. And yet one might examine whether it is fair to only give it to some not others. )
5. Family trust
-A trust is the transfer of administration of personal or real property (house, shares) to another person for the benefit of a third party. In Canada it is a relationship of trust where the trustee holds property for the benefit of someone else.
-a living trust (inter vivos) eg. A family trust
a. someone (settlor) creates the family trust and is not himself a current of potential beneficiary. The settlor transfers their property to a trustee
-once the family trust is set up, anyone can transfer property to it (eg. Gifts)
-a testamentary trust – created following a death
-the trustee manages the property and decides how it will be distributed to beneficiaries. In some provinces the trustee can also be a beneficiary
-the person entitled to receive the trust’s income and capital is the beneficiary. The beneficiaries are often members of the family.
-once a family member beneficiary gets income or assets from the trust they do have to pay tax on it. (income splitting). They do however only have to pay at their individual income rate. If the trust had $10,000 and distributed $5,000 to each of two family members, they each only pay tax on $5,000. If the income is left in the trust it may face a high tax rate there.
-the family trust enables people to transfer wealth within a family and specify who receives the money and what it can be used for. It permits conditions on how the money will be spent even in the future.
-the family trust protects property from creditors. The trust assets cannot be seized following a lawsuit or personal bankruptcy. It cannot however be created when there is already lawsuit or personal bankruptcy.
-a trust can enable children or grandchildren to receive a gift and secure their future, for instance if they are facing a disability.
-Trusts under the Income Tax Act in Canada have to dispose of their property 21 years after their creation. It cannot be set up for a child in 30 years. It has to distribute its assets all at once within that time. After that time all unrealized gains on the trust property are taxed.
-the family trust itself pays a very high tax rate. Trusts are taxed on income they generate and file in Canada a T3 return.
(Comment: Any household unit/ family might be seen to meet already many of the conditions to be designated a family trust. A family already exists to transfer wealth within a family for the benefit of the members and it already is a key vehicle for inheritance on death of one of the members. A household unit/ family already tries to enable children and grandchildren to secure their future so in practice the unit already is sharing resources and income. The fact that only some families not others can transfer income among members to reduce tax of each then is a privilege that seems unfairly restricted to certain families only. The typical family does not have a separate entity, formal’ trust’ of a third party administering it and is not secure from creditors though some personal goods are exempt from seizure under the law. The 21 year time limit may be unreasonable for some household units/ families given that the family also exists in perpetuity and adult children as they further their education and grandchildren may also need financial support. It does seem a reasonable avenue though to lower taxes for most household units/ families to have a tax option to be in a category similar to a family trust)
6. Head of household
This is an antiquated expression no longer used in some countries. In the US however it is the primary person who provides for a family.
-the person who provides practical support and maintenance to persons related to them by blood, adoption or marriage and who reside together
-the person whose obligation to provide is based on moral or legal responsibility
-in the US there are five tax statuses:
a. single person
b. head of household
c. married taxpayers filing joint returns
d. married taxpayers filing separate returns
e. surviving spouses
In earlier US homestead law a head of household could designate their home and land as a homestead and exempt it from general debt enforcement in bankruptcy
(Comment: Tax law has historically looked only at the flow of money and not recognized other types of contributions to a household via unpaid labor or to an economy via health, education and social care provided for free and not at taxpayer expense. In a similar way the older expression of ‘head’ of household designated the principal earner and ignored those who had less or now income. It is a term that tended to favor men and even at some points require that the designation was for men only – for voting, for inheritance and even in earlier times for the custody of a child. The assumption that the earner is the only contributor, and the only one competent and trustworthy, and the only one of value in the economy is now recognized as an unfair bias and a discrimination against women by its practice. However a tax category designation of ‘household unit/ family’ would avoid such assumptions by omitting the head of household expression entirely.
- Household pets
-dogs, cats and other animals that reside in or near a human dwelling and are considered parts of the household unit
-It is conceivable to include some such pets in the new tax definition of household unit/ family. If the household pet provides a vital service to the household and is a source of physical protection, health protection or emotional support, it could be included in the tax definition. To do so would recognize that the costs of purchase and maintenance of the pet are legitimate costs that function in some ways as operational costs for the household unit/ family.
(Comment: Currently household pets are not deductible as personal costs for most households. However they can be considered legitimate costs for operation of several types of business, as guard dogs for a business property, as police dogs to assist in search and rescue, as airport dogs to assist in drug detection. They already are recognized as legitimate costs for the support of the blind, as companion animals for those suffering PTSD, as medical assist dogs and therapy dogs for those with autism and to use their skills to help those with epilepsy. The emotional service provided by dogs and cats to a family /household unit is not quantified in current tax law but the presence of a pet has been recognized in psychology as a boon to mental health and even a life extender for the lonely and for seniors. Many insurance polices now recognize the huge psychological importance of a pet in their inclusion of pet bereavement in the policy for permitted short term absence from a paid job. During covid many people purchased pets with the apparent recognition of their natural emotional service to provide people with companionship, purpose and enjoyment in difficult times. When housing units do not permit pets and when homeless shelters do not permit pets, it is known that some people will live on the street rather than give up being with their pet. This commitment proves the strong devotion between human and animal in many situations and a more humane policy is in order to recognize how this bond provides a social benefit not just a personal benefit. Pets help reduce the costs government has to spend on health care, mental health care and even social services. Their service helps stabilize lonely people and keep them committed to life and dedicated to earning or being providers to others. As such household pets also could be seen to reduce unemployment. It is therefore logical to permit listing some household pets as legitimate costs for the operation of the household unit / family )
N. Proposal for a new economic unit for sharing income as a household/ marriage
The family/ household unit is actually an anchor to society. It anchors the mental health and financial security of its immediate members and even for singles living apart from it, is an anchoring influence and back up support emotionally and sometimes financially. It is a support network that is permanent in most cases and provides a stability that is vital for individuals to thrive.
When the tax system ignores the function of this unit, it omits something that is functioning and relevant . When it penalizes this unit, it risks harm to the fabric of the economy itself.
It is important therefore to have a tax system that without forcing formation of household units/ families does not devalue them or penalize them for those who wish to establish them. It is important for government to recognize the financial benefit to the economy of the functioning of households/ families in not requiring state funding because the unit is at work
It is important therefore to create a tax category that values this tax unit. One way to incorporate this recognition in current tax framework is to identify similarities in function between household family operations and some business categories and to then formally permit households to have such rights. The category would have some similarities to already existing rights of small business, joint ownership, and some similarities to a charity, not for profit or nonprofit. It would have some rights and analogies to family business, family trust and professional corporation. To adjust the tax code is a monumental task but in areas where it needs improvement, one can start by using avenues already acknowledging in part the principle and somewhat open to the change. |
The family /household unit would not in fact be a departure from fair tax law as it stands but a more accurate reflection of principles.
Under this household unit/ family category the following would apply:
-The parties voluntarily declare themselves to be a household unit/ family. There is no coercion and they make the decision independently in the case of adults.
– Children are assumed to be part of this unit when the legal, adopted or foster children of either of the adults and remain part of the family unit as they age.
-Grandparents, aunts,uncles, cousins, nephews and nieces can be declared part of this household unit/ family if they share the residence and declare they share income with the other family members.
Terminology around work and labor force
-the household unit/ family will be considered as a joint operation, arranged between members who respect each other’s unique contributions to the group. The terms for which one is ‘working’ and which is not ‘working’ therefore will not apply since the roles of each will be seen as equal in value, akin to paid work but on some occasions nonmonetary and contributions in kind. As such the expressions currently used for ‘working couple’, ‘working mother’, ‘working parents’ will no longer be used due to the lack of clarity they imply and the risk of the assumption to demean the role of the adult who is not paid for their labor directly. Just as in earlier times negative expressions referring to indigenous people or people of other races, to people of different sexual orientation are now deemed impolite and politically offensive, the expressions around the household unit/ family that demean the role of the member who does more care functions in the home will no longer be used.
