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In search of a justification

Written By: - Date published: 7:40 am, August 12th, 2011 - 122 comments
Categories: dpf, Economy, Ethics, tax - Tags: , , ,

Here’s one of my favourite quotes:

The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.
— John Kenneth Galbraith

There’s no end to the lame arguments that right wingers will advance to try and justify what is basically greed.  David Farrar (quoting Richard McGrath (quoting Daniel Hannan)) recycles a common one – that we would increase the tax take if we lowered the top tax rate.  There seem to be two parts to this argument, first that lower tax rates would lead to less tax avoidance (yeah right) and thus increase government revenue, and second that they would motivate people to work harder and thus “grow the economy”.

The trouble with both of these arguments is that they are bollocks.  In the case of the Farrar / McGrath post they are lazy, dishonest, stupid bollocks and Rob Salmond has all together far too much fun tearing these “poodles armed with noodles” to bits. I’m just going to stick to the boring old facts.

Tax cuts don’t increase revenue.  The first comment in Farrar’s post (from Danyl Mclauchlan) pointed out the obvious example:

And the argument against this very convenient hypothesis is that in New Zealand in the very recent past we’ve lowered taxes for the wealthy three times in three years and this has led to reduced tax revenues.

http://www.treasury.govt.nz/government/financialstatements/yearend/jun10/06.htm

Farrar tried some excuses, but fact is the New Zealand case is typical.  Time Magazine sums up (and for further along the same lines see here and here):

Tax Cuts Don’t Boost Revenues

If there’s one thing that Republican politicians agree on, it’s that slashing taxes brings the government more money. “You cut taxes, and the tax revenues increase,” President Bush said in a speech last year. Keeping taxes low, Vice President Dick Cheney explained in a recent interview, “does produce more revenue for the Federal Government.” Presidential candidate John McCain declared in March that “tax cuts … as we all know, increase revenues.” His rival Rudy Giuliani couldn’t agree more. “I know that reducing taxes produces more revenues,” he intones in a new TV ad.

If there’s one thing that economists agree on, it’s that these claims are false. We’re not talking just ivory-tower lefties. Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves–and were never intended to. Harvard professor Greg Mankiw, chairman of Bush’s Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues.

Tax cuts don’t cause growth.  Once again we can start with the New Zealand experience.  During the mid 1980s we had major tax cuts followed by years of stagnation, and ultimately, by a recession.  During the last 3 years we’ve had significant tax cuts that were supposed to bring us “roaring out of recession” in an “aggressive recovery”.  Instead we have had anaemic growth and only narrowly avoided a double dip recession.  Once again the New Zealand experience is typical.  I’ve written about this before, but here’s another good summary (or see here):

TAX CUTS DO NOT WORK.

In fact, there have been three grand multi-year national experiments with Republican / Conservative tax cutting over the past century. And all three experiments resulted in the average American becoming poorer, the real (industrial) economy in tatters, and spectacular financial crashes.

Tax Cut Experiment Number 1

[President] Coolidge … signed into law the Revenue Act of 1924, which lowered personal income tax rates on the highest incomes from 73 percent to 46 percent. Two years later, the […] tax rate on the highest incomes was reduced to 25 percent.

What resulted was the building up of a speculative frenzy in the stock markets [… which …] ended in October 1929 with the stock market crash.

Tax Cut Experiment Number 2

In 1981, Reagan significantly reduced the top marginal tax rate, which affects the very wealthy, a from 70% to 50%; in 1986 he further reduced the rate to 28%. Contrary to the Reagan / Republican / conservative argument that the tax cuts would pay for themselves by boosting economic activity the budget deficit and federal debt exploded. Federal government debt grew from 33.3% of GDP in 1980 to 51.9% at the end of 1988. …

Reagan’s tax cuts failed to revive American industry, which was also being hammered by the Reagan / Republican / conservative blind faith in free trade.A number of American industries actually disappeared. By the end of Reagan’s presidency, the American textile, apparel, and footwear making industries had been reduced to less than one tenth the size and sales they had been just two decades before. During Reagan’s tenure, the U.S. lost its trade surplus in consumer electronics, and began to also lose its advantage in industrial electronics. The most important industry of all, the machine tool industry – which is needed to make all other production equipment – slipped into a death spiral from which it has never recovered. Steel, auto, printing equipment, construction equipment, farm equipment, power generating equipment – in industry after industry, under Reagan, the U.S. began to lose its world lead.

… in October 1987, the worst stock market crash since the First Great Depression shook Wall Street.

Tax Cut Experiment Number 3

Republicans and conservatives of course contend that the two Bush tax cuts created the economic boom of 2002-2006.

… Ferguson stated that excluding the effect of home equity extraction, the U.S. economy grew at a 1% rate during the Bush years. The amount of money Americans took out of their bubbling home equity was more than double the increase in GDP under Bush. Meanwhile, U.S. industries continued to weaken and falter. Even the semiconductor and computer industries – once the crown jewels of the American industrial economy – basically collapsed under Bush, fleeing offshore. …

And, in late 2006, the sub-prime mortgage crisis began to unravel the very fabric of the world financial system, leading to the crashes of April and September 2008.

Just for a final nail in the coffin (and because I spent so long making a pretty graph from data sources here here and here), if lower top tax rates were good for GDP we’d expect to see countries with lower tax rates having higher growth, right?  Comparing the % top tax rate with % GDP growth for OCED (2010 data) there is no such trend (if anything R2 regression has the opposite slope):

In short, the top personal tax rate in New Zealand is already very low in OECD terms.  If we want to improve the health of our country we shouldn’t lower it again, we should raise it, then spend the income retiring debt and investing in productive infrastructure and education.  Farrar and others of the Right push for ever lower taxes, but their arguments are laughably flimsy.  In search of their  “superior moral justification for selfishness” they’re going to have to do a lot better than that…

122 comments on “In search of a justification”

  1. burt 1

    In short, the top personal tax rate in New Zealand is already very low in OECD terms.

    I find it interesting that Labour supporters have been saying the same shit about our top tax rate being low for about a decade while they completely ignore the percentage of tax people actually pay on our low wages.

