The case for lowering the top tax rate

August 9th, 2011 at 8:38 am by David Farrar

Richard McGrath blogs at Not PC on how if you want the rich to pay more , you should them less. Recall that only half of our 100 wealthiest New Zealanders pay the top rate. Under the Goofynomics plan to have the top rate at 39% and the corporate rate at 28%, I’d say the number paying the top rate would drop to under 1/4.

McGrath quotes Keynes:

“[T]axation may be so high as to defeat its object, [and] a reduction of taxation will run a better chance than an increase of balancing the budget.”

And then he goes on to give some examples:

  • UK, 1979: Chancellor Geoffrey Howe cuts marginal tax rate from 83% (!) to 60%. Before the cuts, the top 1% of taxpayers were paying 11% of total income tax received. Nine years later, despite the hefty cuts, they were paying 14% of total income tax.
  • UK, 1980s: Chancellor Nigel Lawson cuts marginal rate further, to 40%. By 1997, the top 1% of taxpayers are paying 21% of income tax received. Thus halving the marginal tax rate doubled the income tax receipts from the wealthiest 1%.
  • US, 1920s: Presidents Coolidge and Harding reduced the top tax rate from 73% to 25%. The share of tax paid by earners making over $100,000 nearly doubled between 1921 and 1925, from 28% to 51%.
  • US, 1961: The top tax rate under Eisenhower had crept up to a staggering 91%. The Democrats supported by Kennedy dropped this to 70%. He stated, a few months before a sniper removed the occipital lobes of his cerebral hemispheres: “[T]ax rates are too high today and tax revenues are too low, and the soundest way to riase revenues in the long run is to cut the tax rates…” As a result of the Kennedy tax cuts, those earning over $50,000 increased the amount of tax paid by 40%, and paid 15% of income tax received in 1966, as opposed to 12% in 1963. Total income tax received went up from $69b in 1964 to $96b in 1968.
  • US, 1981: Under President Reagan, Congress reduced the top tax rate from 70% to 50%. Between 1981 and 1988 the top 1% of tax earners increased their share of tax received from 18 to 28%, while the bottom 50% of taxpayers decreased their contribution to income tax received from 7.5% to 5.7% over this same period.
  • Canada, 1990: Top federal tax rate cut from 45% to 29%; share of tax paid by top 10% of taxpayers increases from 29% to 45%.

Goff should know this. He was one of those who voted to lower the top tax rate to 33% in the 1980s.

If you spend all your after tax income, then those on the top tax rate already pay 43% of their income in tax, when you include GST. We’ll leave ACC out of this for now. I think that’s more than enough.

Tags: ,

49 Responses to “The case for lowering the top tax rate”

  1. Danyl Mclauchlan (941 comments) says:

    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

    [DPF: NZ lowered tax rates across the board, not just the top tax rate. Also the recession is a major factor in reduced revenues.]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. ben (2,279 comments) says:

    One story I heard, let’s assume it is true: the main reason Cassius Clay only fought a single championship bout a year early in his career was a staggeringly high tax rate that essentially made a second fight worthless. A tax cut improved incentives to make more fights worthwhile.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. tom hunter (5,134 comments) says:

    Could be that NZ is …. different?

    In any case DPF, why on earth are you trying to help the left increase the total tax revenue of the government?

    I say bring on the return of the golden weather: Income Tax rate at 66% on anybody who earns more than $100K a year. And a big wealth tax too.

    That’ll show ‘em.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. scrubone (3,097 comments) says:

    My observation is that lowering the top tax rate does not always lead to higher revenue, but if you want to cut revenue then hiking the top tax rate is a pretty good way to chase away your best sources of revenue.

    The point is well made however that simply pointing to a bunch of rich people and claiming they don’t pay enough tax *doesn’t* mean you’ll actually get that tax out of them. By definition, the rich have be best facilities and most motivation to avoid higher taxes.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. Pete George (23,793 comments) says:

    Why leave ACC out? It adds 2.04% on top of PAYE.

    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.

    Not necessarily, a severe and extended depression was presumably a major influence.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. queenstfarmer (782 comments) says:

    It may well raise more tax, but there’s still a clear problem in the system. A recent galling example was when David Henderson was bankrupted recently:

    During a hearing to determine whether Henderson’s proposal would be accepted, it was revealed he had paid only $17,000 in tax over a 16-year period – less than someone on a minimum wage would pay.

