Guest Post: 85% OF TAX REVENUE COMES FROM THE PRIVATE SECTOR

March 4th, 2014 at 2:00 pm by David Farrar

A guest post by Kiwi in America:

The left are totally invested in big government. The power of the state is the mechanism that they use to bring about a just and equitable society. Their goal is to the productive sector as much as possible to pay for ever more costly social programmes that they hope will create equality and thus a fairer and happier society. When they run up against the reality that the owners of capital are intelligent and seek the best returns on their assets and that a good percentage of capital is mobile and can be moved to jurisdictions less hostile to enterprise, they show their utter ignorance of how the free enterprise economy works.

A game I love to play with lefties who are employed in the government sector is to ask them who pays their salary. The conversation goes like this:

Me       Who is your employer?

Lefty   The University

Me       Who funds the university?

Lefty   The government

Me       Who funds the government?

Lefty   The tax payers

Me       Who employs the taxpayers who pay the taxes who fund your salary?

Lefty   Pause ….employers

Me       What percentage of employers are private sector companies?

Lefty   Cottoning on to where I am heading – “well the taxes from the employees of the government sector pay as much tax as the private companies and anyway all private company owners do is try to avoid tax”

Me       Actually 85% of the total government tax take comes from the taxes paid by private sector companies, their employees and the self-employed – the productive non-government sector of the economy

Lefty   That’s absolute rubbish and right wing propaganda

If any of you have had this discussion, here are the statistics to back up the claim – that 85% of all tax receipts source from the private sector activity in the economy. Almost all the money that governments expend on government services and benefits come from the pockets of hard working New Zealanders who own, or are employed by, evil capitalist companies. The chart below is a summary only and each line is footnoted – some to government department websites and the rest to supplementary charts that are available below the fold for those interested in seeing how I arrived at the total numbers. Note that the staff numbers for government entities were lifted from the statutorily required Annual Reports that each file in Parliament or from the entity’s own website.

The table provided is embedded below.

 

 

Public vs Private Sector

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71 Responses to “Guest Post: 85% OF TAX REVENUE COMES FROM THE PRIVATE SECTOR”

  1. Colville (2,166 comments) says:

    Paua (abalone) divers. $6 mil revenue with 3 employees! I like that!

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  2. Harriet (4,614 comments) says:

    “…..The left are totally invested in big government….”

    And National.

    They jail you if you don’t pay the taxes to run big government. They even built a ‘privately run prison’.

    Some kiwis round here are real smart y’know. :cool:

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  3. hj (6,686 comments) says:

    So where do Kiwi i America’s views differ from the Tax Working Group?

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  4. Psycho Milt (2,363 comments) says:

    Was there a point you were trying to make?

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  5. lolitasbrother (580 comments) says:

    Mr. Farrar your graph does not give away the actual amount of taxes of the Companies.
    It gives expenses and income, of some Companies.
    The article is weak .
    It does not give a proper analysis of revenue at all.
    I want to see proof of the statement that is 85% revenue [ including GST]
    comes from the private sector.
    Bet you can’t do it

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  6. jcuk (634 comments) says:

    With a larger proportion of government involvement the proportion of tax paid by the private sector would be smaller. With the government sector there is no evasion and it is simply money going around in circles creating point to life for more people than the endless grind of the commercial sector.

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  7. Ryan Sproull (7,059 comments) says:

    It’s pretty easy to have an argument with someone when you’re scripting their responses.

    ME: Kiwi In America doesn’t seem to be making a point.
    RIGHT-WINGER: You have such nice eyes.

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  8. Judith (8,348 comments) says:

    And tell me… where do the private sector big corporations get the money that they pay their taxes from?

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  9. Albert_Ross (267 comments) says:

    Lolitasbrother, if you look through the whole thing it does actually give taxes paid. I agree that it could be more convincingly and clearly set out.

    Judith, private companies get the money that they pay their taxes from, if people choose to buy goods or services from them. People don’t get the choice as to whether to pay for the goods and services that the Government provides.

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  10. Ed Snack (1,785 comments) says:

    Taxes are ultimately paid from productive output, which means that the Government sector (excluding SOE type organizations) produces zero net taxes. As jcuk notes, it’s simply money going in circles for the amusement of the mandarins at the expense of the productive sector. The Armed forces, the Police, the Justice sector, don’t produce any net productivity except as a by-product; productive people (usually) accept the burden of paying taxes as supporting those organizations enables them to more securely be productive; but don’t fool yourself about the standard government bureaucracy, most parasitic.

    Judith, the “big corporations” don’t pay tax, people pay taxes. The owners, employees, and customers of “big corporations” ultimately pay the taxes regardless of how you wish to delude yourself that the point at which the taxes are levied matters. Do you think that your PAYE tax is paid by your employer, after all it is them that actually pays the IRD the money, not you ?

    Ryan, you don’t like a Socratic dialogue then ?

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  11. Yoza (1,665 comments) says:

    As long as the private sector is allowed to create over 80% of our money it seems perfectly reasonable they should pay over 80% of the taxes. If the private sector were allowed to pay a lesser portion of the tax rate it could be inflationary as a greater percentage of those NZ dollars are then spent overseas; in turn this will increase the volume of NZ$ held in foreign accounts, lowering the relative value of the NZ$ against all other currencies.

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  12. Ryan Sproull (7,059 comments) says:

    Ryan, you don’t like a Socratic dialogue then ?

    Yes, who could forget when Plato described Phaedrus accusing Socrates of propaganda.

    A key part of a Socratic dialogue is presenting the strongest possible version of the position you’re disagreeing with. I’m certain KIA could do better than this.

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  13. Psycho Milt (2,363 comments) says:

    As jcuk notes, it’s simply money going in circles for the amusement of the mandarins at the expense of the productive sector.

    Aren’t you describing John Key’s former career there?

    Taxes are ultimately paid from productive output, which means that the Government sector (excluding SOE type organizations) produces zero net taxes.

    It’s kind of funny that you should type something like that on a computer, connected to the internet…

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  14. Ryan Sproull (7,059 comments) says:

    Aren’t you describing John Key’s former career there?