    The one I liked the best was Dr Cullen in 1999 saying that the proposed top rate of 39% was low compared to the US at that time which was 48%. The problem with his statement was that although he accurately reported the percentages he didn’t address where people started paying it. At that time in the US the top rate of 48% kicked in at $400,000 USD. About 10x the income where Cullen proposed (and eventually held for 9 years) our top rate – $60K.

    You know the argument is deeply flawed when the context of the key points is deliberately ignored.

    • lprent 1.1

      I notice that you didn’t address the actual points in the post? Why is that?

      Do you think that tax cuts for the wealthy are useless at raising government revenue or not?

      • burt 1.1.1

        I think I did lprent – My point is that talking about the top percentage without showing a comparison of what actual percentage of tax the different income bands pay is just a party talking point. It’s searching for a justification….. dishonestly.

        • higherstandard 1.1.1.1

          FFS Burt you do yourself no favours.

          At least take a position.

          I’m on record as saying that tax increases at a higher level along with a comprehensive CGT and stringent cost containment in the public sector should all be part of government policy to get through the next decade.

        • lprent 1.1.1.2

          No you did not.

          The only real fault I have with r0b’s post is that it doesn’t look at the true tax situation. If you look at the whole tax situation including such things as GST, rates, car registrations, etc as well as income tax against the disposable income after basic costs of food, rent, etc then you realize how disproportionate the tax burden is in NZ. Quite simply it falls excessively on the low-mid income earners.

          Which is of course why the tax cutter right only look at nominal income tax rates. It allows them to argue that they should be getting a larger subsidy. That is the true dishonesty in this ‘debate’

          • burt 1.1.1.2.1

            lprent

            The only real fault I have with r0b’s post is that it doesn’t look at the true tax situation.

            While he bags DPF because he’s searching for a justification…. Funny you defend rOb bagging DPF for spinning while rOb spins himself.

            • lprent 1.1.1.2.1.1

              I didn’t defend r0b’s post. In fact I’d say that “The only real fault I have with r0b’s post is that it doesn’t look at the true tax situation.” amounts to a criticism.

              And I note that you didn’t deal with any points in either of my comments. Can you read?

              Or do you just read into others comments what you expect them to say? Now that would be truly conservative.

              • burt

                lprent

                You are correct I didn’t address your other points. Usually in a thread about tax policies I’m not shy about stating my own opinions on the points you raised.

                The reason I didn’t was because my position (at that time) was the thread was a crock from the start. IMHO rOb cherry picked a single OECD graph to give his attack on DPF credibility. Can you appreciate that from my perspective your reply seemed to be backing me pretty strongly.

                However, not to ignore these well made points of yours;

                I particularly agree with you here;

                then you realize how disproportionate the tax burden is in NZ. Quite simply it falls excessively on the low-mid income earners.

                And this in particular is also a bloody good example of how ridiculous it is to quote a single percentage statistic. That statement was particularly strong following;

                If you look at the whole tax situation including such things as GST, rates, car registrations

                which further emphasised, to me, that a single percentage as the justification for having a crack at a strongly debated economic concept was completely ridiculous.

                edit:

                Which is of course why the tax cutter right only look at nominal income tax rates.

                Which was exactly the same thing (using only one variable) I was responding to, from rOb.
                end-edit:

                But, I’ve just got back to this blog after a day away so I’ll readup down thread and try not to be banned.

                • r0b

                  IMHO rOb cherry picked a single OECD graph

                  The claim was about the top tax rate and growth, so I graphed the top tax rate and growth in the OECD.  Quite some cherry picking huh?

                  • burt

                    rOb

                    Your use of that selective half sentence quote is as bereft of quality argument as your original posting of this thread. You’re better than this rOb.

    • felix 1.2

      “You know the argument is deeply flawed when the context of the key points is deliberately ignored”

      And you know the maths is deeply flawed when 10×6=400 😉

      • burt 1.2.1

        You know people are completely shooting from the hip when they ignore the fact different currencies are being discussed. Deep breath felix, the red glow on your face can’t be seen by other posters.

        • felix 1.2.1.1

          Sorry burt, I thought the little yellow chap would indicate the nature of my criticism. I’ll go put the kettle on for you mate.

        • bbfloyd 1.2.1.2

          Ah burt.. good to see you back after so long… been missing the belly laugh you always give me with your attempts at intelligent debate… which generally is an overt exercise in shooting yourself in the foot…

          has johnny sparkle removed you from his speed dial? can’t think of any other reason for you wasting everyones time here.

          so, taking one issue you overlooked in that our wage/salary structure is set much lower than the us, and that they have thousands more earning well over 400k than we will ever have… just one point, albeit a relevant one…

          the rest of your attempts are a shallow attempt at fisking and dissembling, so aren’t worthy of addressing, which i assume you know, but your compulsion to hero worship false idols drives you to make… that is best left to a qualified clinical psychologist to analyse..

        • Puddleglum 1.2.1.3

          So burt, I guess you would have been ok with Cullen’s tax rate rise if he had also introduced, say, a 48% rate at some even higher income at the same time?

          That way, the 39% rate at $60,000 would not have sent the message that $60,000 was being ‘rich’?

          Sounds sensible. Good point – the tax rates should be even more progressive. 

          • burt 1.2.1.3.1

            It was pretty clearly signaled in 2005, Gareth Morgan didn’t leave much unsaid though much was unheeded.

            The real “middle” earners got punished to pretend the richest were being taxed. You can’t tell me that pretending it was only the top 5% earning over $60K for 9 years didn’t effect peoples perception of ‘rich’.

    • rosy 1.3

      I find it interesting that National supporters believe the rich need the carrot of lower taxes to encourage them to pay taxes and invest, and the poor need the stick to work harder to earn more money.

      • aerobubble 1.3.1

        The poor are a drag on the economy, so say politicians backed by international speculators.

        The poor are people and people are the economy, not markets.

        • KJT 1.3.1.1

          Drag on the economy?

          What about high paid banking. Destroys 7 times more wealth than they produce.

          Those who spend it on holidays in Hawaii.

          Those who got 20% richer this year. Obviously did not re-invest it in New Zealand.

          Then they turn to the socialists to bail them out when the gambles fail.

        • Vicky32 1.3.1.2

          The poor are people and people are the economy, not markets.

          Seconded!