    This is a guy who lived in a luxury penthouse apartment, jet-setting around, etc. And he paid less tax than a minimum wage cleaner who works the graveyard shift. If that isn’t a fucked up outcome, I don’t know what is.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. homepaddock (408 comments) says:

    There’s tax rates and tax take – lowering the rates can increase the take.

    Ruth richardson used to illustrate speeches with graphs showing that after tax cuts in the early 90s the tax take increased.

    When tax rates are high people have more incentive to avoid them. When they’re lower they concentrate on more productive pursuits.

    @ Danyl – we’ve also had a recession and earthquakes have hit Christchurch which accounts for about 10% of our economy.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. adze (2,130 comments) says:

    Speaking of income tax DPF, one of “the panel” on NatRadio yesterday (David Slack I think) had a go at your comments about the percentages of net tax a few weeks back. Basically he accused you of disingenuity by not including other taxes such as GST in your calculations.

    [DPF: If the IRD recorded for each person how much GST they pay, then I would use that. But sadly we have no data on how much GST is paid by individual households. At best we have estimates for bands]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. tom hunter (5,134 comments) says:

    The Henderson case is almost impossible to believe, but it certainly causes me to look at all the tax I’ve paid in the last ten years and conclude that I’m a sucker – whilst also being a rich prick.

    Of course, at the end of the day he’s now bankrupt while I’m very solvent. It’s almost an existential investment proposition: the NPV of 16 years bonking models in a luxury penthouse apartment ending in bankruptcy vs. 20 years of marriage, raising kids, building a home and a life and toddling off to work on a reasonably regular basis.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. Nigel (493 comments) says:

    @scrubone nailed it, the problem is the top tax rate get’s salaried professionals mainly & there is global demand for their skills so they can/will move.
    It’s an envy tax that makes no logical sense, getting 33% of my income is better than 0% when I live in Oz/Europe/Asia or wherever I’ll go, last time it was London.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. Nigel (493 comments) says:

    What really get’s my back up is I’m paying for my children to go through Uni ( which is fine ), but because I’m salaried & don’t own a business/farm & can dodge tax I’m also subsidising those children & on top of that Labour wants to increase my tax rate to increase the real income gap between higher income salaried professionals & business owners/farmers, well sorry but that really sucks.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  12. dime (10,209 comments) says:

    top tax rates have nothing to do with revenue. they are there because of envy and are designed to punish. they also make the mean little lefties who havent achieved anything feel better.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. mikenmild (12,321 comments) says:

    Nigel

    I guess it’s swings and roundabouts. Being on a salary usually means a bit more security, but less opportunity to cheat. Running a farm or a business is often harder work and a riskier overall proposition, but with the bonus of being able to fiddle things your way a lot more.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  14. tom hunter (5,134 comments) says:

    I’m glad to see someone mentioned the recession and Chch earthquake in response to the whole tax revenue has declined meme.

    It seems we hear that polemical argument from the left every time the discussion is around tax rates, as it did yesterday on the teabagger thread, when one person jumped up and down connecting the Bush tax cuts in the US with the lowest tax revenue take in decades. Same implied argument, that raising the rates would haul in more money, which is technically true, but would come nowhere near compensating for the loss of tax revenue due to the worst post-WWII recession.

    Never stops that sly argument being made by lefties however.

    Nigel
    I own a farm, but because I’ve owned it for a long time I don’t get the “benefit” of multi-million dollar debts. So guess what – I pay tax, rather a lot of it and aside from debt there aren’t many ways to significantly reduce it.

    Sadly, looking at your response, I can see that a carefully crafted policy from Labour in the future that lumps me in with Henderson and Bob Jones might have a chance of getting your vote?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  15. lofty (1,317 comments) says:

    mikenmild, so what are you implying here?

    Is it that most “business” people fiddle the tax system, ergo are cheats?

    Is it that some “business” people fiddle the tax system, ergo are cheats?

    Is it that you really have no idea what you are saying, and just want to make yet another inane comment?

    I have worked both sides of the spectrum, and I don’t find it any easier to “fiddle” with the tax system now than I did as a salary earner.

    one thing is for certain, as a business owner my “contribution” to NZ is a hell of a lot higher now than then.