    Hey, man, that’s the productive sector you’re hassling. Currency won’t trade itself.

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  15. eszett (2,357 comments) says:

    85% OF TAX REVENUE COMES FROM THE PRIVATE SECTOR

    So? What is your point?

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  16. kiwi in america (2,466 comments) says:

    I apologize about the first sheet – it was from something else and had been hidden in the spreadsheet but not deleted.

    The analysis is not complicated. It details from government statistical sources the breakdown between private and public sector employment in New Zealand. The total government sector (Core Crown, Crown Agencies, SOEs, CRIs, the military, police, education and health sectors only employ 12% of the total working population). The remaining 88% are employers, the self employed and private sector employees. I agree that it’s a limited snapshot of the overall situation but it does demonstrate that the vast majority of the jobs in the NZ economy are generated in the private sector. There is no taxable profit generated from the government sector outside of the dividend stream from the government share of SOEs and the PAYE of government employees.

    My point is that a thriving private economy where companies pay higher taxes on higher profits, where they are able and willing to expand their employment rolls and thus submit more PAYE to the government and that employees making wages will spend more and thus generate more GST than those on benefits is something to be encouraged and supported. The left see corporate profit as a greedy selfish thing to be subject to as higher taxes as possible, seek to burden business with more regulations and restrictions on its activity and think that taxing the rich and the successful has no incoming revenue consequences.

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  17. Judith (8,348 comments) says:

    @ Ed Snack (1,393 comments) says:
    March 4th, 2014 at 3:42 pm

    It was a rhetorical question Ed, that was exactly my point for asking it

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  18. UrbanNeocolonialist (222 comments) says:

    Beneficiaries and civil servants (including most health and education staff) don’t pay tax. Simply paying them less and not taxing them would not impact the economy. Doing the same to the private sector would obviously leave the govt penniless.

    It is simply more convenient and easier for tax collection to let the public sector pretend that they pay tax to enable taxation systems with lower compliance costs to be applied to the real tax payers.

    The country needs a public sector, but that doesn’t mean that it that growing it or spending more money on it will improve the average standard of living in NZ.

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  19. RRM (9,633 comments) says:

    85% private 15% govt?

    Congrats KIA, you just gifted the left confirmation of their view govt isn’t very big and could do much more! :-P

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  20. Ed Snack (1,785 comments) says:

    PM and Ryan, ignorance much ? I work for a company that trades foreign currency every day, and we have perfectly good reasons for doing so. I guess your actual connection with the productive sector is so remote that you simply aren’t aware of such things. Wouldn’t hurt for you to get out a bit more, flippant comments are all very well….

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  21. Ed Snack (1,785 comments) says:

    Judith, in which case I withdraw an apologize. One of my little hobby horses, tax incidence. It’s been well known and convincingly demonstrated to be real, but 99% of the left seem to conveniently forget all about it. The recent harping on about multi-national taxation being a good case in point: taxing Google (for example) in NZ would almost certainly result in the burden of that tax falling on NZ citizens, not that you’d know that from the rhetoric.

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  22. Ryan Sproull (7,059 comments) says:

    My point is that a thriving private economy where companies pay higher taxes on higher profits, where they are able and willing to expand their employment rolls and thus submit more PAYE to the government and that employees making wages will spend more and thus generate more GST than those on benefits is something to be encouraged and supported.

    I don’t think many people disagree that bigger pies mean bigger slices.

    The left see corporate profit as a greedy selfish thing to be subject to as higher taxes as possible, seek to burden business with more regulations and restrictions on its activity and think that taxing the rich and the successful has no incoming revenue consequences.

    Some people on the left probably see it like that – “rich prick” thinking. Plenty on the left have a bit more of a nuanced view, seeing taxation as a trade-off between social spending they consider necessary or very worthwhile on one hand and the private sector’s role in creating value and jobs on the other. They favour progressive taxation because the burden is less onerous for the more wealthy. And they also tend to argue that the success of individuals and businesses doesn’t come out of a vacuum, but out of the broader society that is supported and built up by social spending.

    I’m not saying I necessarily agree with these arguments, but they do tend to be a lot stronger than “dur, taxing the rich is awesome and has no negative consequences”.

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  23. Brian Smaller (4,025 comments) says:

    They favour progressive taxation because the burden is less onerous for the more wealthy.

    Well I guess it comes back to the definition of wealthy.

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  24. Ryan Sproull (7,059 comments) says:

    PM and Ryan, ignorance much ? I work for a company that trades foreign currency every day, and we have perfectly good reasons for doing so. I guess your actual connection with the productive sector is so remote that you simply aren’t aware of such things. Wouldn’t hurt for you to get out a bit more, flippant comments are all very well….

    I’m sure you have perfectly good reasons for trading foreign currency, which make good sense in the context of the economic structure of the world. It’s just a bit of a commonly used example of the sort of ethereal jobs that are rewarded well in our society while jobs that produce more obvious concrete value are rewarded less well.

    But you’re right, it was a bit flippant and glib of me. I apologise. (Given that a lot of my work is in marketing, it’s not like I can point a finger at well-rewarded non-productive activities without three fingers pointing back at me.)

    How do you see currency trading creating value in the world?

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  25. Weihana (4,496 comments) says:

    Ed Snack (1,395 comments) says:
    March 4th, 2014 at 3:42 pm

    Taxes are ultimately paid from productive output, which means that the Government sector (excluding SOE type organizations) produces zero net taxes. As jcuk notes, it’s simply money going in circles for the amusement of the mandarins at the expense of the productive sector.

    You have assumed that the government doesn’t produce anything of value that is over and above what would have been produced in the alternative (i.e. without tax). A couple of examples are sufficient to demonstrate the point.

    First example:

    The police and courts system are funded with taxes. This allows a system of laws to be put in place that defines things like property rights, individual freedoms, regulations etc. All of which define the system in which we trade and produce things of value. This system, of some variety, is a prerequisite to any market economy hence the value of having such a system outweighs the value of the tax used to fund it ergo your argument fails.

