ABSTRACT
The adoption of income splitting in the United States arose out of the historical accident that eight states had community property laws, which treated income as if divided equally between husband and wife. The classic argument in favour of income splitting is that husbands and wives usually share their combined income equally. The largest portion of the family budget goes for consumption, and savings are ordinarily set aside for the children or for the enjoyment of all members of the family. At the top of the income scale, the major rationale of income taxation is to reduce the economic power of the family unit, and the use made of income at these levels for family purposes is largely irrelevant for this purpose. Elimination of income splitting would restore all the problems of the pre-1948 law and would not adjust correctly for the understatement of the taxable income of the one-earner couple.