    Yes we work within the law to minimise our tax obligations, surely you would expect no less. The law is there to be worked within.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  16. trout (953 comments) says:

    The problem with discussing taxes it always gets personal and invariably includes an envy factor. Take Henderson for example (mentioned previously) (and I am not an apologist for the man or his lifestyle); if you took into account the building stock he developed;, the jobs he created, and the GST earned from his enterprise the State would be well ahead. And remember that this was done at his own risk and led to his ultimate demise. Perhaps he paid no tax because he never made any money; it may be that his lifestyle was Bank financed.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  17. Pete George (23,793 comments) says:

    Is it that most “business” people fiddle the tax system, ergo are cheats?

    It’s hard to quantify, but it’s common to fiddle the tax system – whether in business or getting mates rates or dealing under the counter.

    Farmers have definite tax advantages – when I had a business I couldn’t get things like a tax free newspaper at home or apportioned house (office) costs or a tax free meat supply. They also often have relatively low incomes so can qualify for WFF and their kids can qualify for student allowances.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  18. Sonny Blount (1,809 comments) says:

    Tax free newspapers!

    Where do I sign on?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  19. lofty (1,317 comments) says:

    Woah up there, Pete.

    All those things are WITHIN the law, which is partly the point I was trying to make. of course a business person trys to take evry chance to maximise profit, and working within the law to do so, is one of the methods.
    They would not be much of a business person if they did not do so in my humble opinion.
    WFF for some people has a threshold cobbled together as a vote bribe by the “other” lot, lest we forget.

    Personally I do not come close to qualifying, but again we do everything working with our accountant to minimise our “contribution” to NZ.

    It is the undercurrent of jealousy that perturbs me more than anything Pete, & the snide comments from the like of that recently prolific purveyor of inane comments mikenmild.

    Perhaps I will ask our 20+ employees if they want to run the business, I know the answer, not one of them would swap places. After all 40 hours v 70+ is a no brainer.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  20. tom hunter (5,134 comments) says:

    … or apportioned house (office) costs …

    Eh? My IT consulting business could do that now but I worked through the numbers with the accountant years ago and concluded that it was just not worth the administrative candle.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  21. Chris R (71 comments) says:

    I think the % evaluation of tax liability is wrong. Whether the top rate is 20% or 60% the alleged “rich pricks” will pay more tax than the rest because they earn more. There is no correlation between income and reliance on state services therefore higher tax rates can only exist for punitive reasons.
    I suggest a 20% rate for everyone, the Gst at 10%, and contemporaneous abolition of the illusionary welfare policies.(If the poor are remaining poor then the existing policies aren’t working.) We’d all have less incentive to dodge tax payments and at the same time more incentive to strive and enjoy our earnings.
    The unseen spectre in this debate is the drain less direct taxes are making on the economy…local authority rates, fuel taxes, registration, passport and regulatory costs…it is truly ugly.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  22. themono (128 comments) says:

    “If you spend all your after tax income, then those on the top tax rate already pay 43% of their income in tax”

    That’s a terrible assumption to work with. The odds that someone on the top tax rate is spending all their after-tax income is phenomenally lower than someone on the bottom tax rate… You may as well assume that they spend none of their after tax income.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  23. Nigel (493 comments) says:

    @ Tom Hunter, I can’t see Labour ever getting my vote :), I don’t have a problem with people minimising tax, heck it is compulsory & whilst I agree with a land tax/CGT in some form, I can’t see Labour coming up with one that makes sense.
    My issue is not with the pro/con of being salaried vs a business owner, you win various ways as @mikenmild pointed out.
    I have an issue when Labour want to mark my income as a soft target and tax me > 50% of my income ( 40% + GST ) vs others on similar incomes who say own a business & pay company tax ( I think the current disparity in top tax rate & company tax rate is fair, reflecting different risk & also the lower marginal rates for salaries ).
    It’s about being fair & Labour just get up my nose on their top tax rate policy as it changes the pro/con balance of business owner vs salary dramatically & encourages tax dodging & bad business practise ( minimising revenue, basing reinvestment strategy on tax vs productivity ).

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  24. tom hunter (5,134 comments) says:

    Nigel

    Thanks. I’m sorry to say that I have voted Labour a couple of times, first in 1987 with no regrets, then in 1999 – with huge regrets.