    Second example:

    The internet exists as a consequence of a government research project (ARPANET). This network provides infrastructure upon which entire new industries have evolved and include many private companies worth many billions of dollars. This infrastructure would not exist but for the research that made it possible, and that research was paid for through tax dollars. The value that the private market is able to realize as a consequence of this government research far outweighs the sums invested by the government in undertaking such research, ergo your argument fails.

    The government and the so-called “productive sector” are not mutually exclusive. Taxation is not a zero-sum game and the question is not whether government is “big” or “small”, it’s whether any tax or any spending achieves a valued outcome that has greater social and economic utility than the alternative.

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  26. questions (186 comments) says:

    Train wreck of a post.

    Out of interest DPF, can you apply this test to Curia? tell us what the split between private and public originating funds for your income is?

    (And while you think about it, think about what a farcical distinction is being made here)

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  27. kiwi in america (2,466 comments) says:

    Ryan
    Many on the left don’t get that the heart of the economy is entrepreneurial risk. Big companies were once small and at their beginning, somewhere an entrepreneur cashed up his/her super, mortgaged their house and worked with no drawings of substance sometimes for years to build a company that now employs and pays taxes. There are many things in those early stages that can tip the balance from success to failure or dissuade a budding entrepreneur from taking the risk. Taxes are only a part of the mix. Predictability on fiscal and monetary policy is vital but we have Labour flirting with the Greens to modify the successful Reserve Bank Act. Setting ground rules for markets that don’t send distortionary pricing signals but Labour wants to effectively nationalize the sale of electricity despite the fact that everywhere such a model has been tried it has led to economic growth limiting disruptions to the supply of electricity. Fiscal constraint means a higher percentage of GDP is devoted to the more efficient allocation of resources that occurs in the private sector while Labour/Greens want to raise taxes and increase government spending thus crowding out private sector capital and replacing it with the slower and less efficient public sector.

    The comment about raising taxes on the wealthy with no regard to the negative consequences stems from the paltry additional income tax Labour garnered from the rich prick tax (the 39c rate on incomes above $60k). All it did was enrich the tax accountants and lawyers who guided the wealthy to legal ways to avoid the tax. When pushed on the fact that the imposition of death duties in the US actually saw the tax take from that source FALL, Barak Obama famously stuck to the policy on the mythical grounds of ‘fairness’.

    No one on the right says there should be no public sector, on the contrary there are vital functions only governments can perform. But Labour reflexively believes that the private sector can play no meaningful role in some of the functions of government. Despite their undoubted success, Labour largely opposes Private Public Partnerships. Labour opposed the contracting out of some of the hospital waiting lists to private hospitals and private specialists under the mantra private bad government good. Ditto for private prisons and charter schools. It’s just ideological opposition to protect unions and grow government.

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  28. Ryan Sproull (7,059 comments) says:

    Fair enough, KIA. Thanks for taking the time to comment.

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  29. Colville (2,166 comments) says:

    It’s just ideological opposition to protect unions ….

    …. who have bought and paid for a “Leader” in Cun*liffe and now want their pound of flesh!

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  30. flipper (3,819 comments) says:

    KIA…..

    The only aspect of your analysis that pissed me off was the Scribed addition. Following that is a nightmare – not the content but the method of posting.

    But all the points you make are excellent.

    A public service no less. I had great pleasure in shoving it under my brother’s nose. A scientist in a specialised field, he thinks he knows it all. He knows bugger all, but is now, thanks to you, better educated.

    Congratulations, and thanks.
    F

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  31. SPC (5,472 comments) says:

    No the “left” does not focus so much on taxing the productive sector as wanting to tax higher income and wealth more than the right would do – because the left sees reducing inequality as good for the society, and government as the means for this.

    So while the left accepted lower company tax rates it resisted the drive to take income tax rates lower and lower.

    And the idea of the global corporate paying tax and having global prices rather than charging higher prices in some markets is a concern of both the right and left.

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  32. SPC (5,472 comments) says:

    http://www.equalitytrust.org.uk/about-inequality/effects

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  33. kiwi in america (2,466 comments) says:

    flipper
    There was an experimental sheet on a separate subject that I’d hidden after I began to populate the various sheets covering the various government sector agencies and because it was hidden, I didn’t delete it before sending it to David so it gives a messy look to the first page.

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  34. adze (1,982 comments) says:

    Funny how Police are often accused of “revenue gathering” in other posts, but they mysteriously produce no revenue on a post like this :) /tongue-in-cheek

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  35. kiwi in america (2,466 comments) says:

    SPC
    How much inequality did the Cullen ‘rich prick’ tax really alleviate when the sum raised was so paltry due to predictable avoidance?

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  36. OneTrack (2,782 comments) says:

    SPC – “No the “left” does not focus so much on taxing the productive sector ..”

    I beg to differ. We hear Cunliffe banging on about taxing revenue instead of profit. Do we hear anything from the left on what the company tax rate will be following a hard-left win in the election? We know it’s going to go up, don’t we? Will there be less of an increase for the manufacturing sector for example? Will there be a lower increase for SMEs? Or is the productive sector, just one big bucket to ream.

    And the left “accepted” lower company tax rates. A day doesn’t go by without someone banging on about “John Key’s tax cuts for his rich mates”. They didn’t accept anything, which is why we will see them go back up in December.

    No, its more taxes = better as far as most lefties I see on this blog are concerned.

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  37. SPC (5,472 comments) says:

    The major problem with the look is the capitals, is DPF trying to pose the argument as extremist by shouting it at readers or trying to highlight it. There is a reason why the other post topics are not in capitals and it is a good reason.

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  38. SPC (5,472 comments) says:

    kia, so your objection to raising money not by taxing production but by income is to say those on high incomes would try and avoid it.

    People paid a wage cannot avoid PAYE. The amount avoided was not sufficiently high as to render it pointless – when the alternative was to tax production higher or make alleviating inequality less affordable.

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  39. SPC (5,472 comments) says:

    One Track, you seem to be confusing company tax rates with the top rate of income tax, Labour reduced the former when in office and has not raised the idea of any increase. Labour has questioned the lowering of their former top rate of income tax and will probably declare policy on a higher top rate and threshold at some point this year.

