Who says tax swap boosts growth?

Written By: - Date published: 11:35 am, May 17th, 2010 - 32 comments
Categories: Economy, housing, spin, tax - Tags: ,

Brent Edwards is a damn good journo but even he’s fallen into the trap of not seeing the ubiquitous spin on tax for what it is. Three aspects of his piece this morning were repetitions of spin:

When you cut income tax, of course those who pay the most tax get the biggest cuts

What rot. If you put in a 0% percent tax bracket (nearly) everyone would get the same cut in dollars. If you cut each bracket by the same amount, everyone would get the same percentage cut. But the Nats aren’t doing that. They’re saving the biggest cut for the top tax bracket – that can only benefit the rich. That’s not an inevitability, that’s the Nats paying off their class.

Landlords will bear the cost of higher tax on housing investment

No. They will pass as much as they can on to renters. In technical terms, the landlords may pay the tax but the incidence of tax is on the renters – mostly low income working families.

Tax cuts are expected to boost growth

Who says that? The Tax Working Group never said that tax reform would increase growth. Here the TWG has expected economic effects of its proposed changes (1B is closest to the actual changes we expect).No mention of higher growth. Higher inequality? Yes. Higher growth? No. Remember, the TWG wasn’t tasked with working out how to create a tax system that would grow the economy faster, it was tasked with working out how to pay for aligning the top tax rates at a low level.

Meanwhile, the Herald’s editorial comes from a depressingly predictable rich person’s viewpoint. The title is enough of a give away:

It may hurt but decisive Budget vital

‘It might hurt you, but it’s for your own good’. Let’s be clear. Working Kiwis, especially the renting poor, will hurt and so will property investors to some extent. But the rich are going to make off like thieves. We’re talking thousands of dollars a week for the richest New Zealanders, money that hasn’t come from higher growth or even from less spending but from increasing the tax on someone else.

The Herald then makes this ridiculous assertion:

Ideally, the top rate would be aligned with company tax at 30 per cent to remove further opportunities for avoidance.

Why should that be a priority? What good what that do? It would make taxation slightly more administratively simpler but would it do anything to make this a more prosperous, more equal society? No, it owuld make inequality rose. The money would go to the rich elite and would have to be funded by more tax on working Kiwis or cuts to the public services they use.

32 comments on “Who says tax swap boosts growth?”

  1. Bored 1

    Sounds to me more like fornicating flies fighting over the dung hill. Theres an assumption that the dunghill must grow, but hey the animal has eaten all the grass, done its bit and moved on, so thats all there is. And for the purpose of the fetid feast the heap as it sits is all that matters. The dunghill is not for the benefit of the small flies in this case, its for the fat flies who are merely concerned with eating what they can, and bugger the skinny flies. And the little flies might starve and perish whilst the fat flies wander off looking for their next meal. Perhaps some pesticide is in order for the out of control fat flies.

  2. Clarke 2

    You missed that other great tax-cut myth … that a lower top tax rate will create jobs. The mythology around this one should be easy to test – we only have to check the “before and after” employment numbers for Telecom once Paul Reynolds gets his income tax cut.

    • Craig Glen Eden 2.1

      Exactly Clarke, how the hell does reducing the top personal tax bracket result in businesses employing more employees, how does that improve productivity, this is all right wing crap for let me have more of the money!

  3. tc 3

    Bend over middle and lower NZ…..here comes another shafting by Sideshow’s mob with accompanying music to be served up by the msm to the tune of ‘ be grateful for having us as rulers you heathens’.

    The rich are doing it so tough aren’t they ? they simply don’t give an F for any other part of society.

  4. RedLogix 4

    Spot on Marty.

    It is vital not to forget that NZ has the second lowest tax wedge in the OECD, bar Mexico. The idea that we are somehow on the ‘negative’ side of the Laffer curve, and reducing taxes even further will increase total productivity has to be utterly risible.

    If low taxes were the route to national prosperity we would already be one of the wealthiest nations on Earth.

  5. It’s just a redistribution of the tax burden off the rich and onto the poor.
    Good for National’s wealthiest mates, but not the country or the economy.
    Plain and simple.

  6. Kevin Welsh 6

    So, what happens when Australia bring their company tax rate down to 28.5%? Will NZ follow suit? Does that then mean the top personal tax rate will then need to be aligned to the new company rate?

  7. Santi 7

    I had enough of subsidising lowlives and no-hopers. I work hard and prefer to keep my money instead of paying higher taxes destined to prop losers.

    If you believe taxes are low, why don’t you pay more? Follow your own advice and donate 70% or more of your income, but don’t ask the rest to do the same.

    • Bright Red 7.1

      “Follow your own advice and donate 70% or more of your income,” If you’re a low income worker coming of a benefit, your effective tax rate is at least 82.5% and can be over 100%.

      “I had enough of subsidising lowlives and no-hopers. I work hard and prefer to keep my money instead of paying higher taxes destined to prop losers.” Who would have thought – Santi is a Randian. Oh, please don’t shrug ,mighty Atlas, what would we do without you to carry us?

      • Lanthanide 7.1.1

        BR, can you show the maths that allows a rate over 100%?

        Several authors here have stated that this is a right-wing myth, and have been unable to find a set of circumstances where such a rate would materialise.

        • Bright Red 7.1.1.1

          Someone showed once how it worked. I can’t remember exactly. It involved student loan repayments and Working for Families abatement on top of benefit abatement and income tax. Arguably, student loan repayments shouldn’t count because they have to be made some time.

          • Lanthanide 7.1.1.1.1

            I remember I provided an example with student loan repayments, however my example was still short of being over 100%.