    Sadly, I think McGrath and DPF will be pushing stuff uphill on this one. Whatever rationale can be applied it will always be trumped by the sort of sly, polemical morphing of the tax rate/tax revenue point that we saw in Dim’s response, combined with good old NZ Egalitarian envy.

    But more than these factors – far more – will be the simple force of an ever-rising tide of demand for money from the government institutions the Left have built in this country. Even as the social welfare state continues to die off with ever more rationing, it will still become a simple matter of arithmetic: more money will be demanded from the only ones who still have some left.

    I hate to sound so fatalistic but frankly I’ve been preparing for this for several years. My target date is 2014, but Labour may prove to be incompetent enough to be held off until 2017. After that, in coalition with the Greens, all bets will be off. I’m just going to make sure that I will not be in a position to be fleeced to feed their insanity.

    Call it civil disobedience.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  25. emmess (1,398 comments) says:

    I don’t think the biggest problem in NZ in 2011 is tax rates on high income earners
    It’s the effective marginal tax rate on upper middle income earners which can be around 80% depending on circumstances
    30% tax + 25% WFF abatement rate + 25% accomodation supplement abatement rate.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  26. mikenmild (12,321 comments) says:

    Adjustments to the top rate of personal income tax seem to be a bit overemphasised. Did we see huge rate of avoidance before the recent tax cuts for top earners? Are these changes actually sufficient to warrant to hysterical prediction that the numbers paying the top tax would drop by half? I don’t really have an opinion on what the rate should be; this is more about symbolism for Labour vs National.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  27. mikenmild (12,321 comments) says:

    Sounds like tom will be building a hideout in the bush and leading a guerilla campaign against the next Labour government, emerging periodically to fire-bomb IRD offices and distribute underground libertarian literature!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  28. tom hunter (5,134 comments) says:

    Awww mikie, that is such a cool image. You should be writing scripts.

    In my case you can think of it more as me lying in a hammock in some shack in the bush catching up on the reading.

    Civil resistance via sheer laziness!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  29. LabourDoesntWork (292 comments) says:

    In any case DPF, why on earth are you trying to help the left increase the total tax revenue of the government?

    Fair question to ask of the right. Rush Limbaugh is fond of pointing out how the treasury’s take under Reagan and Bush 2 increased with tax cuts. This reflects what even those on the left know: that the rich pay more tax, so, if you lower tax you help make people richer, and overall economically healthier, which leads to a greater tax take in absolute terms. Because the left love the fact that the rich pay more tax. So, why does not the left want to help make people richer?

    Pointing out the increased take in treasury resulting from tax cuts is useful for: 1) Pointing out that what socialists really want is to persecute the rich without a mind to what rationally is in their supposed idealogical interest in terms of how wealth redistribution can help those receiving it. For them it’s a matter of pure envy at those who have more than others. It’s emotionally satisfying to “screw the rich”, which simply evil and destructive, despite their own alleged “wealth redistributive” goals on behalf of the poorer among us.

    2) The goal for the Right which is cutting government spending, its size and intrusion in society. If treasury’s take is on the up then government is better off and spending can be cut, and taxes further cut. Afterall, most government income is from tax – it doesn’t create wealth – paid from the wealth creation of individuals. This is the way to a prosperous society. The alternative is always government for government’s own sake: a growing dependent and unproductive subclass and guaranteed votes for leftwing parties; the persecution of wealth creators and the middle class on up; and, more money for vote-buying politicians to throw around.

    For the left it’s always us-versus-them – the class-based society, where people are locked in to their socioeconomic group. The left doesn’t believe in helping allow everyone to prosper because they know government can’t do this. And it can’t: zillions in wealth redistribution has not moved one dependent into the middle class. The left’s sick view of capitalism is a projection of their own class-based view of people, with no faith in the power of the individual, that government can aid by getting out the way in improving their own lives. Socialism is emotion-based, it’s evil and it destroys wealth and human aspiration…

    “The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fibre. TO DOLE OUT RELIEF IN THIS WAY IS TO ADMINISTER A NARCOTIC, A SUBTLE DESTROYER OF THE HUMAN SPIRIT. It is inimical to the dictates of sound policy. It is in violation of the traditions of America. Work must be found for able-bodied but destitute workers. The Federal Government must and shall quit this business of relief.” FDR (hero of the left and creator of the welfare state before it became a racket)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  30. Nigel (493 comments) says:

    @Tom it’ll depend a little what Goff’s successor goes for, certainly you’d be wise to have a decent chunk of your money somewhere out of the reach of Labour’s paw’s, second house in Manly :), got a mate on the waterfront there, he reckons a great spot.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  31. tom hunter (5,134 comments) says:

    Nigel

    Jesus, that’s a little lame.