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  40. Weihana (4,496 comments) says:

    kiwi in america (2,281 comments) says:
    March 4th, 2014 at 5:22 pm

    No one on the right says there should be no public sector…

    http://en.wikipedia.org/wiki/Murray_Rothbard

    :)

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  41. Mark (1,417 comments) says:

    Surely this is self evident

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  42. OneTrack (2,782 comments) says:

    SPC – But that was “old” Labour. Now we have a different Labour with a new, harder left leader, who is apparently beholden to unions, and will have a vocal coalition partner who will be looking for more punishment of the rich pricks (I don’t know to to express it better)

    Labour may not have raised the idea of an increased company tax rate, but, since they are making up policy on the hoof, I dont see that means much. I believe the Greens would support a higher company tax.

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  43. kiwi in america (2,466 comments) says:

    SPC
    You didn’t answer the question. You are the one who made the distinction between company and personal tax rates and the reasoning behind Labour concentrating on personal income tax rates. My objection is not the avoidance but the pointless philosophy behind high marginal tax rates. Legal avoidance of tax has gone on for centuries and will continue to be pursued. Plenty of studies have shown that the higher the marginal rates, the greater the avoidance and that when top marginal taxes are around 20 – 25%, avoidance tactics greatly diminish and, as a consequence, the tax take in some jurisdictions has actually increased even though rates were lower.

    The left tell us that alleviating inequality is the philosophical underpinning of high marginal taxes. In the most extreme cases, like the 75% envy tax the French levy on those on incomes over €1 million, it results in the rich taking their assets and income to lower tax jurisdictions thus denying the government not just the increased tax from that individual but ALL their tax. How’s that tax working out for France’s fiscal and Hollande’s political position?

    The Cullen 39c tax rate ended up raising very little in the way of additional revenue because the majority of high income earners work in such a way that their affairs could be restructured to avoid a good chunk of this tax rate and yes the majority of those who could not avoid it were those high salaried PAYE earners.

    High marginal tax rates are a disincentive to wealth creation and are nothing more than a boon to tax advisors. Labour’s meagre haul from this particular tax is ample evidence that the altruistic goals of higher taxes are rarely ever achieved and even when confronted with the incontrovertible evidence of the futility of the strategy, many on the left still lecture everyone that even if it makes no fiscal sense, its the right and moral thing to do. That makes the higher marginal taxes nothing more than ideological envy taxes that further fuel the desire to legally avoid paying as little of it as possible.

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  44. Weihana (4,496 comments) says:

    kiwi in america (2,282 comments) says:
    March 4th, 2014 at 6:24 pm

    Plenty of studies have shown that the higher the marginal rates, the greater the avoidance and that when top marginal taxes are around 20 – 25%, avoidance tactics greatly diminish and, as a consequence, the tax take in some jurisdictions has actually increased even though rates were lower.


    Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. This analysis finds no conclusive evidence, however, to substantiate a clear relationship between the 65-year reduction in the top statutory tax rates and economic growth. Analysis of such data conducted for this report suggests the reduction in the top tax rates has had little association with saving, investment, or productivity growth. It is reasonable to assume that a tax rate change limited to a small group of taxpayers at the top of the income distribution would have a negligible effect on economic growth. For instance, the tax revenue projected from allowing the top tax rates to rise to their pre-2001 levels is $49 billion for 2013 or 0.3% of projected 2013 gross domestic product.

    The top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% during to the 2007-2009 recession. During a portion of that time period, however, the share of the tax burden borne by top taxpayers increased. For instance, the top 0.1% of taxpayers paid 9.4% of all income taxes in 1996 and 11.8% in 2006, but their share of income paid in taxes decreased from 33% in 1996 to 25% in 2006.

    - Congressional Research Service

    https://www.fas.org/sgp/crs/misc/R42729.pdf

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  45. SPC (5,472 comments) says:

    One Track

    There is no support from Greens for increasing the company tax rate.

    https://www.greens.org.nz/policysummary/green-taxation-and-monetary-policy-summary

    https://www.greens.org.nz/policy/green-taxation-and-monetary-policy

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  46. kiwi in america (2,466 comments) says:

    Nice try Weihana

    http://www.cato.org/publications/commentary/tax-cuts-revenue-what-we-learned-1980s

    “The Harding-Coolidge tax-rate cuts reduced effective tax rates on lower-income brackets. Internal Revenue Service data show that the dramatic tax cuts of the 1920s resulted in an increase in the share of total income taxes paid by those making more than $100,000 per year from 29.9 percent in 1920 to 62.2 percent in 1929 (See Table 2). This increase is particularly significant given that the 1920s was a decade of falling prices, and therefore a $100,000 threshold in 1929 corresponds to a higher real income threshold than $100,000 did in 1920. ”
    http://www.heritage.org/research/reports/2004/06/the-laffer-curve-past-present-and-future

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  47. Psycho Milt (2,363 comments) says:

    PM and Ryan, ignorance much ? I work for a company that trades foreign currency every day, and we have perfectly good reasons for doing so.

    Well, yeah – ignorance much? I work for a university that educates people and carries out research every day, and we have perfectly good reasons for doing so.

    Plenty on the left have a bit more of a nuanced view, seeing taxation as a trade-off between social spending they consider necessary or very worthwhile on one hand and the private sector’s role in creating value and jobs on the other. They favour progressive taxation because the burden is less onerous for the more wealthy. And they also tend to argue that the success of individuals and businesses doesn’t come out of a vacuum, but out of the broader society that is supported and built up by social spending.

    Don’t – you’ll make their heads explode…

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  48. itstricky (1,689 comments) says:

    I love the “higher taxes means more people try to avoid it” justification argument.

    It’s like a high school “he made me do it” one.

    Oh, please please please sir, I only broke the law because someone else *made* me do it, sir.

    Either way, I like your arguments further on in the comments, KIA, but your initial post really doesn’t convey your point.

    The post by itself sounded like someone in the private sector gloating. I notice the fictional lefty doesn’t get to gloat that he is educating the next generation of entrepeneurs who will do all the good productive work, to pay the taxes etc. And the money merry-go-round means that it’s pretty inconsequential where it all comes from in the end. Chicken and egg.

