The Right is trying to build momentum for more tax cuts for the rich. The argument comes on three fronts: ‘if we don’t lower company tax rates even further businesses will run away’, ‘if we don’t lower income tax on the rich even more, they’ll run away’, ‘tax rates should be the same or people will spend money gaming the differences’. Right-wing economist Craig Elliffe was rolled out in the Herald yesterday to make these arguments but he just shows the holes in them:
Companies have the third-highest tax burden in the OECD (measuring tax revenue as a percentage of GDP), and the Treasury is still concerned the company tax rate is among the highest in the smaller OECD economies
We’ve got to get off this stupid race to the bottom on corporate taxes. It’s just the multinationals bidding countries off against each other, threatening us with capital flight. They’ll never be satisfied – our low 33% rate became too high, now 30% is too high. As a mate said t me the other day ‘we could take it down to zero percent and they’d still be saying its not enough incentive, they would want tax credits’. We’re being tricked into a race to a receding bottom – a game that businesses have used to make towns in the US compete against each other that they are now making international. It just means more profits for the capitalists, and slashed public services or debt for the rest of us.
The burden of personal tax is also high, with New Zealand again the third-highest in the OECD in percentage terms. In the 2009 Budget the top 1 per cent of taxpayers pay 15 per cent of the tax, while the top 3 per cent pay 26 per cent. It is not known if these high effective rates of tax contribute to our having the highest diaspora (population of New Zealand-born expatriates) of skilled workers in the OECD, but highly skilled people are mobile and sought after in the global economy.
Two problems here. Elliffe’s figures relate to the share of tax paid by different income groups but he then refers to these numbers as “high effective rates of tax”. That’s a bit like saying an apple tree has more leaves, therefore its apples are sweeter – they’re just not the same thing and Elliffe must know that, unless he got his qualifications of the back of a cereal box. Honestly, this guy is a professor? And he thinks it is OK to mislead us like this? What the f#ck is wrong with academic standards in the economic departments of this country’s universities.
Secondly, Elliffe admits there is no evidence that marginal tax rates influence people’s choices to emigrate. In fact, the evidence is that wages are far more important than tax and that makes sense – Aussie wages are much higher than Kiwi ones, the tax rates are within a few percent of each other. And there is no ‘brain drain’ anyway – emigrants are disproportionately lower skilled – they go to Aussie for better pay in manufacturing, construction, mining (sectors that have very high levels of unionisation in Aussie).
A related problem to our high taxation of business (in particular company) and personal income taxes is that, according to the Treasury, there is growing evidence these types of taxation are bad for productivity and the most negative for growth.
It’s obvious that taxing work is going to decrease economic output. That’s one reason why we ought to be taxing capital accumulation but Elliffe can’t resist trying to bolster the argument with a lie that is meant to encourage tax cuts for the rich. Our corporate tax rate is not high. It’s right in the middle of international rates. Our income taxes are not high – we have one of the smallest ‘tax wedges’ (the portion of money paid out by the employer for employing someone that gets taken as tax) in the OECD and one of the lowest top tax rates.
an individual is subject to tax at 38 per cent on the highest rate of income, the company in which he or she invests, or carries on business through, is subject to tax at 30 per cent. Meanwhile the family trust, of which he or she is the beneficiary, pays tax at 33 per cent.
Note how it is assumed that all taxpayers (or at least all the ones that matter) are in the top tax bracket, when only 10% are. For the great bulk of people the ability to game the different income, corporate, and trust rates is irrelevant because they don’t have the income to make it worthwhile. Elliffe, like all the Right, seems to thing the solution to some people ripping off the rest of us but exploiting loopholes to take advantage of this different tax rates is to make all the rates the same (at the lowest, or an even lower level, like 27%). Seems to me that is like saying ‘well, some burglars manage to break into some houses, we may as well disband the Police and leave the doors open’. Why reward the bad behaviour of some high income people by giving them all a great big tax cut?
Working for Families tax credit scheme, designed to help families with children by adjusting tax payments. Sometimes these payments are adjusted so some people pay “negative amounts of tax”, that is, they get larger transfer payments than they pay in income tax. As their income rises the amount of aid they get abates. The rate of abatement in some cases can be greater than 100 per cent [no it can’t]. In 2008 nearly 170,000 people in the country were on tax rates above 50 per cent.
This is throwing the baby out with the bathwater stuff. As anyone who can count knows you can’t have a decent level of family tax credit (which is a huge help to low income families) with a low abatement rate without having a high upper income for people getting it. You can’t do all three, if you lower the abatement rate (to reduce the marginal tax rate) you either have to slash the size of the full credit or people on higher incomes will get it. Working for Families works well. So a few people have higher marginal tax rates, so a small number of high income people get small payments, so what? They minor and unavoidable side-effects of a good system.
All these arguments for getting rid of tax credits for the poor and putting in more tax cuts for the rich have gaping holes in them. That’s because they’re not really arguments, they’re excuses. Excuses for more money grabbing by the rich.