    Mikenmild’s fevered imaginary scenario has a real Götterdämmerungish look and feel to it that seems more appropriate to the times than your wimpy real estate speculation.

    In fact I can’t help wondering if he’s doing the usual leftie thing and projecting what the left will do when their institutions burn themselves out – the whole Francis Fox Piven scenario?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  32. Viking2 (11,667 comments) says:

    mikenmild (1,702) Says:
    August 9th, 2011 at 10:54 am

    Sounds like tom will be building a hideout in the bush and leading a guerilla campaign against the next Labour government, emerging periodically to fire-bomb IRD offices and distribute underground libertarian literature!

    Nah, he will be in a rest home before Labour resurect themselves.
    Like Rome that are doomed and will destruct. The only reason most of them are hanging in there is so they can share the dollar spoils as the assets are sold.Think about it. There must be some dollars to be had. Needs a Breirley type takeover.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  33. tom hunter (5,134 comments) says:

    Nah, he will be in a rest home before Labour resurect themselves.

    I wish. But given a rocking chair and a shotgun ……

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  34. kiwi in america (2,314 comments) says:

    Barack Obama revealed the mindset of the left over this issue of taxing the rich during an interview during the Democrat Primary season in 2008. When asked whether he supported the reintroduction of a death tax (estate duties) he said he did. When confronted with the irrefutable evidence that previous re-introductions actually reduced the tax take from the wealthiest 1% (because their accountants found innovative ways to avoid it), he stuck to his guns and said that he supported its re-introduction on the grounds of “fairness”. In other words a straight ‘punish the rich’ envy tax even if it was ineffective at raising revenue. He of course got himself into a spot of bother in the last 6 weeks of the campaign when he told Joe the Plumber in Ohio that he wanted to make him “share the wealth around” and finally he once mused at a fundraiser when he thought the microphones were off that some people earned too much money and that there perhaps should be a cut off when anything above that was “too much”. Of course Commissars in the Washington DC (or Wellington) get to decide what is “too much”.

    True to his background as a well salaried and tenured academic and then a life as a professional politician, Obama has been isolated from the realities of the small business people that earn over $250k that he deems as ‘rich’ and therefore worthy of paying more tax. If the Bush tax cuts are allowed to expire (effectively a tax increase that will fall mostly on the middle class) look for millions of small business owners finding ways to keep their income at no more than $250k. Already scared off hiring by the open ended taxes and mandates of Obamacare driving up their costs of insurance for their employees to levels yet unknown, the tax increases that Obama seeks under the guise of “balance” and “fairness” are a recipe for institutionalising lack of growth. I know a half dozen friends and neighbours in this very category and they all say expansion is not worth it. The left wonders why $2 trillion of cash stays on the sidelines whilst wealth creating Americans have decided just to wait this President out.

    The left just don’t understand wealth creation. They see companies as being run by pampered rich pricks who have it coming to them and who are mean and stingy and need the state to force them to be generous through higher taxes. They think that the taxes paid by business owners (and the taxes on the wages of the people they hire and the consumption/sales taxes on what they buy personally and by their business) are just a bottomless pit of profit that they can tax and regulate. The number of large companies in the US contemplating moving their manufacturing operations to Mexico or Canada is staggering. They all say the No 1 reason for contemplating the move is not just for the lower wages but the fewer job and profit killing regulations and the relative certainty of the business climate in both neighbouring countries. NAFTA means the trade of goods is tariff free. California is a microcsm of this problem. High taxes, extra taxes not levied elsewhere (levies on plastic bags, on rubbish collection etc), excessive regulations, incessant new requirements and mandates and the higher cost of wages, power (driven by green energy mandates), high land/rent and fuel (again almost the highest state fuel taxes) costs is driving thousands of businesses out of CA to low/no tax states with lower land and energy costs and a more business friendly environment like TX (much more raid permit granting time with less red tape and lower medical costs due to tort reform greatly reducing frivilous law suits). Even flagship CA companies like Google and Apple keep their HQs in CA but move more and more of their manufacturing and computer servers out of state or offshore. The result: CA has almost the highest rate of unemployment and TX has one of the lowest and is on the verge of bankrutcy with constant budget blowouts that are almost always closed by yet more job killing taxes. Its not rocket science.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  35. Brian Smaller (3,965 comments) says:

    The fact is that you could tax the rich 100% and it would not make a blind difference to budget deficits. The only way is to cut spending and reducing the size of the bureacracy. This applies in the States and here.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  36. SPC (5,664 comments) says:

    It all depends how the income is being received – it’s rare to avoid tax on salary income.

    Measuring just the top 1% of income earners may not include that many being paid to that level in just salary.

    PS The gap between a 39 cents top income rate and a company tax rate of 28 cents is lower than in much of the OECD.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  37. SPC (5,664 comments) says:

    PS Information about the efficacy of the tax changes should include details about loss of exemptions etc (or taxation of perks) that presumably were also part of the package (and also changes lowering tax on other taxpayers and transfer to regressive consumption taxation).

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  38. Nigel (493 comments) says:

    @Tom seriously you’d rather a hammock in the bush vs a front row seat overlooking some of the finest examples of the female species sunbathing at Manly, you’ve been spending to much time on the farm I think :).

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  39. tom hunter (5,134 comments) says:

    Nigel – you’re a good salesman, but if I open the door on this angle some leftie might offer me a set of Scandinavian blondes for five years in exchange for Scandinavian taxes for the rest of my life.

    And I might be tempted.

    … and it would not make a blind difference to budget deficits.

    Oh I don’t think it’s about that any longer, if it ever was.

    No, that’s just calm, reasonable, pragmatic language designed to ease – what was it that SPC once said – …. this sense of threat from the urban poor masses.

    It may have been the toiling masses, but I was laughing so much at the complete lack of self-deprecating humour or irony with which it was delivered that I can’t remember the exact phrase used.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  40. Weihana (4,620 comments) says:

    Interesting logic here. Taken to its extreme tax revenues will be maximized at 0%. Obviously that’s an absurdity but the point is that you cannot assume that lowering taxes will ALWAYS increase tax revenues and so far I see no argument or analysis by anyone here that explains why current top tax rates are too high in terms of maximizing revenues.

    Taxation at 0% and 100% will both result in no revenues, so between those values there exists some optimal point which will maximize productivity and tax revenues. If people are going to argue that current rates are to the right of this optimal point then they should say what rate they consider would be optimal and provide some basis for their figure.

    Of course for a Libertarian like McGrath the optimal rate for him would probably be something close to 0% because government = socialism. So it seems rather dishonest for him to advocate an argument on the basis of increasing revenues when ultimately he doesn’t want increased revenues, he wants reduced spending. I’m also skeptical of his figures given that many of those figures don’t talk about absolute numbers but percentages of overall tax income but suffice to say he would be correct to point out that cutting taxes *can* (but not necessarily) lead to increased revenues.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  41. tom hunter (5,134 comments) says:

    Interesting logic here.

    I think I can safely speak for every right-winger here when I say that we’re all well aware of the reductio ad absurdum involved, as was Laffer in the early 1970’s and JFK’s economists in 1961.

    That’s why I made the comment that NZ may be different from the US in terms of the tax revenue effects resulting from increasing or dropping tax rates.

    But as far as the argument is concerned that nobody here can explain why current top tax rates are too high I would say that the reverse is also true. Can you and other left-wingers explain why they’re not high enough – beyond the obvious point that we don’t have enough money to cover all our government spending (and of course you know what the response of right-wingers will be to that line of argument)?

    I’d say this debate has more to do with what the money is being spent on, what it should be spent on, the mechanisms by which it’s spent (e.g. does it look like another bottomless pit of “free” stuff) and hence what level of tax revenue right-wingers feel is justified. So I’d probably focus on the spending first, get agreement (hah!) and then work backwards to what is needed and who pays for it.