    I’d also disagree with the characteristations of the left. You have a characterisation that suggests that all lefties like to tax rich pricks with envy tax but then that “No one on the right says there should be no public sector” – those are pretty wide generalisations. I think you’d have to go out and poll that theory and report back on what you found to make such sweeping accusations of complete disdain on one “side” as opposed the other. Most people don’t just “fall” into one of two categories either.

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  49. itstricky (1,689 comments) says:

    Don’t – you’ll make their heads explode…

    But life is so much simplier when it’s black and white, us versus them, me up against you, with or against, common enemy to shoot and kill…

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  50. tom hunter (4,553 comments) says:

    Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%.

    I love it. One of the classic correlation vs causality factoids, and that’s without even considering all the other factors that went into the US economic growth spurt in those years.

    In the end, the marginal rates are a fiction that matter less than the tax burden on the economy. Marginal rates of 90% and up don’t mean a higher tax burden than marginal tax rates that are less than half of that.

    For example, from 1952 – 1960, the tax burden averaged 17.3%. It averaged 19.4% from 1992 – 2000. Similarly here’s the graph of Federal Tax receipts as a % of GDP, 1945-2014. That evidence suggests that jacking the income tax rates up, down or sideways (or corporate rates or capital gains) makes little difference to the actual money the government gets, certainly much less than the difference made by boom vs. recession.

    Of course that fact simply lends weight to KIA’s point about tax avoidance, and the only reason that is interpreted as being about “I only broke the law …..”, is that even KIA chose to talk about tax avoidance in terms of using accountants and lawyers to re-structure the personal finances. Actually tax avoidance takes other forms as well, for example in people shrugging their shoulders and restricting their earnings to just under the limit, and the effects those avoidance tactics have when they involve millions of people across an economy.

    Also, given that such revenue is the source of the re-distributionist efforts that supposedly close the gap between rich and poor, it’s a little hard to swallow the argument that such can be done by increasing taxes on rich pricks.

    By the way – it’s tax evasion that brakes the law. Tax avoidance does not – at least until the day comes when your local Labour-Green Income Obersturmbannführer is looking over your wage statement and suggesting that you should earn a little more.

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  51. OneTrack (2,782 comments) says:

    spc – “There is no support from Greens for increasing the company tax rate.”

    I cant find anything that says they won’t raise the company tax rate. They do say tax is a good thing, so more must be better? They do promise a CGT which would apply to business assets and, of course, they promise environmental taxes. The outcome is, business are going to be paying more tax under a Green government. How many of those SMEs will fail due to the extra taxation and regulation?

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  52. OneTrack (2,782 comments) says:

    itstricky – “But life is so much simplier when it’s black and white, us versus them, me up against you….”

    You mean like the tories, neolibs and denier labels the left uses for anybody who doesnt agree with them?

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  53. SPC (5,472 comments) says:

    One Track, business already pays tax on its CG, via the tax on company profit which includes realised CG. The extension does not impact on companies, only on shareholders who make CG on their investment asset/share.

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  54. OneTrack (2,782 comments) says:

    SPC -ok, thanks for that. I was under the impression CGT was going to apply to more than just investment properties and shares.

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  55. itstricky (1,689 comments) says:

    You mean like the tories, neolibs and denier labels the left uses for anybody who doesnt agree with them?

    You’re proving the point unwittingly.

    Everyone doesn’t fall into a category of left or right. If only life were that simple. In fact, you’d have to be simple to believe that. Let us prove it further. Let us start with:

    You mean like the commies, greenies and rainbow labels the right uses for anybody who doesn’t agree with them?

    What makes your statement anymore correct than mine? Zzzzz.

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  56. kiwi in america (2,466 comments) says:

    itstricky
    There is nothing wrong with legal tax avoidance. My point is that higher marginal taxes invite more of that legal activity to the detriment of the tax base. Since the left wants the tax base preserved for ever more government spending, you’d think they would be open to suggestions as to how to avoid erosion of the tax take. The point I am making is that, even when faced with the evidence that legal avoidance activity is seriously undermining the projected tax revenues from the increase in the tax rate and the evidence that reducing high marginal tax rates curtails avoidance and increases the tax take, they stick to the ‘fairness’ principle. The rich need to be made to pay more even if all it does is make liberals feel good about themselves. That’s why they get tagged envy taxes – because when you boil it right down it’s less about the actual net new tax taken (which ends up being minimal) but the fact that rich are made to pay more.

    It doesn’t take a poll to know that most on the left support higher marginal tax rates or that conservatives support less government. If you were to poll Labour and Green voters as to their support for Labour increasing the marginal rate on higher incomes from 33 to 39% in 2000, I’m sure you’d find overwhelming support. If the poll asked “do you support an envy tax on rich pricks” then the results would be lower but I’d venture to say still overwhelmingly in favour of the said tax hike. I’m sure there are a few rabid extreme right wingers who see all government activity as wrong but I stand by my statement that almost all on the right support the appropriate role of government.

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  57. itstricky (1,689 comments) says:

    Tom. Kia.

    I have no doubt that there are many interesting debates to be had in the tax burden vs take argument. Probably lots of alternatives. My first point was that the original post did not covey this as it’s subject. It came off as gloating. No wonder your fictional leftie gets frustrated in your fictional exchange. I am offering constructive criticism.

    Secondly – of course avoidance is legal. But the deliberate type is.morally wrong. All citizens get health care at birth, through their lives, education, support, and a secure community to get them to being productive, tax paying members of society. But then, when it comes to paying their dues for.that they look the other way?

    This demonstrates why an absolute free market would not work. Because people are greedy. It also demonstrates why communism would not work. Because people are greedy. I urge others to be thankful for what they have.

    Lastly, of course a Nat vs Lab poll would produce different results. I am not suggesting it wouldn’t. I am suggesting is that left versus right doesn’t exist. Then I am suggesting that there are extremists on all faces of the cube and that to suggest that only one type of extremist is prevelant is just a mirror reflection of your world views, not fact.

    I would suggest a poll question like this:

    With salaries of and bonuses of hundreds of millions of dollars being attributed to positions of power that have little to do with share holder profit nor contribution to society and a median wage that is a meagre fraction of that, do you believe that NZ is still the egalitarian society of old?