-Those adults who are part of a household/family unit declare that they consider their declaration a sharing of goals and mutual commitment. (in earlier times this was defined as legal marriage but in current times common- law marriage and same sex unions are in this way also recognized for their philosophical commitment to each other. This then permits them to have legal status to visit each other in hospital when sick, and to be informed by officials when either one is in crisis. It enables them to make a claim on the estate of each other in the case of death and to access benefits of each other provided by companies for medical, dental, counselling purposes or for housing or travel. They are to be viewed as a legal entity that has voluntarily chosen to share goals. (this is a new treatment of the term ‘family’ that does not focus on gender or the parties or on official marital status but on their own formal voluntary decision in taxes to be considered a legal unit)
-In the case of non traditional household units, single parents or grandparent and child for instance, the parties to the unit are still considered family/household unit, sharing the same commitment and given access to the same benefits the state permits for the traditional family unit (this is a departure from current law where adults who are not the parents of the child may not be given some benefits for the raising of the child
-The parents have a legal obligation to ensure the wellbeing of minor children within the family till the age of maturity as under current law. They must provide directly or arrange and ensure attentive care, supervision, adequate food, shelter, clothing and that the child is given the education required by law.
-The family/ household unit has the right to raise the child according to their religion and values consistent with the laws of the land and the right to raise the child to know the language and traditions of their culture. (as in the Convention on the Rights of the Child)
-The family/household unit has the right to the presence of the child and the child has the right to the presence of the parents in order to ensure a stable emotional environment for development. The state has an obligation to ensure this parent-child bond can develop and to help fund it. (a change from current policy that makes maternity and parental benefits optional and conditional. These would not be conditional to the paid employment status of the parent but only to the existence of the child and there would be universal funding for the birth, adoption, maternity or paternity role for care of a child up to age 2 years. Parents could use this benefit to enable personal care of the child or to fund care by another family member or trusted friend)
_The family/household unit has the right to formation and maintenance of the unit and to time together so that the state is obliged to work towards family reunification where possible. (as current for immigration law and current practice to reunify families in times of international conflict)
-The adults in a household unit/ family voluntarily declare that the income brought into the home is not assigned to individuals only but that some of it is shared, that the members all benefit from the income and share the same standard of living. The adults declare themselves interdependent financially and equals in their role in contributing to the wellbeing of the household unit. (this is a departure from current tax law that sees earners as sole and others as dependents. It is a departure from current practice which tends to see the lower income earner or the one without direct personal income as not contributing as much and it is a way to recognize both unpaid work and to reverse earlier gender assumptions that the unpaid caregiver role was of lower value in the home. This is then a key way to ensure women’s equality rights for all the roles they have )
-Parents have the financial obligation to provide for the food, clothing and shelter of any children.
-Since the existence of children is vital to the perpetuation of any society, the state admits its vested interest in the existence of children each generation and in their care and development. As a result the state helps fund the raising of children. It does this through a birth benefit, maternity, paternity and parental benefits which are given for all children newly born or adopted.
-The state sets up a tax system that recognizes that having a child reduces ability to pay tax and therefore ensure that those raising children during the child-rearing years, pay less tax. This is done through a universal child dependent benefit, a universal child tax credit, or family allowance that is given from birth to age 18 years. Its amount increases with the age of the child since costs increase as children age. It also is allotted per child and not reduced for later children. (this is a departure from current practice where benefits are not universal, and where they are reduced or eliminated as the child ages and where they do not extend to age 18. It is also a departure from current practice where benefits are lower for children in large families.
-The state sets up a tax system that permits declaration of the household unit/ family as sharing income and not individual earners. It does this by permitting declaring income of one or both or all parties as redistributed among the adult members so that each is able to declare income in a tax category permitting the lowest rate of tax. (this is consistent with current pension law in Canada. However it is a new treatment for income earning in general but is consistent with the income splitting option permitted in some other countries, recommended by the 1960 Royal Commission on Taxation, and implemented in part by earlier governments such as the Harper government for families with children under age 18. This practice would permit the sharing of income as is already permitted with family trusts and professional corporations but would extend this right to families/household units of all income levels)
-The state does not require households to share income. There is also an option for them to declare themselves as individual earners. However this would mean they are not taxed as a household unit
-The state recognizes its vested interest in the nurturing and healthy development of children by funding directly the parents or legal guardians of the child. The state funds free public education from kindergarten to grade 12 delivered by qualified certified teachers. To ensure parental choice in the upbringing of children however, there is options for public, parochial, separate or private schools and for schools focusing on sports, arts or other aspects of learning. The state also enables home schooling, distance learning and online study or travel study as long as the criteria set down by the departments of education for curriculum and standards are met. (this is consistent with current practice)
-However in terms of care of young children and care of older children for their nonschooling parental choice is broadly ensured. The money is not directed to third parties to provide care but to the parents directly, who then choose the care style that they prefer. This means that the state does not fund 3rd party childcare just like it does not fund restaurants. It enables parents to afford to choose what type of food to eat and where, even to cook meals at home and in the same way it enables parents to choose the care style they prefer – mother at home, father at home, parents taking turns earning and with the children, doing paid work from home with children nearby, telecommuting, taking the child to paid work, hiring a baby sitter or nanny, having the child tended by a grandparent, aunt, cousin or adult sibling or sending the child to a small home setting of a neighbor, or a large childcare setting. The state does not prefer or financially favor any of these options but funds them equally and directly to the parents. The money ‘flows with/follows’ the child. No receipts are required for parents to get this benefit because it is acknowledged that some costs of hiring a 3rd party are direct but that others are incurred as loss of income, income sacrifice and are therefore not receipted. (This is a large departure from current practice where the state does not fund care of children in any setting other than paid care by a nonrelative. This restriction has severely limited options for parents because it makes some choices unaffordable and is therefore inconsistent with free choice and the principle of all legal lifestyles and all children having equal benefit under the law. The current practice that favors nonfamily care could be said even to violate basic rights of the child under the Convention on the Rights of the Child, to the presence of family wherever possible. The 1970 Royal Commission on the Status of Women also recommended that such equality of financial recognition be given to all styles of children’s care specifically to not penalize those who wished to provide care within the family. Ensuring parents can choose and change as they wish, the care arrangement so they can assign the funding as they wish also ensures they can have more say in the care, that they can ensure it is consistent with their values, culture, language priorities and that it meets their own personal standard for discipline and care, and their own needs for the medical and dietary needs of their child. By having the state trust parents to make these decisions, the state also saves a lot of money in administration of a cumbersome system to try to monitor all the care at 3rd party venues and provide all the needs for all the people itself or risk lawsuits. By trusting parents to set up the care they deem best helps recognize their status in the Convention on the Rights of the Child to know the best interests of their children and this is a recognized right as long as all the legal rights of the child are being met, with adequate care and no laws are broken in terms of lapses of care such as abuse or neglect.)
-The household unit /family that has declared that it shares commitment, standard of living and much of its income, also will be recognized as a unit that shares on the formal retirement of its members. Any pensions that are earned by members and to which they are entitled by age will be assumed to be also shared by the members and the tax department will tax them based on that assumption of sharing unless otherwise instructed. The option then to split pension, to declare some of the pension in a lower tax bracket from a lower earning spouse will exist for pensioners. In this way the role of the members will be acknowledged and given dignity all their lives, and the role of unpaid work will be also recognized. (This is consistent with current pension policy for Canada Pension Plan and its supplements where pension splitting is already a tax option. It is also consistent with some provisions in private pension whereby the spouse or partner of the pensioner can be assigned benefits on the death of the policy holder. However this is a departure from current practice that is optional, to make it more well known and more available generally. Currently in the case of death of the higher earner of a couple, the surviving spouse is usually entitled to a death benefit and to some portion of the pension of the deceased. Often this means that the surviving spouse ends up with less income than previously. The fact that women tend to live longer than men has led to a general trend of senior women in poverty. A second problem has been that women more often than men used to and still do the unpaid care roles more often and for longer periods in their lives than do men. The result is that men are at the paid job longer, earn more, and get higher pensions. Even if the couple lives healthy lives for some time after one of them or both retire, there is an ongoing problem that the unpaid role of the lower earning spouse never did get a pension. If the surviving spouse now has to survive on her own pension, that is often a very small pension if it does not also count, and it does not, the unpaid care roles. To assume that the household unit/ family still is a unit even when both are seniors and retired and even if one has passed away, is a recognition of the contribution made earlier by either party, even the unpaid contribution. There is no logic to penalizing either spouse to endure a much less secure last few years of their lives simply because one has died. A pension directly for the unpaid work, for the caregiving years does not currently exist. There have been efforts to factor it into the calculation of paid earning years of that person, so that they years are ‘omitted’ from the calculation and basically not counted as penalty. This ’dropout provision’ for the homemaker/ unpaid worker is not however recognition of the role itself. By only ‘forgiving it’ is does not financially value it or give it dignity or recognize its vital contribution to the unit that enabled the earner to earn. So it is ideal that there be a pension directly for those caregiving years to that caregiver. However if that is not arranged, at least it should be arranged to have a shared pension for the unit for the length of life of either party. What can be recognized at least is the existence of the shared unit. This may have some similarities in tax law then to a not for profit corporation or joint ownership)
Dissolution of household unit/ family
-the status of the household unit or family as legally obliged to provide for its members is not easily dissolved. The children of such a unit are protected from sudden change in their stable upbringing by ensuring that financial support for them will continue even if there is a separation or divorce. There is also the protection that the caregiving arrangements for the child will be held consistent as much as possible despite separation or divorce, so that there is stability emotionally for the child.
The household unit can be dissolved when the members of it voluntarily choose to do so in terms of place of residence. However as is consistent with current divorce law, the financial obligations to provide for former members may continue for some time, till a child reaches the age of maturity and in the case of former adult partners, to ensure that both former partners can have adequate means of survival and not a severe change in standard of living. This is a departure from current law that often requires both parents to leave the child and earn money to provide financial support, without adequate recognition of the need for the presence and emotional support the child has of a parent. This is also a departure from the current practice to reduce spousal support quickly so that each former partner is encouraged to get paid employment and be self supporting again as soon as possible. The new practice would recognize that care of a child is itself equivalent to paid work and the state does not pressure former caregivers to change their lifestyle and the care arrangements of the child
There are several basic principles of fair taxation. One is that people should be paid based on their ability to pay tax. It is unfair to try to tax heavily the poor or to tax very lightly those who are wealthy and could afford to pay a larger portion of tax. Those who share income with another person should be recognized for the fact. Those who raise children should be recognized for the fact that having a child reduces ability to pay tax. Those who take care of others should be recognized for the service this provides not only to the one who receives care but also to society..
Taxation should be certain, consistent, predictable, stable and known to the citizen. When benefits are legally allowed but the public is not informed they qualify to get them, and when it is made difficult to access or calculate some deductions, this principle is at risk.
Fair taxation should be simple enough to understand and transparent. The rules should seem logical. Current tax rules however make distinctions between previous earning style and pregnancy benefits though all children are of equal value. They make distinctions between hours of previous paid work and maternity benefits where a simple number cutoff is used as criterion even though care of any newborn is very similar in effort and benefit. They decrease benefits as a child ages though the cost to raise a child increases with age. They decrease per person benefits based on family size though it costs incrementally more to raise a large family than a small one.
Fair taxation should be neutral, and not favor one group over another so that that group gets a benefit at the expense of another group. When the wealthy have access to family trusts and professional corporation benefits and the poor do not, this principle seems violated. Under current individual taxation rules, identically configured households pay vastly different tax on the same income, depending on the individual distribution of earnings of members. This departs then from neutrality. Under current child care taxation, there is bias against care of children by the family directly and in favor of care by third parties, and since general taxation is expected to preferentially fund this care style, the person raising a child outside that style still has to fund it for others’ children. That means the current system is not neutral and unfairly favors one group over another.
Fair taxation does not cause behavior. People are not to decide how to live by looking at the tax code and then choosing an activity they never considered doing just for tax benefit. Fair taxation is supposed to look at current behavior and tax it after it has occurred. In this way the cart does not lead the horse. However there are already in the tax code instances where tax deductions and credits are given for activities that government has decided are of such social benefit that they are to be encouraged. Deductions for contributions to charities, deductions for contributions to political parties are designed in part to nudge people to act because those activities are deemed of benefit to the operation of society. Individual taxpayers are in no way superior to members of a household unit/ family and all are valued members of society. However the possibility of forming a household unit/ family with others can be of social benefit to the greater community, in the many ways cited above, to reduce government costs, to enhance stability of residence and to provide emotional and social support. As such it is consistent with basic fair taxation principles to recognize this benefit and to create tax policy that has some incentive nature to the formation of such units.
Fair taxation is an accurate reflection of activity in the community. However the current tax system tends to look at what individuals earn and taxes that, without noticing what the state gets free from what they do. To look at the side of the equation that household units/ families provide the state would make a more accurate reflection of how the economy actually operates.