    That debate will likely be just as fruitless – especially when we reach the shame and guilt stage of being accused of throwing grandma off the cliff. But I’ve reached the point where I’m unwilling to agree to tax increases until I know the answers to the spending questions.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  42. mikenmild (12,321 comments) says:

    tom hunter

    Seems a reasonable enough approach, although as you say agreement on the spending is unlikely. Interestingly, governments decide on what they want to buy and then set their income, whereas individuals generally have to do the exact reverse.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  43. Weihana (4,620 comments) says:

    “So I’d probably focus on the spending first, get agreement (hah!) and then work backwards to what is needed and who pays for it.”

    That sounds pretty fair as tax revenues are only as good as what they are spent on. Note I don’t necessarily support tax increases. I haven’t any firm conclusions on whether an increase to the top marginal tax rate is a good idea. But I am suspicious of arguments that appear to be based more on ideology than pragmatism and a libertarian arguing for tax cuts look pretty ideological to me.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  44. SPC (5,664 comments) says:

    The first thing someone researching the topic to determine the efficiacy of various tax systems would do is compare taxation systems.

    In particular given our supposed knowledge of the importance of having a top rate close to the company tax rate is why this is not rated as important overseas. Are other nations not burdened by tax avoidance because of this, and if not, why not?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  45. SPC (5,664 comments) says:

    PS We rated 13th/33 (OECD) on share of GDP to government, so our spending is not high and we are rated one of the lowest for personal income tax.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  46. Viking2 (11,667 comments) says:

    I think that it has been said before that a neutral tax rate which people accept as fair and reasonable is in the 18 to 25% area.
    Most people are fair and reasonable about their taxation.
    The issue as always is why is the state taking money and spending it on things that people should do for them selves and businesses that should support themselves.

    Who gave the various Governments permission to spend as they do???

    E voting and E referenda would soon sort some of that out.

    Long past time for culling about 2000 quangos but as the election came and went and times go on the number has swelled no doubt. That despite the constant cry to get rid of them. Have any died this last 3 years and what was the saving and what replaced them at an even higher cost. Christchurch anyone???

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  47. Feanor (38 comments) says:

    “If the Bush tax cuts are allowed to expire (effectively a tax increase that will fall mostly on the middle class) look for millions of small business owners finding ways to keep their income at no more than $250k.”

    Why would any small business owner try to limit their income to income to $250k just because income above that level would be taxed at a slightly higher rate? You’re not so ignorant that you think repealing the Bush tax cuts would mean someone who makes $250,001 has their entire income taxed at a higher rate?

    “The left wonders why $2 trillion of cash stays on the sidelines whilst wealth creating Americans have decided just to wait this President out.”

    Can the right explain why they also waited out the whole Bush presidency which had the lowest rate of job creation since WW2?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  48. leftyliberal (651 comments) says:

    Can someone give a clear example of any NZ government reducing government spending (and thus decreasing the need for the total tax take to be so high?) It seems to me there’s a fundamental error in logic in assuming that any government is actually about reduced spending at all. All I’ve ever seen is either blatant increases in spending or essentially useless fiddling (i.e. “savings” of a few million here and there) from both sides of the house. There may well be more increases under red than blue (some numbers would be good on that) but there’s never really been decreases in real terms right?

    The problem with our tax system (particularly at the wealthy end) is that it’s clearly not doing what it’s supposed to: There are many really wealthy people that don’t pay as much tax as others that are less wealthy **. Fixing that won’t happen by raising tax rates – it’ll just exasperate the problem. To fix it we need to remove the loopholes. A universal CGT or landtax or transaction tax would do so. There’s never any real push for real change from NZ governments though. Labour to their credit put up a CGT. Unfortunately it’s full of holes making an already leaky ship even more leaky (and thus even more complicated and expensive).

    ** Some may claim that they’re being taxed or are contributing to society in other ways via “job creation” or some such. This is completely unsubstantiated as far as I can see: Typically the wealthy spend less (proportionally) of the wealth they create than those that are poor, ergo they contribute proportionally less in both tax and in spending than do those that are less wealthy.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  49. SPC (5,664 comments) says:

    New Zealand tax is 30% of GDP 13th lowest out of 33 in the OECD.

    Universal CGT means people who move residence have to increasse their mortgage to buy a replacement home (increases foreign debt). Simpler is a threshold to family home exemption. There is already universal land tax – rates. It already includes exemptions (rates rebate) for those on low incomes (retired, beneficiaries and the low waged) lest people be forced to sell their homes when they could not pay the rates/land tax because of low incomes.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote