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Budget 2009: Why not tax the rich?

Written By: - Date published: 2:00 pm, April 27th, 2009 - 56 comments
Categories: budget 2009, economy, labour, national/act government, tax - Tags:

With the Government openly preparing the public for spending cuts in the upcoming Budget, No Right Turn reminds us that there are alternatives – rather than cutting services and harming the poor, we could always raise taxes on those who can most afford it.

The state of New York is doing this, hiking state income taxes by 1% on those earning over US$300,000, and 2% on those earning over half a million (a relative increase of about 30%), while the UK government has just hiked the top tax rate to 50% and eliminated various dodges the rich use.

We could do the same, and introduce, say, a 45% rate on those earning over $100,000. From Treasury’s 2008 detailed model data, this would bring in over $750 million a year (unfortunately as the table only goes up to $100,000, I can’t model higher thresholds). That’s $750 million we won’t have to cut from our spending on health, education, welfare and roads – and $750 million we won’t have to borrow.

This would help balance the books and reduce inequality, and since the wealthy save a higher proportion of their income than the rest of us it wouldn’t be contractionary.

Of course, National’s policy is to do the exact opposite – they want to shower tax cuts on the rich at our expense.

Unfortunately I can’t see Labour championing higher taxes for the rich at the moment either – they’re still too cowed by the media’s drumbeat for tax cuts over the last five years to realise that the world has moved on.

Still, there’s nothing to stop the rest of us on the Left from pointing out the obvious.

56 comments on “Budget 2009: Why not tax the rich? ”

  1. Peter Johns - bigoted troll in jerkoff mode 1

    If you tax the rich more doesn’t this produce more in-equality to them? Why not cut govt spending with improvement in efficiencies.

    The left think tax is the only way to increae revenue to the govt. Why should the govt have increased revenue when everyone else does not have this luxury?

    An analogy to the above:
    Maybe the Unions can increase their dues as the workforce gets made smaller, this will cover their shortfall, after all, why should Union executives suffer in the recession? I am sure the PSA Union will need to do this as the govt. & rightly so takes the axe to waste in the public service.

    In the UK the so called rich will get around the 50p tax no worries, in fact the govt has been told 2/3 will do this, Brown will not be able to stop this even though the G20 are trying to stop tax havens.

  2. gobsmacked 2

    The government’s economic policies are “unashamedly right-wing”. That’s not my phrase, it’s John Key’s.

    http://www.theaustralian.news.com.au/story/0,25197,25381675-16953,00.html

    Funny how he likes to say what he really thinks to sympathetic media overseas (WSJ, Financial Times, the Australian) but not to the New Zealand public.

    Funny (as in not at all) that the NZ media don’t bother asking him about this.

    • The NZ media (at least those owned by foreign media billionaires) are all on board with “unashamedly right-wing’ policies. They don’t need to ask Key or anyone. They banged on for months promoting him for exactly this reason.

  3. cocamc 3

    Typical – increase the taxes on the rich.
    I admit I earn over $100k and I would be more than happy to pay a bit more tax if it resulted in improved services, but it invariably doesn’t.

    In 1999 the Labour Government increased taxes to 39cents in the top bracket- so hey I thought maybe we’ll get improved services – health as an example. But Alas no.

    You want me to pay more – ok so instead of just continually trying to increase my taxes tell me how you propose you would improve the overall services (say Health) that are so badly lacking at the moment, e.g. waiting lists. Since early 2000 my top tax rate has been at 39 cents and I still have to pay for private medical insurance cause if I get sick – hell wouldn’t want to be waiting on a public waiting list, If my 45 cents in the dollar enables me to drop private health insurance then lets do it – but I doubt it.

    • In what way were services not improved? I would say there are plenty of examples of more and better services from government thanks to the higher tax. My local school got a special needs wing and the building was re-roofed. When National was in, they left one of the boys loos leaking water across the playground for a year because there was no money to fix it….or the roof.

      • cocamc 3.1.1

        Steve,
        There are many examples of where services were not improved. Health is a glaringly obvious one as we have not improved waiting lists in the public health area. And yet Labour promised to deliver better services, they didn’t because there are still long wait times.
        As I said I am happy to pay a bit more tax but I cannot see how me paying more tax will result in an improved health system. I’m still waiting after nine years at 39 cents in the dollar.
        So I continue to pay for private medial health. Let me know when I can stop paying

        • The Baron 3.1.1.1

          … and plenty of others are paying for private education, because in the nine years of a labour government, our standards of basic literacy and numeracy slipped, despite additional funding.

          I think it is disingenuous to focus only on the dollar signs, and not on what the performance is. As a country, we need to do better on holding our public services to account for what they actually deliver, regardless of who is in power – not just focus on how much money they are planning to spend.

          Why? Because that is a focus that actually helps people. Throwing money away hinders, because it means that money can’t be put were it could actually do some good!

    • Ag 3.2

      The population is older. Therefore, the costs of health go up. In many ways, increasing the tax take was simply a way of preventing things from getting much worse.

  4. vidiot 4

    Great idea, but if you are going to do it, at least make sure that the tax thresholds are inflation adjusted and are real ‘rich prick’ levels. It used to be that top tax rate only applied to 5% of earners (>60K), these days it’s probably 4x that (using the data from that IRD > 60K = 18.4% of tax take.)

    Also, need to introduce income splitting for single income families too. Why do I have to pay more tax for my wife to stay @ home and raise our kids, when 2 income earners on same family income pay less tax ?

  5. The Baron 5

    Tane, your proposal doesn’t compare well to those other examples that you list.150k pounds, or US$300k really is a hell of a lot more than NZ$100k.

    I think the Labour government realised that $100k could actually be a bit tight, especially if you have a single income and a large family – hence why they expanded welfare up beyond that threshold with Working for Families.

    I wonder if you would indulge me a question or two – if, and I realise that it is a massive unknown, the National government managed to cut spending without compromising service quality, would you be satisfied with lesser spending? Equally, if you could get the same public services without raising taxes, would that be ok?

    See, I am keen to understand your fundamental beliefs regarding taxation, Tane. Is it a case of the rich can never pay enough, or do you realise that there is a need for some equity here? Can you believe that tax-cuts can benefit an economy, or is their net benefit only to be measured in terms of the services lost, or the services not funded?

  6. coge 6

    Tane, who or what are the rich? By your definition.

    • Tane 6.1

      As I’ve always said, it’s relative. But earning over $100,000 a year makes you pretty well off by any standard.

      • vidiot 6.1.1

        FYI – $100K Salary gives you ~$2700 a fortnight after tax. $400K mortgage (20 years @ 7.5%) costs $1350 a fortnight. Last time I checked, the bank’s didn’t like you having 50% of your net income tied up in mortgage repayments. Sure they still have another $1350 to spend a fortnight, but all families to have expenses [insurances, utilities, vehicle maintenance, etc etc etc], and that aint a great deal of head room.

        Rich in my book would be income >$200K per annum

        mmm Captcha – 1977redhead – Is that you Michelle ?

      • Indiana 6.1.2

        So is a house hold earning $100K rich too? What about a family that have four adults working, total house hold income $100K, are they rich too? Not sure if your measurement for rich is really qualified. Shouldn’t there be measure of “worth” to determine richness, such as using the online calculators at sorted.co.nz?

  7. Tigger 7

    I’m rich. Happy to be taxed.

    • The Baron 7.1

      Tigger, there is plenty of opportunities for you to donate more of your money to the government, or charities that you feel as worthy. You can be “taxed” as much as you want already.

      What this comes down to though is imposing your “happy to be taxed” mentality on people that might not be so happy – or might not be so able to afford it. Is that ok?

      • Tigger 7.1.1

        Yes, because charities pay for roads and hospitals and all those other infrastructure and public service things – not our tax dollars.

        Why can’t I earn a lot AND get taxed at a higher rate than people less well off AND donate to charities AND be happy with all of that?

    • Tom M 7.2

      If your ideal tax rate on people of your own income is higher than what you pay, there seems to be no reason why you can’t just go donate to charity in the mean time. What on earth are you waiting for?

  8. Tom M 8

    “This would help balance the books and reduce inequality, and since the wealthy save a higher proportion of their income than the rest of us it wouldn’t be contractionary.”

    Surely you mean ‘less contractionary’, unless you’re saying that the rich save the entirety of their income beyond your proposed threshold.

    And even given that, saving money doesn’t take it out of the economy – it just goes to the banks to lend out again. Admittedly banks are increasing their reserves, but not by all that much in New Zealand.

  9. gingercrush 9

    If we remove the politics out of it since National would be committing electoral suicide if they hiked the rich. Here is why hiking taxes will not actually work.

    1. More tax to those on higher incomes means less spending by big earners. Contrary to Idiot/Savant this can lead to contractions in the economy. Unless you increase spending in-line with those tax hikes it will undoubtedly be contractionary. You don’t raise taxes to lower debt.

    2. Higher-income earners invest in start-up businesses. They invest in shares. They will also outside institutional share-holders buy-up shares to service debts in companies. For instance, Nuplex. By hiking taxes, those people will ultimately invest less. In a recession that will undoubtedly hurt New Zealand businesses.

    3. Charities which are already under stress because of this recession will receive less money. Higher earners are able to give more to charity. By hiking taxes, you will see charities receiving less.

    4. It hurts businesses. Not all businesses in this country are companies. Many people have businesses that pay tax personally.This will impact these people hugely.

    5. Tax evasion. Accounting is a powerful force. Tax hikes only cause people to find ways to combat paying tax. Thus, while projections may point to 750 million, the actual amount would be far less.

    6. People will go elsewhere. While in a recession there is less emigration. Once the economy returns to normality. Those who have to pay high taxes will move on.

    7. Actually hurts services. Doctors in New Zealand are already paid lower amounts than elsewhere. A tax increase will only see more of them go elsewhere to go to countries that 1. Pay more and 2. Tax them less. Unless a rise in the top-rate of tax coincides with greater pay for Doctors. Don’t expect them to stick around.

    8. Puts further strains on Government services. Higher taxes will see less people have health insurance etc etc. That means those people use public services which will undoubtedly see some of them cancel their health insurance etc.

  10. Greg 10

    Tane.

    Raising tax on the rich is short sighted and simplistic. It hurts the whole economy (including the poor). Lets not forget that most of the rich actually do something with their money – spend it or invest it (they don’t hide it under a mattress). This creates jobs and increases incomes for ALL New Zealanders.

  11. jarbury 11

    Interesting analysis ginger. I do agree that it’s worthwhile taking the politics out of the situation. However, I must say I completely disagree with what you’re saying:

    1. More tax to those on higher incomes means less spending by big earners. Contrary to Idiot/Savant this can lead to contractions in the economy. Unless you increase spending in-line with those tax hikes it will undoubtedly be contractionary. You don’t raise taxes to lower debt.

    High-earners do spent more than low-earners. However, they also spend a smaller proportion of their income than low-earners do. Hence the whole argument (made internationally too) that tax cuts for the poor actually have the greatest economic stimulus. Richer folk just use them to pay off debt or put them into savings. The opposite rings true as well – that increasing tax for higher levels of income would have a much smaller contractionary effect than higher tax for those who are poorer. And anyway, who’s saying the increased tax would be designed to create a surplus and pay off debt? Nobody! It is proposed to ensure that government spending and government services don’t have to be cut. Reducing government spending and services does have the potential to be strongly contractionary – already evident in the job cuts that are coming out of many government departments.

    2. Higher-income earners invest in start-up businesses. They invest in shares. They will also outside institutional share-holders buy-up shares to service debts in companies. For instance, Nuplex. By hiking taxes, those people will ultimately invest less. In a recession that will undoubtedly hurt New Zealand businesses.

    I hardly think anyone’s going to be involved in too many start-up businesses at the moment. I think overseas countries such as the UK have said “this tax rate is temporary” so that when things do improve, and there is the real opportunity for this kind of investing, the higher tax rates will be removed.

    3. Charities which are already under stress because of this recession will receive less money. Higher earners are able to give more to charity. By hiking taxes, you will see charities receiving less.

    The problem with this argument was well pointed out a while back in response to John Key saying people should give their tax cuts to charity. While charity certainly has a role to play in helping out those most in need, it is the government who ultimately plays the biggest role in that service. Cutting social services to the needy in order to provide people with enough money to “perhaps” give to charity seems nonsensical.

    4. It hurts businesses. Not all businesses in this country are companies. Many people have businesses that pay tax personally.This will impact these people hugely

    It only hurts them if they’re EARNING over $100,000 (or even higher, I’d probably make it $150,000 for a 45% rates). At that level of income it can’t hurt too bad.

    5. Tax evasion. Accounting is a powerful force. Tax hikes only cause people to find ways to combat paying tax. Thus, while projections may point to 750 million, the actual amount would be far less.

    You could use that argument for anything though – why both taxing at all when people have the chance to avoid it? Some might be lost through evasion but I think the majority of it isn’t. Maybe use some of the extra tax take to save some IRD jobs so evasion doesn’t get easier as the IRD cuts back on staff.

    6. People will go elsewhere. While in a recession there is less emigration. Once the economy returns to normality. Those who have to pay high taxes will move on.

    To where? Britain, where taxes have just gone up? To Australia perhaps, where job opportunities are declining significantly and tax rises are certainly possible in the future (considering they do have a centre-left government in Australia). Everything points towards high-income New Zealanders actually returning from overseas in the last couple of months, and into the future.

    7. Actually hurts services. Doctors in New Zealand are already paid lower amounts than elsewhere. A tax increase will only see more of them go elsewhere to go to countries that 1. Pay more and 2. Tax them less. Unless a rise in the top-rate of tax coincides with greater pay for Doctors. Don’t expect them to stick around.

    See what I said above about other countries also raising taxes, or being likely/possible to raise them in the future. Cutting health funding won’t help keep our doctors either.

    8. Puts further strains on Government services. Higher taxes will see less people have health insurance etc etc. That means those people use public services which will undoubtedly see some of them cancel their health insurance etc.

    I don’t buy that argument. If it were true then if we wanted to improve health services we should lower taxes and reduce health spending? I think the health system of the USA clearly shows that reliance on private healthcare is the biggest screw-up a country can make. Stories of the US health system and how people get screwed over there are absolutely disgusting and make me feel sick.

    I’m fully for proposals to utilise capacity in the private health sector for public health operations etc. It’s practical. However, I certainly don’t buy the argument that increasing taxes so we can maintain health services can be bad for the health system.

    Of course, one should always look at ways to improve “value for money” in terms of tax spending. That’s just common sense. The problem is when people start saying that Labour made no improvements to health outputs despite huge increases in funding they ignore important gains like increased pay for nurses and doctors, and other issues like overall rising costs of healthcare that are felt internationally. If we still paid nurses what we did in the 90s our health system would have probably collapsed by now.

  12. Adrian 12

    Dreamers, the ‘rich’ spend their money on expensive imports and overseas holidays.When I get to be rich thats what I’m going to do, I really need a Maserati Quattroporto and to sail around the Carribean for 3 months. My spending won’t help the country 1 iota, but I have a conscience salver, I grow stuff that’s exported. I don’t mind paying more tax, it hurts, but not as much as having a shit health and education system and make no mistake our health and education are top notch. If we paid more tax we would be able to pay our doctors and nurses more ,and as for that oft repeated right- wing bullshit about our health service being inefficient, it has one of the lowest ” management” to clinician ratios in the world, so a word to all those constant complainers, piss off and get sick in another country and see if you survive even with your precious insurance.As for investing in shares, share trading does nothing for companies it is only when you buy shares or bonds directly form a company that said company sees any money. The whole sharemarket thing is a crock of shit.

    • Nick C 12.1

      Hmmm… So poor people dont buy imports now? More importantly wouldnt the solution to this problem you imagine be to simply ban imports and make everyone buy New Zealand made?

      It doesnt matter, because you really are asking the wrong questions. Whenever most rational people spend their money they don’t think: How will this spending benefit the country? They think: How will this spending benefit me? Thats because ‘the country’ did not earn the money or provide the service nessessary to earn the money to be spent, the individual did. And by taking this money and spending it in the good of the country you discourage the individual from producing more, and you encourage successful people to move overseas to escape higher tax rates.

      And what if they started taking this approach in other countries? What if everyone in Japan decided that they would no longer buy New Zealand dairy or meat products because it was bad for the Japaniese economy? The reality is our entire economy is based around the idea of trade and it wold be highly hypocritical for us to flog the rich because their spending is on imports

  13. Jacob van Hartog 13

    Im my experience so many rich and even moderately wealthy use their private companies to pay personal bills. Cars, petrol ,Electricity , phones, mobiles and holidays are all included. Not all get put under FBT either.

    My investigations of the business that the whaleoil ran ( and went bust) shows the liquidator found mixing of private and company expenses, such as $10,000 honeymoon and a family trip to Morocco

    What would be great is a land tax on property NOT individually held, so that would companies, trusts and so on. Right away this be exclude the vast majority of working NZers

    • Whaleoil 13.1

      I think I deserve a right of reply on this.

      The Liquidators report doesn’t mention that i was the minority shareholder and when I discovered the $10,000 honeymoon and the Morocco money missing I made a diary note and recorded minutes about the inappropriateness at the Directors meeting. These two actions by me led to a break down in communication with the other Director and the ultimate demise of the company.

      My information shows the other Director who was responsible for Finance, i was Sales, did not pay PAYE, but did pay for fuel on his boat, had at least seven different ways of funneling cash to him and his family, all of which only came to light while he was away on his honeymoon and I was paying the bills. My estimation was in one year alone he siphoned off nearly $300k.

      After the company collapse he promptly declared himself bankrupt, something I have not, i also fronted with creditors and have settled with all to my knowledge. My evidence allowed Dorchestor to pursue a prosecution against my former partner.

      Yes my company when bust and in the process I learned a great deal. I have nothing to hide and yet JVH constantly tries to smear this story all over the net.

      [Tane: I’ll let this one through despite your ban – you’re quite right, you do deserve a right of reply. Though you are one to complain about people spreading smears around the net.]

      • Inventory2 13.1.1

        Tane – good call to allow Whale to answer van hartog’s allegations – but not a word to jvh to chastise him. By your silence, you condone his smear.

        • Tane 13.1.1.1

          Didn’t cross my mind IV2. I’ve been busy with other things. I’m sure Whale’s happy he’s had his right of response but, for the record, I do not condone smears from JVH or anyone.

  14. Greg 14

    Jarbury,

    A few points……….

    ‘Saving’ income is the same as investing it. When you put money in the bank they lend it out to people who create jobs etc etc.

    Your right, if you hike the tax rate, very few will be involved in start up businesses. Start up businesses are key to this recovery, they increase GDP and productivity while also creating more jobs. Why would you want to stop this?

    You hike the tax rate, no matter what another country offers you have immeadiately increased the incentives for those affected to leave. Those living on the margin will leave – you cannot deny that. For your assertion to be correct no one who is affected can be living on the margin – obviously some have to be. This applies to doctors too.

    Also you assertion that the USA is the poster boy for private healthcare is completely incorrect. The amount of regulation on the health system in the US is the reason its so terrible. It is hardly private.

    Adrian,

    Your running a ‘exports are good, imports are bad’ argument. This is out dated. Thats one thing 99% of economists will agree on.

  15. Bill 15

    Why not tax the rich?

    Is that a serious question?

    Recessions and depressions are opportunities for the rich (as a class) to cement their advantage in society, not undermine their position of privilege and power with a fit of altruism!

    Politicians of all hues are, by and large commissars of that class…elevating business interests above social/ environmental and working class interests.

    The obvious reason for that you don’t see hunger (or any other) marches by the rich during depressions is that they do just fine. Government is geared, and in turn gears everything it controls to make it that way.

    So, why not tax the rich? You mad!?

  16. Brett Dale 16

    You want 45% tax rate on those earning over 100 thousand???

    LOL!!!!!!!!!!!!!

  17. vto 17

    Why not tax the rich.

    Give it a go then. Bloody pathetic and a waste of time. All it does is catch a few who happen to be stuck in a particular position.

    There is no gain from this approach. Ha ha, what a laugh – ‘oh no my income is down. But it is ok I will just take what I need off those people over there. They wont react.’

  18. Cactus Kate 18

    Why not tax the rich?

    Answer: There’s not enough left of them in NZ for it to make a blind bit of difference.

    Taxation comes from the majority – the “rich” are not a majority in NZ.

    Calls to tax the supposed rich (usually defined as “any prick who earns more than I do”) just make poor people feel better with envy.

    And increases the amount of correspondence in my in-box.

  19. Adrian 19

    In reply to Greg, I did not say “imports are bad”, I said that the wealthy, which most of us would like to be, tend to spend money on expensive imports and travel without a corresponding trade off in earnings from exports thereby increasing the trade deficit. I know the answer is not to go back to the 1960’s where only those with “overseas funds” [read woolclip cheques issued in London] were allowed to buy cars, but we do have to find some way to address this imbalance,and it certainly isn’t giving more internally generated tax money to people who can afford to send or spend it offshore. In fact that is why we have this so called $50 billion blowout of Bill English’s, he is very much part of the problem. If he and Key are so clever why haven’t they got any ideas. In these quite dark times they appear to be stumbling around not only completely lost, but they’ve forgotten where they left the bloody torch.

  20. I find it slightly odd when countries overseas slap higher taxes at levels like NZ$180,000 (NY) or NZ$380,000 (UK) but the left in NZ think NZ$100,000 is rich!

    Pathetic really. NZ has precious few who are rich.

    However, the moral argument is clearer. People who are wealthy tend to impose precious little burden on the state, they pay their own healthcare, pay their kids educations, don’t claim welfare and pay for their own housing.

    Peter Dunne said a couple of years ago that 12% of taxpayers are on the top rate in NZ, and they pay 51% of all income tax. Why is that fair? Why should the majority be able to vote to fleece the minority of what were legally got earnings?

    • r0b 20.1

      Why is that fair? How about because:

      Wealth holdings in New Zealand are highly concentrated, with the wealthiest 10% of the population holding over 50% of total wealth and the bottom half of the population holding less than 3%.

      • vto 20.1.1

        How is that a reason r0b?

        • r0b 20.1.1.1

          How is it not vto?

          • jerry 20.1.1.1.1

            I assume these people already pay considerably more tax than the less wealthy both in PAYE/Company tax and rates…… ummmm so why do you want to tax them more.

            If you take that kind of thinking to a (i)logical conclusion one would be left with a liveable income only and everything else would be provided/owned by the state.

  21. vto 21

    Oh. All that can be gleaned then from your bare statement of a supposed fact is that your reason is because it’s just not fair.

    • r0b 21.1

      Ummm – what?

      Generic libertarian twit states a bare fact: ” 12% of taxpayers are on the top rate in NZ, and they pay 51% of all income tax.”

      Generic social democrat twit states a bare fact: “the wealthiest 10% of the population holding over 50% of total wealth ” (it’s not a “supposed fact” vto – is that what you call all news you don’t like?).

      The issues of ‘fairness” raised by these two facts are many and varied, but in general terms the rich are paying tax in proportion to their wealth.

      • vto 21.1.1

        Oh I see. A specific point which makes some sense in some partial ways. Seems it is sometimes easy to miss the thread when arriving halfway through.

  22. jarbury 22

    Income tax may be progressive, but many other taxes – like GST, petrol tax, excise on alcohol and cigarettes, and car licensing fees are actually regressive. It would be interesting overall to see what percentage of income was paid in tax by poorer folk versus richer folk.

  23. Bill 23

    Why not phrase all this in a more accurate way that leaves the individual ( and all the contentiousness that goes with that) out of the equation.

    Tax lower amounts of money less and higher amounts of money more. Why? Because if x amount is deemed sufficient to live from, then x plus is unnecessary and taxing the plus in x plus at ever increasing rates still leaves that total amount as a diminished, but not negated x plus total.

    So the rich stay richer, just not as comparatively richer than before.

    On the flip side, society and its services are enhanced through more money being available for up grading and development. Through that enhancement more opportunity is afforded more people to attain a higher tax bracket and graciously and gratefully contribute back to the society that made the attainment of a more luxurious life with surplus money possible in the first place.

    Simple.

  24. Rich 24

    I favour a wealth tax, 2% on global assets over $1mln, rising to 10% over $100mln.

    To prevent avoidance, this could be levied on anyone who is or has been resident in NZ in the last two years, and with a provision that failure to co-operate in giving access to offshore bank details and the like will lead to confiscation of all assets and jail (should the miscreant step on NZ soil).

    I reckon that’d raise $10bln from the rich list alone.

  25. jarbury 25

    At a fundamental level it seems like an economy works best when a large proportion of the population’s money is being frequently shifted around, spent on local products (rather than disappearing offshore on imports), invested in productive areas (like establishing businesses) and the like. It seems like an economy falters when money gets overly tied up in unproductive areas like real estate.

    Now I guess the question one should ask is “is this more likely to happen when wealth is more evenly spread out, or more likely when wealth is more concentrated?” Now, as poorer people spend a greater proportion of their income than richer people, it is likely that a more even distribution of money across the population would be stimulatory.

    However, I guess in the longer-term – if we want to reduce our current account deficit – then we need to be saving and investing more money than we do now, and spending less on imports. Ideally, we would want those savings and investments to go into productive parts of the economy, like establishing businesses and other stuff like that. Rather than unproductive investment like buying up houses (I guess if it was to go into building new houses that would be more productive).

    I guess my point is that if we look at the USA over the past 20-30 years clearly the country’s wealth has become more and more concentrated in the hands of a few. Those people almost literally have too much money to spend, so therefore they end up investing it. However, because they have what could be considered “too much money” to invest, what they invest in becomes over-valued, a bubble is created (dot com bubble, real estate bubble, oil price bubble, market derivatives bubble etc.) By definition a bubble must eventually pop, and each one now has.

    If all that money tied up in successive bubbles (or at least a big chunk of it) had been better distributed to middle- and lower-income families then we may not have seen these economically destructive bubbles, but rather that money would have been spent by the general population, creating a far more sustainable economy. (Well…. as long as countries can ensure their balance of payments aren’t too horrifically negative, which is the big challenge).

    This all sounds like a good case for lowering taxes on the poor and raising them for the rich.

    • Tom M 25.1

      One man’s imports are another man’s exports, of course. It seems like by your own reasoning you want to make other countries poorer in order for us to become richer.

      Question: If importing goods is not in our interest, why do people buy imported goods at all?
      If you think about that, you might understand the importance of two-way trade for standard of living, rather than just trying to hoard the world’s money through exports alone.

      You also might want to think about who has the biggest stake in where money is invested, and how this might impact the quality of their investment decisions.

  26. jarbury 26

    OK fair enough Tom. I guess my point is that we need to make sure our exports balance our imports so that we don’t get screwed by our current account deficit in the long-term. However, that’s kind of secondary to my main point – that the economy is probably more sustainable in the long run with its money spread around more.

  27. Greg 27

    Jarbury,

    You make this point with the massive assumption that investment does little to stimulate the economy. Of course this is not true. Take your housing example – what about the real estate agents, the painters, the gardners, the cleaners etc etc who all benefit from people owning houses, it gives them work.

    There will always by ups and downs in the housing market – these will not be as severe as in the US as long as the government does not attempt to interfere and cause a recession! If the government gives you the incentives to take risks you will take them!

  28. jarbury 28

    Greg, clearly investment is good for the economy. However, what seems to be best is investment in many small-scale businesses that actually employ people, make stuff and so forth. People who own these kinds of businesses are probably not that likely to be making millions and millions a year.

    I wouldn’t increase taxes at $100,000, as I agree that without income splitting tax deductions even $100,000 is hardly a huge amount to raise a family off. I would kick in a 45% tax rate at around $150,000, but I would also create a tax-free threshold of around $10,000. If that ends up being fiscally neutral then at least you’ve made life easier for those who really need the help, while if you end up making some extra cash off it then at least you’ll be able to limit future deficits to some extent without slashing public services.

  29. Greg 29

    You’d help those on lower incomes more by not hiking the tax rate. These small businesses are integral to our economy – but its the rich that give them the money to start them up. These businesses in turn give jobs to those less well off. You increase the tax rate the rich will have less money to invest in these small businesses.

  30. jarbury 30

    I’m still awaiting evidence of that “trickle down” theory Greg.

  31. Greg 31

    I would point to economic boom periods following the fourth labour government in NZ and Reaganism in the US. Both were stong supporters of supply side economics.

    There were short term costs of the policies (and they could have been handled better in NZ) but there was tremendous long term benefits.

    • The Baron 31.1

      While you’re absolutely correct, that POV gonna go down like a poo in the bath on this site, Greg.

      Wait and see.

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