What Does Generation Squeeze Have Against Couples?
An organization called Generation Squeeze is calling for big cuts to Old Age Security (OAS). For some reason, these cuts are aimed exclusively at senior couples. Digging into the numbers, the proposal makes no sense.
The stated goal of the proposed OAS changes is to free up government money for other priorities. Whether or not OAS is the right target for reducing government spending is a different discussion. The puzzling part of this proposal is having all the cuts apply to senior couples.
Currently, OAS will get clawed back from any senior whose 2025 net income (Line 23400 of the tax return) is over $93,454. For each dollar over this income threshold, OAS payments are reduced by 15 cents. The current rules make no distinction between singles and couples. The calculation is based on each person’s own income without regard to whether they have a spouse.
Generation Squeeze wants to change the threshold to $100,000 for total household income. So, single seniors would lose nothing, and senior couples would eat all of the cuts. The problem here is that it is more expensive for two people to live than just one. The figure actuaries use is that it costs about 40% more for two people in the same home to live than it costs for one person.
Based on this 40% figure, if the OAS income clawback threshold for a single senior is $100,000, then it should be about $140,000 for a senior couple. Some might argue that we should encourage seniors to live together and help each other, and that the senior couple threshold should be double that of a single senior, as it is now. However, that’s a different discussion. There are sensible arguments for the couple threshold to be somewhere between 1.4 and two times the single threshold. But there is no sensible argument for making the two thresholds equal.
No doubt Generation Squeeze is getting support for this proposal from people who would not be affected. This group includes younger people, single seniors, and senior couples whose incomes are high enough that OAS is already being fully clawed back. Less affluent senior couples would not be as supportive.
The frustration i've heard from freinds and peers is that OAS is means tested to an individual not household whereas child tax credit and other benifits for young family are means tested to household income...haven't looked into whether their argument hold water just passing along what i've been hearing
ReplyDeleteThe cost of raising a child for a single parent is at least as much as it is for a couple, so it makes sense for the child tax credit to be means tested to household income. However, it costs more for two seniors to live than it does for one, so it doesn't make sense for the OAS clawback threshold to be the same for couples as it is for singles.
DeleteIf this gets passed then a lot of financial plans will have to be reworked. 140k sounds a lot more reasonable and easier to adapt to than 100k.
ReplyDeleteI don't know if the government is taking this proposal seriously. I certainly hope not. The proposal as is makes no sense. The general idea of lowering clawback levels for OAS might be on their radar, but there are certainly better targets for saving large amounts of money, like the 5% weakest performers among government workers.
Delete
ReplyDeleteIt is more expensive for singles to meet all living expenses than for couples. That’s why people get roommates - so they can share costs in order to make ends meet!!! I was unable to confirm your statement that it is more expensive for couples since you didn’t provide support for it, but here is a link to an RBC article with Canadian stats;
https://www.rbcroyalbank.com/en-ca/my-money-matters/life-events/finances-and-relationships/marriage/where-did-my-money-go-the-cost-of-being-single-in-canada/
I am 66 and every retired couple I know have both worked so each person has their own income and can contribute to (and therefore share in) the household expenses. Also, couples have tax advantages that are not available to singles that can decrease their tax owing significantly and increase their access to OAS and credits. For further facts/stats on this check out Single Seniors for Tax Fairness;
https://www.singleseniorsfortaxfairness.com/
I don't think you understood my meaning. The combined cost to live for two people is more than what it costs for just one person. The cost per person in a couple is less, but the combined total for the two is more. The RBC article you pointed me to supports this, although they phrase it poorly. When they say "a single person living alone spends approximately $6,704 (1.18x) more than a couple to meet the same needs," they are comparing the single to one person in the couple, not the couple's combined costs. Their result says a single's costs are 1.18/2=59% of the combined costs of a couple.
DeleteIt's interesting that RBC's numbers paint a better picture for singles than the rule of thumb used by actuaries, who say that a single's costs are about 70% of the total costs of a couple. If the OAS clawback level for a single is $100,000, then the corresponding figure for a couple's combined income based on actuaries' rule of thumb is about $140,000, but this jumps to $100,000/0.59=$169,000 with RBC's figures.
On the issue for "tax fairness" for singles, everyone has the option of either living alone or finding a roommate or partner. I'm not a big fan of using the tax system to subsidize people who refuse to seek ways to save money.
Thank you for your clarification on living costs. We are in agreement that a person living alone has higher expenses than each person in a couple does, and you agree that it is cheaper to live with someone than to live alone. Since the majority of couples each contribute personal income to the household costs, we need to compare individual costs to individual costs (apples to apples), and not couples sharing expenses to singles paying for all expenses alone.
DeleteRegarding your comment; “I'm not a big fan of using the tax system to subsidize people who refuse to seek ways to save money.”
1) Your entire article quotes the tax system and claw back thresholds, so I respectfully disagree - you are are a big fan of using the tax system to subsidize couples who already get to significantly decrease tax owing, and receive more OAS via pension splitting and being able to claim double non-refundable tax credits.
2) our tax system has NOTHING to do with how hard someone tries to save money. The single can be doing everything they can possibly do in order to save money including living with a roommate, and they will still be taxed on their full income, whereas the couple gets to income split etc and reduce taxes even it they are horrible spendthrifts. This statement was completely unrelated to the discussion.
Your point #1 makes no sense. I argued that if we are going to change OAS clawback thresholds to be based on am couple's combined income, then the OAS clawback threshold for a couple should be somewhere between 1.4x and 2x that of a single and not 1x. I didn't discuss pension splitting.
DeleteThe proposal to claw back OAS based on combined household income is an attempt to subsidize singles at the expense of couples. I'm sympathetic to the unfairness of all the income splitting opportunities for couples, but the solution is to change those rules rather than to punish couples in some other area of the tax code (OAS clawback in this case).
It's amazing that we are forced into these unwritten contracts for CPP/OAS, etc. and we plan our retirements with these programs factored in on similar rules over 40-50 years then suddenly because governments can't control their spending and print money creating this massive long term inflation we have, and they want to rewrite the rules through what most likely here is a proxy lobbyist. If you recall Freeland was trying to mess with the CPP and use it to issue more debt as well as force it to "invest in Canada" vs being diversified around the world in multiple sectors. It's unbelievable how we common folks get messed around with constantly reducing our standard of living.
ReplyDeleteIt's true that we have to plan retirement knowing that the rules may change over time. Fortunately, there are far more proposals for rule changes than there are actual rule changes. Large pots of money will always attract people who want to take some.
DeleteThis is Paul Kershaw’s crusade. G&M keeps republishing his article on this issue under slightly different titles.
ReplyDeleteThe idea is to redistribute the savings to poorer retirees rather than to reduce government spending. He wants to add $5K to GIS. I think with OAS and other benefits the “low income senior” might be getting about $30K per year. It would materially reduce the gap between someone who never worked and never paid a dollar in tax and a senior member of the impacted couple.
As long as this crusade's details make no sense, I doubt it will get anywhere.
Delete