            • Zorr 7.1.1.1.1.1

              It is easy enough using a simple situation of a married couple (without a child in this case) where there is a single main income earnt by the person with a student loan:

              For them the cut out point on the UB is a grand total of $543.00 gross meaning that at the point they are no longer eligible their annual income is $28236.00.

              Using base rates with no ACC earners levy (though I would assume most people would pay this):
              $0 – $4160 bracket tax rate is 12.5%
              $4160 – $14000 bracket tax rate is 82.5%
              $14000 – $19084 bracket tax rate is 91.0%
              $19084 – $28236 bracket tax rate is 101.0%

              That is just the simplest example I can think of because I am one of those people who have ended up in this sucky situation. I still look at it positively because I am working my way out of the unemployment trap but it is still depressing some days.

    • Clarke 7.2

      I think it’s interesting that when push comes to shove, the Righties like Santi just blurt out what they actually think – it’s about greed, not economic growth, not jobs, but solely about having more money in your back pocket at the expense of anyone else in the country.

      He would therefore appear to be agreeing with Marty’s main point ….

    • fatty 7.3

      “I had enough of subsidising lowlives and no-hopers. I work hard and prefer to keep my money instead of paying higher taxes destined to prop losers.”

      Actually the “lowlives and no-hopers” are the ones propping you up.
      Through capitalism, the rich get rich from the hard work and low pay of the majority, not from hard work themselves.
      Or do you think all NZ’s can be rich, with no one poor?
      Come on Santi, this isn’t Homer Simpson’s fantasy land

  8. Fisiani 8

    The biggest inequality is that 10% of taxpayers effectively pay 70% of tax. This has to be fixed.
    Bring on a fairer tax system on Thursday.

    • Bored 8.1

      Yes, me too. So to fix this we will slash the rich 10%s incomes and redistribute to the rest of us and then we can all pay “our share” in an even handed way.

    • Bright Red 8.2

      The biggest inequality is that the wealthest 10% have more wealth than the remaining 90% and the bottom third have no net wealth at all.

      The progressive tax system and the public services it funds go some small way to redressing the inequalties at the heart of capitalism.

      Ultimately, that is for capitalism’s own good. progressive tax and public services = a pittance for buying off the revolution.

      captcha: truths

      • Indiana 8.2.1

        Is it possible to reach a state of nil inequality? I mean has that ever existed?

        • Bright Red 8.2.1.1

          Irrelevant.

          We have a highly inequal economy. There are societies that are wealthier, healthier, better educated, less crime-ridden, and happier than us and thay have got there by being more equal – Sweden, Norway, Finland etc.

        • Clarke 8.2.1.2

          The stats and the analysis around inequality come from The Equality Trust in the UK, who have conducted the most thorough research in the field. The takeaway message: the more unequal a society is, the worse the economic, health and life expectancy outcomes. They use NZ as an example of a highly unequal society that’s doing badly as a result.

  9. tc 9

    “This has to be fixed.Bring on a fairer tax system on Thursday…” Yeah Right……which alternate reality have you been living in ? That’d take intelligence and bollocks to broaden the base with a CGT and other measures, which this mob have already dismissed.

  10. aj 10

    What redlogix said at 12:42

    [lprent: You mean comment 4 ? I put those nice numbers on the right of the comment specifically for this type of reference.. ]

    • Lanthanide 10.1

      I think the visibility of the comment numbers could be improved a bit. For the first generation numbers, it looks like it is bold or perhaps a slightly larger font, anyway it is very visible. But for the child numbers it appears to be a paler grey. If you could make the child numbers the same shade as the first gen numbers, that’d be good.

  11. aj 11

    Ref comment 10

    Ahhhhhh. I see 🙂

    captcha: ‘inform’

  12. Nemesis 12

    It’s an economic fact that if you lower marginal income tax, the disincentives to work will decrease. It’s also an economic fact that if you increase consumption tax, people will be less likely to spend, and more likely to save and invest. Sadly marty doesn’t care about economic facts.

    • Bright Red 12.1

      Um. Marty writes that he supports higher GST if the revenue is used to lower tax on low income Kiwis, which would encourage them to work more.

      The problem is that the Government is using the money to give big tax cuts to the rich, and there’s no evidence that encrouages the wealthy to work more. They’re already wealthy why would give them more wealth for no extra effort encourage them to work more?

      No evidence has been presented that this tax swap will boost growth, just that it will worsen inequality

    • Lanthanide 12.2

      Unless you’re only (significantly) dropping the marginal tax rate in a bracket that most people never see. Which is exactly what National are doing.

      Sure, in the right-wing utopia, everyone can earn a $100k+ salary, but in the real world, there will always be people at the bottom doing low-paid jobs, and cutting the top marginal tax rate in no way provides them with increased incentive to work, because obviously from their current position they’d be perfectly happy earning $70k at 38% tax. Dropping that to 33% tax does not suddenly make them want to “work harder” because this change does not, and never would affect them directly (they will get all the indirect “benefits” like slashed social spending as a consolation prize, though).

  13. graham 13

    Why dont we just set a maximum wage in this country say 30k
    if you earn more than that you have to give it all away to the state
    If tax cuts are bad then a maximum wage limit has to be the answer

    • RedLogix 13.1

      I think you need to read this. Although you’ve kind of hit on the idea from one extreme end of it…the answer is yes there probably is an optimum total tax take.

      Obviously 100% tax is too much or no-one would have much incentive to do much more than provide subsistence level food and shelter.

      And obviously 0% tax is too little or the country would be such a dysfunctional hell-hole as no-one be able to do much more than provide subsistence level food and shelter.

      Somewhere in between is a civilised optimum. Most people thinks its somewhere in the 35-45% range. This puts NZ at around 20% uncomfortably close to the ‘dysfunctional hell-hole’ end of the spectrum.

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