David Farrar has one of his dodgy maths posts, where he argues that getting rid of the 33% rate is necessary because typical New Zealanders are paying it:
“You see [not] only should people not be paying a 38% rate, most FT workers shouldn’t even be paying the 33% rate.”
Quite why 33% is such a disastrous number, Farrar can’t explain, he just holds it to be self-evident, but that’s not important for now (I might do a piece on the Laffer curve and ‘optimal tax’ on the weekend). My point is that “most Full-Time workers” do not pay the 33% rate on any of their income. The 33% rate kicks in after your first $48,000. The median full-time wage is $45,000, so 50% of full-time workers earn less than that.
Even someone on $50,000, who earns more than 79% of Kiwis, isn’t paying 33% of their income in tax. They pay 33% on just $2,000 of income, they pay 21% on $34,000, and just 12.5% (thanks to Labour’s tax cuts) on the first $14,000. Their total tax bill is $9,550 – just 19% of their gross income.
What would this person, who remember is on above the average wage, get from reducing the 33% rate to 30%? Well, $30 for every $1,000 they earn over $48,000. For our person on $50,000 that’s just over a buck a week. Hardly seems like the difference between manifest injustice and the perfect tax system to me.
Compare that to the $12 a week tax cut they got when Labour cut the bottom tax rate to 12.5%.
It’s misleading to talk about the average full-time wage as if that is representative of Kiwis’ incomes. 25% of workers aren’t full time, so we shouldn’t just be looking at full-time workers’ wages but all workers’ wages. Really, we should be looking at all taxpayers’ incomes, including those that aren’t working for whatever reason (retired, lost job in recession, student, invalid etc). We shouldn’t be using the average, because it is pulled upwards by outliers (like the CEO of Telecom on $5 million). We should look at the median instead.
So, if we want a true picture of what the typical Kiwi’s income is we want the median income for a New Zealand taxpayer: $28,000. Nowhere near the 33% bracket (which is why Farrar went for a subset with higher incomes). In fact, the typical Kiwi pays less than 17% of their gross income in tax.
The Right needs to get a sense of perspective. 78%of New Zealanders have incomes below $48,000. Cutting the 38% and 33% rates is no tax cut for nearly 4 out of 5 Kiwis. They just end up paying more GST. If tax reform is really about making a better deal for everyone, not just the wealthy, then cutting those top tax rates isn’t the way to do it.