    This is the crux of the “rich prick envy”. It is a valid question to ask, instead of just characterising those whom you disagree with of having envy. And you would find a fair few fabled National voters answering ‘no’ to that as well.

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  58. salt (130 comments) says:

    Surprised you allowed this on your site, DPF, you’re surely aware that it’s blatantly incorrect. Government income is not solely comprised of company tax and PAYE – far from it. All that this post actually establishes is that there are more private sector employees than there are public sector ones, and that government departments don’t pay company tax. Not exactly illuminating is it.

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  59. Weihana (4,496 comments) says:

    tom hunter (3,877 comments) says:
    March 4th, 2014 at 9:29 pm

    In the end, the marginal rates are a fiction that matter less than the tax burden on the economy. Marginal rates of 90% and up don’t mean a higher tax burden than marginal tax rates that are less than half of that.

    For example, from 1952 – 1960, the tax burden averaged 17.3%. It averaged 19.4% from 1992 – 2000. Similarly here’s the graph of Federal Tax receipts as a % of GDP, 1945-2014. That evidence suggests that jacking the income tax rates up, down or sideways (or corporate rates or capital gains) makes little difference to the actual money the government gets, certainly much less than the difference made by boom vs. recession.

    http://en.wikipedia.org/wiki/File:Federal_receipts_by_Source_Historical_1950-2010.jpg

    http://en.wikipedia.org/wiki/File:US_Corporate_Profits_1947-2011.jpg

    http://en.wikipedia.org/wiki/File:US_Effective_Corporate_Tax_Rate_1947-2011_v2.jpg

    http://en.wikipedia.org/wiki/File:Productivity_and_Real_Median_Family_Income_Growth_1947-2009.png

    While the tax burden as a percentage of GDP has remained more or less constant, it is misleading to ignore the share of the tax burden, the progressiveness of taxation, and rising inequality and stagnating median wages.

    It’s not about the overall tax burden because that assumes everyone is in the same boat when they are not. The benefits of rising productivity have been concentrated in the hands of the few while the many work longer, harder, more productively, and get little in return.

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  60. CharlieBrown (921 comments) says:

    Has the last 2 days been days of left wing trolls?

    Fact is, progressive tax rates mean the higher someone’s salary is, the higher the proportion of tax to income is, even if they consume far less transfers from the government than people earning far less.

    Not only is this unfair, this decreases the incentive to earn more. For a lot of people this means they will actually turn down the opportunity to work longer hours.

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  61. Weihana (4,496 comments) says:

    CharlieBrown (757 comments) says:
    March 5th, 2014 at 7:41 pm

    Fact is, progressive tax rates mean the higher someone’s salary is, the higher the proportion of tax to income is,

    No one is unsure of what a progressive tax system is.

    even if they consume far less transfers from the government than people earning far less.

    It is also no secret that a progressive tax system is intended to be redistributive

    Not only is this unfair

    Is it fair that some people are born physically handicapped or that some are born with wealthy parents and others are born into abusive households? I was unaware that capitalism was about fairness.

    this decreases the incentive to earn more. For a lot of people this means they will actually turn down the opportunity to work longer hours.

    Being rich is just not worth it? Or rather people organize things around the margins of tax brackets and taking into account benefits they might receive?

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  62. itstricky (1,689 comments) says:

    Yes, Weihana. It’s not fair, it’s not fair. One giant pitfall of pure capitalism – everyone is not born equal, but some have more right to whine than others.

    And yes, the “turn down work because of higher tax” argument again. Do you know *anyone* who actually structures their life like that? I mean anyone on a normal, average salary – not a high income earner who can be picky and choosy to fly their affairs to be under the radar. And how many jobs are there out there were you can just, at the drop of a tax hat, decide to regularly work 20 more hours a week at the expense of the employer? It’s unlikely to make that big a difference. I thought that argument died many years ago.

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  63. CharlieBrown (921 comments) says:

    “Is it fair that some people are born physically handicapped or that some are born with wealthy parents and others are born into abusive households? I was unaware that capitalism was about fairness.”

    That isn’t fair but it isn’t man made – unfair taxes are a man made system. So you are happy to burden other peoples lives due to your selfish beliefs?

    The most unfair thing about progressive tax rates is it is spent on worsening the problem. Our progressive taxes are used to promote an endless cycle of abuse in some families (I’ve seen first hand examples of children being caught in a trap of welfare, inaction and abuse).

    istricky – That isn’t one giant pitfall of capitalism, it is one pitfall of LIFE. You are showing a true example of the worst kind of tall poppy syndrome – “bring people down to the lowest common denominator”.

    And not only are progressive tax rates unfair, they are unproductive and ineffective at increasing general taxation. Money is fluid and easily finds itself into tax loopholes or other jurisdictions, so it ends up being an endless game of catch-up for policy makers. As policy makers try to fill the gaps they make an ever increasing complex system that costs the economy more to administer. Do you have any idea how much of an industry we have in administering and policing our taxes? The people that are burdened most disproportionately by such a system are salary and wage earners, hardly the millionaire stereotypes that the left like to portray as their targets.

    I am in exactly the scenario where I work less due to pitiful rewards for working more. I am even considering moving into a more casual role where I earn less and work less hours, so my wife can work more and we can both get taxed at the minimum rate and get entitled to working for families and subsidised child care. Even though I have no debt. I will feel good about doing that as well as I believe my tax dollars are being used in a way that makes the world a worse place.

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  64. tom hunter (4,553 comments) says:

    Yeesh – Weihana and his multiple links. This will take a while to look at.

    To the graphs, to the graphs ….

    http://en.wikipedia.org/wiki/File:US_Corporate_Profits_1947-2011.jpg

    Meaningless unless placed in the context of the US economy in gross dollars over the same time period.

    http://en.wikipedia.org/wiki/File:US_Effective_Corporate_Tax_Rate_1947-2011_v2.jpg

    An almost straight-line drop from 1947 to 1980 – when both the House and Senate were almost always controlled by Democrats, and the economic, tax and fiscal theories of the New Deal continued their hold on the Democrats (and even the GOP for that matter) – until the era of Reagan, when they increased again briefly before continuing their decline and ….