      • AAMC 1.3.2

        Burt, given your point that we earn less in NZ,”ignore the percentage of tax people actually pay on our low wages”, do you support labours suggestion of a $15 minimum wage? I agree the tax take kicked in on what with current house and commodity prices could hardly be considered a top wage, even if it is relative to NZ incomes. So isn’t the stagnation in wage growth the problem Burt, and who is responsible for that. In my line of business, the corporates I work for ( I’d chance a guess the CEO’s vote right ) haven’t lifted fees by 1 cent in more than 25 years.

        Rosy, I agree, it’s interesting we constantly hear about the carrot of low tax to encourage our “wealth creators”,
        and yet, isn’t it really ( working within their paradigm and ignoring the stupidity of the idea infinite growth for a moment ) middle class consumers who are the real wealth creators. How do the top 1% propose to continue to grow if the middle class is destroyed and can no longer afford to consume?

        • burt 1.3.2.1

          AAMC

          do you support labours suggestion of a $15 minimum wage?

          In isolation – No. Because I don’t understand where the $15 comes from. Sure it’s a great easy number to remember and it looks attractive from $12.5 but is it the right number and why? If $12.50 is way too low then should it be $18 ? Why not $35. What informs me $15 is right other than it’s good for slogans and it’s not too high to dash hope of ever getting it?

          As part of a taxation policy such as Labour is currently proposing in the low income ranges it’s possibly OK. It would need to be indexed and CPI is easy but a percentage of the average income would seem more equitable. However personally I would rather see it indexed to the average salary of all MP’s. IE: Minimum wage workers get the same overall percentage increase as the people who they elected to represent them.

          So isn’t the stagnation in wage growth the problem Burt

          Yes totally, and fostering a national psyche that $60K is rich and should be taxed hard didn’t help people push harder for bigger pay rises. Imagine how $75% of high school teachers must have felt being rich and supporting the govt that called them that.

          • Colonial Viper 1.3.2.1.1

            If $12.50 is way too low then should it be $18 ? Why not $35. What informs me $15 is right other than it’s good for slogans and it’s not too high to dash hope of ever getting it?

            Society sets what it thinks is a fair return for a full days work. Don’t try and make a nonsense out of that by throwing numbers around.

            People need to be able to live decently on the wage and they need to be able to provide for both themselves and someone else.

            I guess you could go work on a foreign fishing boat to understand what life is like without a concept of fair pay for a fair days work.

            An inherently exploitative aspect of employment in a capitalist system is that no one will give you a job unless you make more money for them than they ever have to pay back to you.

            • burt 1.3.2.1.1.1

              CV

              An inherently exploitative aspect of employment in a capitalist system is that no one will give you a job unless you make more money for them than they ever have to pay back to you.

              There – I took the eye patch off for you.

    • mik e 1.4

      Burt the US tax take doesn’t include universal health care,childhood dental care,Tertiary education , and state taxes. which can mean some one on a $100,000 can be paying as much as 65% in some states.This is why its hard for any party to raise taxes in the US. Private health insurance is astronomically expensive.Burt I think my argument has floored your half truth of Cullens half truth

      • burt 1.4.1

        mik e

        Yep, that’s what I was saying. You can’t use a single figure as a justification for a tax position.

        But hey, I’ll take the debate on without the currency exchange and and say $400,000 USD is just $400,000 compared to $60,000. It won’t change my argument unless the only objective I had was to prove the threshold was 10x higher.

  2. Bored 2

    Love the Galbraith comment: the man was truly ascerbic, a pleasure to read. Sort of sums up the RWNJ contributors to this blog perfectly.

  3. Colonial Viper 3

    In the 1960’s and 1970’s the top income tax rate in the US was 71% (It was actually 91% in 1960).

    And the top corporate tax rate varied between 48% and 52%. Today it is just 35%.

    • KJT 3.1

      And. That was the time of their greatest prosperity. Ever.

      The USA has been going downhill ever since they let the wealthy keep most of the money.

      “The rich benefit so much from our society it is only fair that they give back.

      Better to take some if this money back and reinvest in infrastructure and the necessary green technology to ensure humanities future survival”.

      The rest of my comments on this here. http://kjt-kt.blogspot.com/2011/08/in-search-of-justification.html

    • burt 3.2

      I think it’s looking more and more clear that throwing vast amounts of tax payers money at giant corporates with balance sheets larger than some countries was never to be the silver bullet. Arguably the tax rates need to adjust sharply because they are clearly too low to support the govt’s position. How is another matter. Simply quoting top percentage rates without context of who they are actually applied to is folly.

      However, if the big business interests with their multi-million bonus for their CEO’s hadn’t had the cream from the tax payers US income tax requirements would be entirely different. But even that being true makes a single percentage thrown around meaningless unless you define who has to pay it and under what justification.

      That’s the key CV – the tax policy. It’s not just pluck the goose with the least amount of hissing – look where that got us last time !

      • Colonial Viper 3.2.1

        I didn’t think that a 91% income tax rate on millionaire earners required that much explanation or “context”.

        • burt 3.2.1.1

          Sure, define “millionaire earners”.

          What is counted from what sources and how? How is international income treated? What happens if they have minimal PAYE but live in a house that a trust provides?

          In the context of NZ who would you say deserves to pay 91% income tax?

          • Colonial Viper 3.2.1.1.1

            In the US those affected by the 91% income tax rate earnt around US$2M per annum in todays dollars. The 91% rate affected each dollar above that threshold.

            I would not apply a 91% tax rate on income in NZ

            39% and 49%, yes. However, an asset tax/land tax and an ftt are the really big ground breaking ones to go for.

            • burt 3.2.1.1.1.1

              CV

              From the Reserve Bank inflation calculator I note that $2,000,000 from 1960 would have inflated to circa $84,000,000 today. I’m just demonstrating the scale of the amount today but I haven’t factored in exchange rates so I’m not saying it would $84m – just a big number like that!

              However I’m please you don’t think NZ deserves that. Do you think anyone earning circa $84m a year would pay it?

              Output from RB Inflation calculator.
              =======================
              A basket of goods and services
              that cost £2,000,000.00
              in quarter 1 of 1960
              would have cost

              $84,114,867.32 in quarter 2 of 2011

              • Colonial Viper

                That 91% tax rate was applied to those in 1960 earning US$2M in todays (current day) dollars.

                That $2M sum is already inflation adjusted to today’s dollars.

                And you can’t use the NZ Reserve Bank calculator to adjust USD for US inflation!

                • burt

                  Oops – already adjusted, I missed that – sorry.

                  My intent wasn’t to show US inflation at all. I was demonstrating what $2m USD converted to NZ dollars in 1960 might look like in NZD today. Our exchange rate, from what I can gather at that time was 1.2. IE Our ‘pound’ was worth more than a USD. The exchange rate was set by gummit at that time so really there was no actual comparable value anyway. It was what the gummit wanted it to be so it could balance it’s own books.

                • burt

                  CV

                  Your comment just below (12th @ 7:46pm) seems to understand the problems of complex angles that can be worked. In this comment thread you are going hard out trying to justify complex implementations.

                  I’ll rephrase what I said above,

                  However I’m please you don’t think NZ deserves that (91% tax on earnings > $2m)

                  Do you think anyone earning > $2m a year would pay 91% income tax or do you think they might rearrange their tax affairs to keep their personal taxable earnings < $2m?

                  • Colonial Viper

                    A very simplified tax system leaves very little room for rearranging, even for a 39% or 49% tax rate.

                    E.g. someone on $2.1M versus $2.0M is going to get sweet f.a. benefit from avoiding the 49% rate and paying 39% instead on that last $0.1M of annual income.

                    $10,000 tax saving out of $2,100,000 income. Or a saving of less than 0.5% in effective taxes. Big deal.

                    But that $10K could provide emergency food grants to 100 families. So it means a lot to society.

                    • burt

                      Under our current tax regime, which you seem to think should harder on people earning circa $2m, a person earning $2.1m would pay $683,920 in tax. (from IRD annual tax calculator using current rates)

                      By your reckoning that single person has already contributed 6,839.2 emergency food grants but you think they are good for another 100 so why not just take it from them.

                      Good luck when they decide they are happy to contribute 1,000 emergency food grants and buy property through a trust with the rest. Just hope they are happy with 1,000 and not totally greedy and only let you extract 10.

                    • Colonial Viper

                      *Shrug*

                      Who said trusts are going to be of any use as tax shelters in future?

                      What is that person needing that $1.42M in after tax income can’t buy them? How much better would their life actually be if they paid less taxes and had $1.47M in after tax income instead of just $1.42M in after tax income?

                      Those who benefit the most by far from having a civilised society that you can do business in and make commercial profit from, should they not be the ones to also give back the most? IMO the answer is a resounding yes.

                      Read the 3370 post recently put up. Branson and his major shareholders might think it smart to take that tax income out of the UK. But impoverishing the country you call home as its own consequences, even if they are not immediately apparent.

                      Just hope they are happy with 1,000 and not totally greedy and only let you extract 10.

                      “Let”?????

                      The Crown doesn’t ask permission from the rich, and as the big Australian banks have found out, the IRD is quite prepared to go to court to get its hundreds of millions.

                      NZ is not yet as much a plutocracy as the US and the UK are, thank goodness.

                    • burt

                      CV

                      Sure the IRD is prepared to go to court, complicated angles being worked require expensive compliance. So once the Crown invests a few million making test cases for a few hundred thousand they have a precedent to spend hundreds of thousands chasing ten of thousands. Ye-ha – that’s good policy.

                    • burt

                      And definitely ‘let’. Remember the shocking revelation that of the top 100 ‘earners’ in NZ only 50% of them paid the top tax rate.

                    • burt

                      And that shocking revelation in 2010 was big news because it was a whole 5 years earlier that we had this shocking revelation.

                      http://www.gmi.co.nz/pages/news/289/Graphing-“Ideological-Burps”.aspx

                      Gosh, so that big change in the distribution shown in 2005 wasn’t just a picture – wow.

  4. Peter 4

    According to Treasury’s 2011 budget those earning more than 150,000 a year will contribute 6% of the total tax take. Those earning up to $50,000 a year will contribute more than twice as much at 12.6% of the total tax take.

    Those earning three dollars for every dollar earned by the poorer income group pay an average of only 12.5 cents more on every dollar of taxable earnings.

    I can’t see how high income earners may perceive a problem with excessive PAYE tax.

    • mik e 4.1

      The top tax rate is paid by the poorest trying to get of a benefit 70% while millionaires like Key pay less than 35% through loop holes they undoubtedly exploit !

      • Colonial Viper 4.1.1

        Under class and middle class earners need to be relieved of some PAYE burdens, while more taxes need to go on those with significant asset wealth.

        • burt 4.1.1.1

          Absolutely true CV, but you won’t achieve your objective if you create complex systems with intersecting angles that can be exploited.

      • burt 4.1.2

        mik e

        Abatement rates on welfare have been hotly debated for a while now. The debate got a good breath of fresh air when WFF was introduced and again when it was ratcheted up for subsequent elections. Have you just caught up on how abatement rates work or is this just some personal thing with John Key being an easy target because he is both PM and rich?

        I kind of agree that as National haven’t substantively changed the situation in 3 years they kind of own it but to be fair they did say ‘no big shakeup’ in the first term.

        Fingers crossed for next term that something significant changes in tax and welfare and these ridiculous perverse incentives and disincentives are minimised.

  5. An argument might be made for tax cuts for the poor and the middle class but a tax cut for the rich is just downright stupid because it seems they are psychologically “spending impaired”. No surprise really!

  6. The contrary proposition, that increased tax rates can stimulate economic activity, is borne out by the experience from 1999 when Labour put the top tax rate up and economic activity improved and unemployment fell.
     
    I can recall all of the moans about Labour running surplusses.  Of course the money was used to pay down debt and the Crown ended up essentially debt free.
     
    With the benefit of hindsight these actions have put us in the position now where we can ride out the international turmoil despite Smile and Wave’s best efforts.

    • burt 6.1

      So Labour putting the tax rate up in 1999 gave the decade of golden weather with no help from the global economy but then we started to stagnate it was the global economy that made us go into recession.

      Yep, it was just the 39% – that was the only factor micky !

      • Colonial Viper 6.1.1

        burt didn’t you just mention something about “complex systems”? Don’t undersell yourself now with this simplistic single factor shit, I don’t believe that MS is suggesting that at all.

        Problem is I have a differing explanation for why the NZ economy did so well over those years. What Labour did was probably about 30% of it. The rest came from the monetization of private property debt.

        Without the in flow of money into the economy from ever increasing mortgages and directly related house values, the economy throughout Clark and Cullen’s time would have been flat as a pancake. Same applies to the US, and only marginally less so to Australia.

        Consumer debt, household mortgage debt (and cheap oil) were the main drivers of ‘global economic growth’ over that entire time period. Basically it was (is) a ponzi scheme of muscial chairs and now the music has stopped.

        • burt 6.1.1.1

          Without the in flow of money into the economy from ever increasing mortgages and directly related house values, the economy throughout Clark and Cullen’s time would have been flat as a pancake.

          Well actually as soon as the mortgages stopped increasing the economy went into a recession. But that was apparently a period of prudent financial management. So I give up.

          • Colonial Viper 6.1.1.1.1

            You’re spot on. Net debt deceleration and even worse, net debt develeraging, kill economic growth.

            i.e. our entire system of modern capitalist economic growth is based on the ability to pump more and more money into the economy through the generation of debt. If you cannot sustain the debt or if people choose not to take on any more debt, the game is over.

            Likewise, “prudent” consumer behaviour increasing savings and reducing debt kills growth because people stop spending i.e. the change in behaviour sucks money out of circulation and away from shops and service providers.

  7. queenstfarmer 7

    I don’t know who is endless searching for justification either way. One of the truest things ever said is “politics is the art of the possible”. Sometimes people will vote for a party that campaigns on increasing taxes, other times they will vot for a party that campaigns on lowering taxes.

    People decide these things on “feeling” of what is about right, and a thousand other things. Complicated graphs and ivory tower macro-economics are not part of that mix.

    • r0b 7.1

      Is that your way of saying “tra la la I can’t hear you!”?

      If not – what are you saying exactly? 

      • queenstfarmer 7.1.1

        No. I’m saying that politicians don’t go around campaigning with complex graphs, spreadsheets and analyses of President Coolidge’s economic record. No-one campaigns on “justifying” a tax increase or decrease. Governments are elected on who the people vote for, not what is “justified”.

        • r0b 7.1.1.1

          You think that’s a “complex graph”?  Hmmmm.

          Political debate in any country is better debate when it is informed by the facts.  True or false? 

          • queenstfarmer 7.1.1.1.1

            Yes, it is far too complex for electioneering purposes.Which is why with an election coming up you will see credit card-style promises, road sign slogans, pictures of nice Mr Key smiling, etc. Not complex graphs.

            Of course political debate is better when informed by the facts. Personally I don’t care who people vote for, as long it’s an informed decision. But the reality is that most people vote for who they like, what they think is best for them in their circumstances and values, and how much the incumbent govt has pissed them off.

            Hell, the All Black’s performance in the World Cup will be a much bigger factor than some academic discussion of economic theories.

            • r0b 7.1.1.1.1.1

              Of course political debate is better when informed by the facts.

              OK good, then I trust that you approve of my attempts to keep putting them out there!

              • queenstfarmer

                Oh, yes I do 🙂 Approve and appreciate, FWIW.

                • AAMC

                  I love the graphs! But QSF is right, the vast majority couldn’t give a f$$k. The Right do seem to understand this better with their use of dishonesty and spin.
                  Whenever I try to engage people in political debate, the eye’s glaze over when the facts and figures come out.
                  There must be a way to have the discussion of Kleptocracy and neo-liberal failure in succinct slogans that resonate with the the 99% of people who they disenfranchise.
                  The fact that these 99% aren’t buying it, despite it’s detriment to their own interests, suggests the current attempt isn’t working.

                  • r0b

                    Yes queenst & AAMC, I can certainly see your point.

                    But what happens to the world if both sides abandon fact based debate and descend in to the realm of pure propaganda?  Is that really the future that we want?  In some ways I’d rather stick to the facts, and the boring old logic, and loose a few elections. Because I think the alternative is worse. 

                    • AAMC

                      The facts need to be there I agree, and we should aspire to a society that wants to have intelligent debate and engaged citizens, I hate to contemplate the alternative also.

                      But in the short term, to save our assets and prevent the collapse of the middle into an underclass, maybe some simple strong (but not dishonest or spun) messages, could be nice in the mix.

                      Maybe even just standing up and saying what is unpopular and considered dangerous, maybe even mentioning or even shouting ideology and neo-liberalism and greed.

                      At the moment there are a small few looking at graphs, a vast majority not, and a political class saying what focus groups tell them to.

                    • rosy

                      I dunno, I’ve put the last couple of graphs on my FB site. They are so obvious, especially the red/blue government debt one I don’t put text with them at all. They are noticed and commented on, by particularly by the young uns’.

                      I won’t put up this one though, it isn’t so clear in a 2 sec look, what is being said.

                    • AAMC

                      Visual communication is definitely very valuable, most “consumers” are incredibly visually sophisticated, they are bombarded with visual information and messages from birth. Even those who are illiterate can decipher a Coca Cola ad, and so Facebook and twitter with bold graphs etc… it’s gotta help.

                      As an aside, been observing the Tarsands live twitter debate via Naomi Klein twitter feed, this technology needs to be taken full advantage of, the potential for many eyes is huge. Young activists should be leading this charge. Are there any young activists, or are the all watching Glee?

                    • I can see your point and I’m fairly into facts myself too.

                      Problem is, some ‘facts’ – i.e., from research – seem to suggest that when exposed to a range of ‘facts’ “you end up believing what you want to believe” and our interpretations/judgments of the weight of evidence are typically biased.

                      I was thinking about this more broadly (and haven’t got around to doing a blog post on it). In a society where we find ourselves having to make compromises with what we actually believe (e.g., to be honest, to put our family before everything else – like our job, to put children first (as in the link)) we will tend to give greater weight to evidence that justifies our compromise.

                      May explain why many people in our society (with its three decade experiment in the harsh world or neo-liberalism) will tend to be persuaded by arguments that tax cuts are good even if they don’t believe they are. They also may personally feel so financially pressured that they can’t see any other way of getting more money in the hand than cutting taxes, even though there’s evidence that tax cuts won’t make the world a better place overall.

                      The sophistry of National/Act/Republican rhetoric about the general beneficence of tax cuts essentially eases their conscience about what they feel they have to do/need.

            • Vicky32 7.1.1.1.1.2

              Hell, the All Black’s performance in the World Cup will be a much bigger factor than some academic discussion of economic theories.

              What on earth makes you think that! Are you completely unaware that 33% of people could not give a tuppeny damn about the RWC?

              • Colonial Viper

                I wonder if the true number is lower or higher than that. Like closer to 45% or 50%.

              • queenstfarmer

                Check this out:

                New Zealand academics suggests that the All Black win over the Springboks in 1981 helped Robert Muldoon retain office and the All Blacks’ loss to France just before the 1999 election may have helped bring down the Shipley government

                A truism is that oppositions don’t get elected, Govt’s get voted out. If NZ crashes and burns in the RWC there will be A LOT of anger, no doubt. Pathetic and tragic I know…

    • mik e 7.2

      Qstf Typical elitist put down . Thats how the economic rationalists operate .PR spin sound bites yeah thats the way to run an economy into the ground!The right don’t use good economic research thats why there is no right wing government thats growing and not in serious debt and enough people believe the spin and re elect these buffoons who are having a debt feeding frenzy all over the right wing world at the moment mainly because they own most of the media . Berlusconi to you Qstf

      • queenstfarmer 7.2.1

        Elitist? You are confused about the meaning of that word. My comment is that fact-heavy academic research (i.e. elitist) does not cut it with the general populace. Everyone knows this – why do you think Labour produced its credit card and now road sign slogans?

        If anything, my comment was expressing a populist sentiment, not an “elitist” one.

  8. Afewknwothetruth 8

    Historical references have no relevance to present times.

    We are in the middle of the biggest discontinuity in human history, due to peak oil, unravelling of fractional reserve monetary systems and environmental degradation.

    Most people seem to prefer to ignore all the real-world factors which are determining current events, and prefer to discuss outdated models [that only worked because fossil fuels were cheap and abundant] to dealing with our present reality.

    I suppose it could be summed up by: “Let me keep my blinkers on. I don’t want to the big picture.’

  9. Tom Gould 9

    This is all very convincing to the objective and fairminded reader, but until the Guyons and Duncans and Pauls and Leightons of this world drop their almost religious belief that tax cuts are good and tax cuts at the top end are better, and that poor people are lazy and unworthy, this is just an interesting conversation among a small enlightened lefty elite, their views a quaint anachronism.

    • r0b 9.1

      Yeah, perhaps you’re right.  So what’s your suggestion – we should shut up and go away?

      • Craig Glen Eden 9.1.1

        No I dont think Toms saying that rob but he is making a good point the average person has no idea because they get their politics from bloody sound bites compiled by Duncan and Guyon.
        Dear I say it/ type it Queenstreet is right to sadly, most people vote on a feeling probably the same way they trust a pyramid scheme operator they think yeah this guy/girl seems nice and look what I get a 300% return! Ok I will trust them with my life’s savings they seem so nice it has to be true.

        Now you and me go piss off 300% return my arse, thats just not logical.Then we go this person is not nice they are a smooth talking con man who is full of shit because the last time 10 years ago I was presented with that same option that guy did a runner and took my family/friends money.

        Which is exactly what Key will do half way through the next political term when people finally work out he is nothing more than John the con.Sadly it will be to late our assets will be gone and so will our countries future.

        • AAMC 9.1.1.1

          How does the Right push their agenda, Advertising! Whether through spin, or through the benefit of the vast sums spent promoting consumption and wants.

          A constant discussion between like minded, engaged people and a couple of trolls, with no observation from the people who currently don’t engage in politics because they have no faith in or ownership of it, and who we need to motivate.
          There are walls all over these cities ripe for advertising to motivate the disenfranchised to participate in their democracy and to confront the slogans that there is no poverty in New Zealand.
          Check out what this guy has done in Gaza & Israel, Brazilian slums etc

          I’m happy to do it, but I need some help!

          • Colonial Viper 9.1.1.1.1

            That’s awesome. I think we need a Kiwi version. Something authentic to our creativity and values. Something which reflects the life and times of what we see happening around us now.

            Something which helps turn off the calculating self interest which has been indoctrinated into us by decades of neoliberal manipulation.

            • AAMC 9.1.1.1.1.1

              You sound very enthusiastic, do you live in Auckland?

              Perhaps the moderator can give you my e-mail.

              [CV – if you see this comment and want AAMC’s email address drop us a line. r0b]

      • burt 9.1.2

        rOb

        So what’s your suggestion – we should shut up and go away?

        Not at all, but I also suggest you don’t post a thread about National being to hard on the rich because their current top tax bracket kicks in at $70K and Labour think it should be at $150K.

        • Colonial Viper 9.1.2.1

          Come on man, Labour’s adding an entirely NEW bracket ON TOP of the existing one.

          • burt 9.1.2.1.1

            Yes CV. Exactly. Don’t forget they are rearranging where the thresholds are and the threshold rates as well. Such is the folly of trying to make an argument based on a single measurement.

  10. tsmithfield 10

    Sorry Anthony, but you really should be embarrassed producing the graph that you have done.

    It is scarcely surprising that you would find no relationship using simple regression, comparing just one variable against another, when all these countries vary in many diverse and complex ways. For instance, what level does the highest rate come in at? Are there other consumption taxes besides income tax in each of the countries? To what degree are each of these countries linked to growth economies such as China? etc etc. Unless you actually control for other relevant variables such as these, it will simply be a case of garbage in-garbage out.

    • Draco T Bastard 10.1

      A good example of a RWNJ doing his best to disbelieve reality.

      • tsmithfield 10.1.1

        Sorry DTB, just pointing out the fundamentals of good data analysis. But then again, I guess you’re not particularly interested in mundane details such as that, so long as their is a pretty picture that seems to say what you want to hear.

        Anyway, if Anthony actually analysed the data using some form of multivariate analysis rather than simple regression, he might actually get a graph that proves his point rather than the mushy “no relationship” one he produced, which was doomed to fail from the outset..

        • KJT 10.1.1.1

          If you go to the OECD site you will see that controlling for more variables actually supports Anthony’s case.

          Got to keep the graphs simple for RWNJ’s to understand. Though as someone said elsewhere, may be wasting our time, as all they understand is slogans.

          More proof can be seen, because of the similarity in culture, exports etc, is looking at adjacent US states. Those who have tax limitation laws such as TABOR are doing the worst by any economic measure.

          • Draco T Bastard 10.1.1.1.1

            Got to keep the graphs simple for RWNJ’s to understand. Though as someone said elsewhere, may be wasting our time, as all they understand is slogans.

            All they understand are slogans that support their prejudices.

          • McFlock 10.1.1.1.2

            “Got to keep the graphs simple for RWNJ’s to understand.”
              
            Tory trolling 101: if the graph has more than 3 datapoints, it’s “too complex”. If the data is not “too complex”, then it’s “too simplistic”. In that case you have an opportunity to refer the opponent to patronisingly “educative” websites, or exhaustive tory rant-archives, in order to imply that you have an expertise that your opponent lacks. Even though you’re full of crap.

        • Draco T Bastard 10.1.1.2

          r0b put up the data that proves, conclusively, that cutting taxes never increases the tax take due to higher growth. You didn’t even address that but attacked his use of the R^2 regression which was obviously not the main point of the graph and which r0bs tone showed as more of a freak correlation.

          • tsmithfield 10.1.1.2.1

            “r0b put up the data that proves, conclusively, that cutting taxes never increases the tax take due to higher growth.”

            “Never”? So, what do you think the long-term consequence on net government revenue would be to have the tax rate increased to 100% for all citizens? What if it was lowered to 0%?.

            Perhaps you might like to consider the Laffer Curve before you answer this question.

            The point is there is an optimal rate of taxation for generating maximum revenue. So trying to argue whether reducing tax rates is going to increase revenue or not is pointless if there is no frame of reference as to where current tax rates sit in respect to the Laffer curve.

            • KJT 10.1.1.2.1.1

              You refer to the Laffer curve. AND you think Anthony’s graph is too simplistic?

              Even RWNJ economists call it the laughter curve.

            • Draco T Bastard 10.1.1.2.1.2

              “Never”?

              Pretty much. The people that you’d need to work harder to provide the growth that you expect physically can’t as they’re already working as hard as they can due to poor wages.

              So, what do you think the long-term consequence on net government revenue would be to have the tax rate increased to 100% for all citizens? What if it was lowered to 0%?

              The same as what’s already happening – the environment will be destroyed and the economy will collapse.

              It’s not really taxes that are the problem but the psychopathic capitalist system of greed and authoritarianism.

    • r0b 10.2

      Sorry Anthony, but you really should be embarrassed producing the graph that you have done.

      Thanks for your concern ts, I’ll take it under advisement.  

      I’m not at all embarrassed about the graph, the ones who should be embarrassed are the ones trying to sell the obvious lie that cutting our top tax rate would be good for the country.

  11. Oligarkey 11

    tsmith – i think the graph shows there is very likely, no discernible evidence to support the claim that slashing taxes for those that live in luxury provides faster economic growth. It’s not a 100% thing, by itself. But it seems that that supporting evidence from economists give us enough evidence for case closed. I just think you’re being a wee bit over-contentious. Can you produce any evidence to disprove the fairly solid claim that tax cuts for the rich don’t result in higher levels of economic growth?

    • burt 11.1

      There is very likely no discernible evidence. Great the Jelly is nailed to the wall – nobody move!

  12. randal 12

    great to see the quote from jkg at the start. selfishness is one of the fundamental avenues of enquiry about the human personality and Sigmund Freud attributes it to overly harsh toilet training and producing on demand.
    the mainfestation of greed and selfishness are the ttwo contributing factors to that section of society that never has enough and can aonly satisfy its wants by grabbing and crushing everything it can get its grubby little hands on.
    there is no justification for selfishness. only examining its cause.

  13. lefty 13

    If everybody was paid more or less the same amount, they could pay more or less the same amount of tax and there would be nothing to argue about.

    • queenstfarmer 13.1

      That would really turn NZ into the land of opportunity, wouldn’t it!

      • Colonial Viper 13.1.1

        Must’ve missed something here. When was the last time that NZ was the “land of opportunity”?

        Perhaps for Messrs Fay and Richwhite in the 1990’s when they raped and pillaged our country.

  14. aerobubble 14

    A bunch of anarchists run amok in London and other UK cities.

    Trust the MSM to mislabel them. Even the Police did.

    They were criminals, coordinated crime sprees.

    They should have been called neo-liberal opportuniests.

    Its the speculative bankers, wall street traders, and politicians of the right, who should
    be called anarchists, they have destroyed vaste areas of social, ecological and financial wealth.

  15. Nick C 15

    Agreed that tax cuts dont boost tax revenue unless the current marginal tax rates are very high (above 50% at least)

    But the justification is simple: People tend to be far more careful about how they spend their own money than how they spend the money of others.

    I also find the idea that desire for tax cuts is motivated by selfishness to be really stupid. Lets say I believe that Labour will increase funding for public transport, which I like because I use public transport. Does that make it selfish for me to vote Labour?

    • r0b 15.1

      No, because other people get to use it too.  It’s public transport.

      Are you seriously arguing that the desire for tax cuts isn’t selfish?  

      • Nick C 15.1.1

        Yes, and other people will get the tax cut too.

        That depends what you mean by selfish. I believe that tax cuts will improve not only my life but the lives of others who recieve them because they get to keep more of their own money. Thats no more selfish than the man who believes that public transport funding will improve his life and the life of other people who use public transport.

        The alternative is that whether or not you are selfish depends on what mechanism you want your goods provided to you. If you want goods provided to you through the market you are selfish, but if you want the exact same good provided by a different mechanism (the government) you aren’t selfish. That seems like an arbitrary distinction to draw.

        • Vicky32 15.1.1.1

          Thats no more selfish than the man who believes that public transport funding will improve his life and the life of other people who use public transport.

          Do yourself a favour, and use inclusive language, do, it will make your diatribe much more readable (and read…)
          The ‘he/man’ syndrome as Dale Spender called it, is so American and so 1950s! 😀

        • r0b 15.1.1.2

          Yes, and other people will get the tax cut too.

          If your concern was for other people then you wouldn’t cut the top rate, you’d cut the bottom one, so everyone benefits.

        • KJT 15.1.1.3

          It is a bit of a no brainer that transferring some marginal income from those who spend it on Hawaii holidays or pushing up the price of existing assets, to those who spend it locally is going to help the economy.

          One of our biggest problems is now the amount that goes in profit and debt repayment offshore, rather than remaining here.

          Raising wages is a first step as that keeps more here. The next is to follow Germany, tax capital flows offshore and the rest of the, successful, world and tax speculation..

      • Nick C 15.1.2

        Also surely selfishness relates to the motives and not the effect. E.g. it might be completely uneconomic to run busses every 10 minutes instead of every 15 minutes, but I could support it nonetheless on the basis that I use public transport and it will benefit me.

        @Vicky: Unfortunatly this is the effect of spending my day reading English Court judgements from the 1800s 😛

        • Colonial Viper 15.1.2.1

          RWNJs love tax cuts as it benefits them individually, taking resources from the commons and putting it within their own private control. It is extra money for the wealthy in exchange for them doing nothing more or different than what they did yesterday.

          Your public transport example is highly irrelevant. No one has ever claimed that buses should run every 5 minutes just to their front door and directly to where they want to go. It’s a desperate example.

        • Vicky32 15.1.2.2

          : Unfortunatly this is the effect of spending my day reading English Court judgements from the 1800s

          Seriously, that’s not much of an excuse! I read American crap (only when I have to) but I refuse to make their spelling/grammatical errors… C’mon, it makes you look like a Libertarian! 🙂

    • mik e 15.2

      Nickc if we don’t spread some money around whathappens is businesses go broke people get layed of and this becomes a downward spiral ie the US

  16. Marjorie Dawe 16

    I noticed this comment in the spiel “If there’s one thing that Republican politicians agree on, it’s that slashing taxes brings the government more money” and I think its all about interpretation.

    Maybe President Bush meant that if taxes were cut, the (then) government would get more in political donations from grateful and already weathy supporters??

  17. Michael 17

    Interesting article, but the almighty graph and the conclusion drawn is flawed. It appears to me that economies with low top tax rates AND those with high top tax rates experience low growth. It appears to me that those with a rate around the 40-45% appear to outperform, and drops off after that.

    Economic theory that I have read indicates that reduction in top tax rates does indeed increase growth and total tax, but ONLY when top marginal tax rates are high to begin with. This passes the ‘common sense’ test too, if top tax rates are 70-80% where is the incentive to grow your business/income or employ more staff etc. BUT the problem is that the american right has followed this as a dogmatic truth across the board, and used it as an excuse to cut top tax rates even when they were low. Cutting top tax rates at a time when their total tax take is now only 15% of GDP (compared with 18% years back). If taxes are only at 20%, cutting it to 15% is not going to provide any serious incentive to do anything different, it just cuts tax revenue and thus services provided.

  18. randal 18

    michael. the example for your economic logic derived from the latest textbook now has a deficit of 14.3 trillion dollars (U.S.). or USD $14,300,000,000,000.

    • Michael 18.1

      Randal, love it. No it is the one the US radically departed from in order to provide further unsustainable tax cuts. My point is that cutting already low taxes further does not increase growth, which is exactly what the previous US administration did, and caused the huge debt problems they have now. But don’t throw the baby out with the bath water, cutting top tax rates from 70% does spur growth. My interpretation of the graph in the original post supports this, low tax = bad, high tax = bad, medium tax = good.

      • Colonial Viper 18.1.1

        High = 59%, Low = 39%, Medium = 49%

        • Colonial Viper 18.1.1.1

          I’ll add something here since it appears to me as if Michael’s concept of growth comes from the unsustainable neolib 1990’s.

          The US is not going to grow. US corporates…actually they are multinationals now (firms of no fixed abode)…have figured out that it is more profitable for their major shareholders to advance agendas with

          – Less employment
          – Lower wages
          – More uneven distribution of wealth across society
          – Reduced democracy
          – More reliance on consumerism and less on community.

          Hence the more “growth” there is, the more fucked we are. Well, except for the top 1% (realistically probably only the top 0.1% have it really good)

        • Michael 18.1.1.2

          Low is 39%? Are you for real?
          I think you are being somewhat unrealistic here. Dare I ask what tax rate you pay, as an effective tax rate (total tax / total income) rather than marginal tax rate? And I include in that any adjustments for WFF.

          • Colonial Viper 18.1.1.2.1

            I’m speaking about top tier income and corporate tax rates relative to historical rates in both the USA and NZ. Low earners should pay much less, in order to maintain the progressivity of the tax system.

            As a percentage of GDP, US tax revenues are the absolute lowest that they have been for about roughly half a century. No wonder they can’t afford shit over there without borrowing, hypersonic vehicles not withstanding.

            Re: my own circumstances, I can’t say much but it is satisfactorily efficient.

    • Colonial Viper 18.2

      US$14.603T actually

      http://www.usdebtclock.org/

      They had to add a huge one day lump sum on to the national debt after the last shenannigans because they had used all kinds of accounting tricks to keep it under the limit until the last minute. And then when the new debt ceiling got approved, they had to unwind all those tricks and account for them.

  19. Afewknowthetruth 19

    CV.

    That $14.6 trillion is only the acknowledged debt which is in full view. You can add at least another $2 trillion for infrastructure that has not been maintained as is in the process of collapsing, and another $1 trillion or so for demolistion of infrastructure that has no utility and needs to be disposed of ……for instance the authorities in Detroit hope to demolish around 1/4 of the city to make it ‘more manageable’ now that most of the manufacturing has vanished and a large portion of the people died or left. All across the ‘Rust Belt’ there are cities with monstrous financial debts and even bigger environmental debts they cannot cope with -everything from abandoned steel works to roads that are breaking up becasue there is ‘no money’ to maintain them.

    If the present drought continues much longer most of the agricultural land in Texas will be abandoned. No one knows for sure yet but a profound change in the climate could well be underway, rendering a lot of currently productive land in the US to semi-desert. They are in ‘unprecedented territory’.

    http://droughtmonitor.unl.edu/

    All the discussion about taxes and economics that takes no heed of real-world factors really is tiresome.

    • Colonial Viper 19.1

      Yeah, I hear ya.

      What they’ve basically done in the US is to draw down on their various balance sheets (financial, infrastructure, environmental, human) and pump the proceeds through the P&L statements of the wealthy as if it was real productivity.

      It’s insanity and it’s coming off the rails, no matter how much money printing they try and do.

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