    Hang on. Wasn’t your message something to do with the terrible tax cutting practices of those corporate bum buddies, the Republicans in the era of Reagan and Kemp?

    I note that even the “Effective Tax Rate” still is not as low as the actual tax rate of Canada, let alone most European economies, those hotbeds of rampant Reaganomics.

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  65. tom hunter (4,553 comments) says:

    Okay – from corporate tax rates to the actual revenues resulting from all this:

    http://en.wikipedia.org/wiki/File:Federal_receipts_by_Source_Historical_1950-2010.jpg

    1. So the proportion consisting of corporate taxes has declined – with all the decline coming betwen 1950-1980 when both the House and Senate were almost always controlled by Democrats … oh wait …. it’s the same story.

    At least we can match declining tax receipts with declining tax rates in the case of corporations. Looks like you’ve finally nailed your point.

    Until the era of Reagan, when the tax revenue proportion increased again despite the reduced “effective tax rates”. I especially like the massive leap in corporate tax payments under GW Bush: I guess it was because he was such a good friend of theirs?

    2. Meantime Income tax receipts tell much the same story as my graphs; high tax rates produced receipts no better than low tax rates.

    3. But what interests me is that Payroll Tax line, showing a relentless increase over the decades – as one would expect since we’re talking almost entirely about FICA for Social Security and Medicare, whose spending has also relentlessly increased over the decades – also as one would expect for non-actuarial, pay-as-you-go social insurance systems, especially as the system really kicked into high gear in the mid-1970’s.

    I wonder if sucking all that money out of workers payrolls means that they have not received the full benefits of productivity increases since the mid-1970’s and ..oh wait!

    http://en.wikipedia.org/wiki/File:Productivity_and_Real_Median_Family_Income_Growth_1947-2009.png

    Question asked and answered.

    To be fair, there probably are some other things going on that are responsible for that growing gap. I would think a key suspect would be education system failures that have first produced new entrants lacking in the skills needed for the age of digital automation and secondly been unable to retrain workers made redundant by that automation. But I don’t see how increasing tax rates on “rich pricks” will solve that – or any of the other factors.

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  66. tom hunter (4,553 comments) says:

    Finally we’re into the assertions.

    While the tax burden as a percentage of GDP has remained more or less constant, it is misleading to ignore the share of the tax burden, the progressiveness of taxation, …..

    Which is why those good-hearted Republicans under GW conducted the tax cuts of the 2000’s, resulting in the following changes in tax burdens:

    The 2005 total effective federal tax rate as a percentage of the 2000 rate.

    Top Quintile = 91.1%
    Fourth Quintile = 84.9%
    Middle Quintile = 85.5%
    Second Quintile = 76.2%
    Bottom Quintile = 67.2%

    Wow! So the bottom quintiles have had their tax burdens reduced a lot compared to the year 2000.

    But wait – there’s more. We’re forgetting about all those decent earlier Republicans under Ronnie Raygun who – with some assistance from Democrats, reluctant, bitter and grudging as it was – enabled the following:

    The 2005 total effective federal tax rate as a percentage of the 1979 rate:

    • Top Quintile = 101.2%
    • Fourth Quintile = 85.0%
    • Middle Quintile = 76.8%
    • Second Quintile = 60.1%
    • Bottom Quintile = 14.3%

    Double WOW! If you’re in the bottom 20% of income earners in 2005 your tax burden was just 14.3% of what it had been under the Democrats of the Carter era.

    What a bunch of mean-spirited bastards they must have been, denying money to the working poor.

    … and rising inequality and stagnating median wages.

    Which are clearly not the result of increased tax burdens on 80% of income earners, as demonstrated above. Again, it would seem that the answers lie somewhere aside from tax-the-rich-and-re-distribute-the-wealth. The “rich” are now carrying a greater share of the burden than ever, but that approach does not seem to have helped the working non-rich and working poor. Or is the money so garnered not being re-distributed to them?

    Given that the worst results for rising inequality and stagnating median wages have occurred since 2008 might it not be smarter to assume that the key driver is economic growth vs recession – rather than these bunfights over tax rates?

    It’s not about the overall tax burden because that assumes everyone is in the same boat when they are not.

    Which US lawmakers – especially kindly Republicans – appear to have acknowledged with the huge cuts in tax burdens to the poorest workers.

    Of course it should be noted that since we all have to live in the overall economy it means we actually are all in the same boat in that sense, and if the overall tax burden chews ever greater chunks out of that economy …..

    The benefits of rising productivity have been concentrated in the hands of the few while the many work longer, harder, more productively, and get little in return.

    Hmmm! So workers incomes will continue to decline as the rich few garner the excess profits of the workers, until the whole zero-sum thing implodes because the workers have nothing left to lose and the rich are ripping each others throats out to get the remaining profits.

    Why it sounds almost scientifically inevitable!

    Still, this is a good point, but increasing taxes on “the few” and then re-distributing it has not solved the problem to date. Possibly because an increasing portion of the population languish without any work, relying on government benefits and slowly falling further and further behind those who are working, and even further and faster behind those who can best take advantage of an economy that’s changing faster than ever.

    But again – what would a return to the supposed glory days of FDR tax rates actually do about that, even assuming they generated the money? Which they won’t.

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  67. itstricky (1,689 comments) says:

    CharlieBrown I think you miss the point. If progressive is unfair – what is fair to you? A flat rate where handicapped people have to pay the same amount of tax as CEOs? Is that “fair”? Remember, your birth is a lottery, you could have easily been someone else. Sorry to hear you have real issues with decreasing income due to tax rates. I did not mean to be flippant that is literally the first time I have ever heard anyone allude to that.

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  68. kiwi in america (2,466 comments) says:

    Itstricky
    You’d have to be very sensitive to react to the truth as gloating. Many on the left think the government is the source of almost limitless benificence and that increasing taxes to pay for more benefits is relatively painless and so they are comfortable with tax and spend promises made by parties of the left. I’ve had variants of that conversation with purveyors of big government on dozens of occasions and they just never connect the dispensing of taxes to the source of the taxes seeing businesses and the rich as an endless source to extract extra taxes from.

    Charlie Brown alluded to a type of avoidance that is much harder to quantify – that of reducing one’s income to avoid higher marginal tax rates. This process for wage/salary earners in NZ is distorted by WFF. The so-called rich avoid high taxes in other ways aside from entity restructuring in ways that are detrimental to the wider economy. We are seeing this on a grand scale in the US because of the various strictures around Obamacare. The wealthy are in a position to easily weather any ideological crusade indulged by tax and spend left leaning politicians. They choose not hire new staff or hold income inside their companies as retained earnings and not distribute as income to the owners if the personal tax rates rise above company tax rates (this was common under Labour’s 39c marginal tax over $60k vs the company tax rate of 33c). Some will buy more tax deductible toys but any activity that causes a company to hire less staff or a proprietor to work less hours to stay below an income threshold is a net loss to the economy and eventually the treasury. Tom Hunter neatly sumed up the additional compliance and contorting new tax rules required to police the avoidance. The left’s response, typified on ths thread, is to fulminate against avoidance and yet whilst certain blatant evasions are rightly policed, Labour governments have been content to express class envy rhetoric about tax avoiders whilst doing little legislatively to combat more run of the mill avoidance. The reason: IRD officials will rehearse the additional staff needed to squeeze maybe an extra $10 million out of avoidance makes it an excercise in fiscal futility.

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  69. itstricky (1,689 comments) says:

    You’d have to be very sensitive to react to the truth as gloating.

    Pfft. Sensitive? Here’s my reading comprehension summary of your post:

    Here’s a funny story about me baiting a Lettie. Oh, taxes come from somewhere.

    That’s it. Everyone knows where taxes come from. It’s a giant chicken and egg roundabout that goes beyond the place you have chosen to stop it. There is no point to the post. The whole “different way of taxing” day debate deserves a whole book. You could have made your post about that. You didn’t. You also didn’t give your fictional leftie (how about a policeman instead, for a laugh) tell you the important part of the puzzle that she forms.

    My critisism. Take it or leave it.

    Many on the left… Etc. Well yes aside from the mass generalisation such people often want to provide more social services rather than less. The money has to come somewhere. What you are disagreeing with is that, not a mass generalisation that people don’t know where tax comes from
    . At the end of the day every policy that comes out must justify its spend and the people chose on that.

    The wealthy are in a position to easily weather any ideological crusade indulged
    Labour governments have been content to express class envy rhetoric about tax avoiders

    Spin it anyway you like – describe all the methods and justify them as much as you want. In this country, however, there won’t be a single soul who hasn’t relied on public services at some time in their lives. Be it birth, school, sickness or retirement. To dodge your moral responsibilities to repay that debt for the benefit of future generations is morally wrong. There is no “envy”, there is no “ideological crusade”. It is simply wrong. Fact. The justification of “oh I pay too much already so the Government made me morally break the law” is indefensible.

    Now. In this country (again) the median wage is an absolute joke. Purely. Experienced people being paid wages that were “starting out” values 20 years ago. No adjustment for inflation, cost of living, nor human advances. And yet there are 10s and 100s of millions paid annually to parties who do not return benefit to shareholders nor provide important social services. This is not class envy. This is a legitimate question to ask.

    So, I ask again, what is “fair” to you?

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  70. kiwi in america (2,466 comments) says:

    Itstricky
    You claim everyone knows where taxes come from – you’d be surprised how many people do not realise the huge weighting in favour of the private sector – hence the post.

    As is often the case, you build a straw man of conservative opposition to big government as if they are opposed to all government. We are not – however the state can perform many of the functions you describe as being important even altruistic without high marginal taxes. It’s not a zero sum game but liberals cloak themselves in a shroud of sanctimony about government services on the basis that any even slight reduction in government spending is the end of civilised society. The current government has reduced the size of the core Crown sector with little discernible reduction in the quality of government services (as empirically measured by Sate Services Commission surveys) – and no, the bleating of the PSA does not count as a neutral observer of the sector.

    And as is also common with the left, their populist rhetoric often is rarely backed up with legislative teeth. Labour were happy to rail against the tax avoiding wealthy and yet in 9 years did precious little to close loopholes. National have extracted more tax from the super wealthy than Labour ever did.

    Finally you assume discussing the inevitability of legal tax avoidance means I have no moral qualms about the activity. Wrong again. I have merely pointed out the facts of how the wealthy strategise in the face of high marginal taxes. Given the reality of the limited effective tools to combat it, history has shown that lower marginal tax rates are more likely to curtail the momentum to tax avoidance hence why jurisdictions in the past who have reduced tax rates find that they collect MORE tax revenue.

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  71. itstricky (1,689 comments) says:

    As is often the case, you build a straw man of conservative opposition to big government as if they are opposed to all government. We are not – however the state can perform many of the functions you describe as being important

    Whilst you assert that all on “the left” are all in favour of big Government all that all liberals cloak themselves in sanctimony etc. You also appear to have designated yourself as the speaker for “the right” (use of the royal “we”). So you seem to inhabit a world were you know that the left are wrong and the right are right, somehow. That’s pretty much equivalent to that which you’ve just accused me. Why does your fictional leftie not get to state her contribution to society?

    I won’t argue that the current Government hasn’t done a good job of keeping core services in tack. They seem to have, at present, but it always takes a while.for cuts to be truely felt.

    I would really like to see the stats that show that Nat. Government has pulled in more avoidance tax. Do you have links?

    Good to hear you don’t support avoidance. Lowering rates to combat that? Nah. How.many jobs are there out there where you can just jump out and do twenty extra hours a week at the drop of a hat at the expense of an employer? Not many, if any. And human nature is greed. You’ll just end up with the same avoidance at lesser rates. Some day I will have 10 free hours to read and perform statistical analysis.on Tom’s facts and figures. In the meantime I think it’s completely invalid to assert lower rates with increased take. The mathematics of it annialate any increase unless the suggested benefits are above and beyond what you suggest “may” happen.

    Meanwhile, can you comment on the median wage and what tax system is “fair” to you? Or are you just advocating for lower taxes and nothing else?

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