The Dim-Post

September 29, 2010

Chart of the day, tax changes tomorrow edition

Filed under: economics,Politics — danylmc @ 9:14 am

The graph shows tax cuts minus estimated cost increases from an additional 2.5% GST (the estimates sourced from a Dom-Post article).

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49 Comments »

  1. … also bearing in mind the median is noticably lower than the average.

    Comment by lyndon — September 29, 2010 @ 9:19 am

  2. From this we can conclude the more tax you may be liable to pay, the more you benefit from personal tax cuts. Just like the more you spend on product x, the greater the savings when product x is discounted.

    Simple enough.

    Translate that into god-awful emotional slogans and it becomes “Tax Cuts for the Rich! Raping the poor at the expense of rich mates, blah blah”

    Comment by Bed Rater — September 29, 2010 @ 9:22 am

  3. Bah, “at the expense” should read “for the benefit”

    Comment by Bed Rater — September 29, 2010 @ 9:23 am

  4. This is great news – everyone gets to keep more of their money!

    It is also true that higher income earners reap slightly more as a percentage of their overall income, but not a huge amount more in percentage rather than overall terms (I think)…

    Comment by Sam — September 29, 2010 @ 9:26 am

  5. If your stated goal is to stop people with disposable income spending on consumption this doesn’t seem the way to go about it either.

    Comment by lyndon — September 29, 2010 @ 9:30 am

  6. I’d’ve thought Austrian-worshipping righties would immediately grasp that the marginal utility of $50 is far more when you’re poor than when you’re rich and can lose that much down the back of the sofa without caring. The current changes may be fair on a percentage basis, but I don’t think that a percentage basis is the right way to look at it.

    Shifting the lowest tax bracket threshold up could have given everyone the same $$ amount tax cut, and it would have meant more to poor people.

    Comment by Stephen Judd — September 29, 2010 @ 9:35 am

  7. I wish everyone would report the impacts of (tax cuts/GST/name your boodoggle or rort or system change here) using data that are _normalised_ to the person’s income. Someone with a higher income will always have a larger _absolute_ impact. The point in my mind is what has the greatest _relative_ impact. An extra $50 to someone on $10,000 per year is the same as $500 to someone on $100,000 per year.

    I blame this all on the general lack of numeracy amongst our journalists and politicians, actually amongst our general populace.

    Comment by David in Chch — September 29, 2010 @ 9:37 am

  8. It is also true that higher income earners reap slightly more as a percentage of their overall income, but not a huge amount more in percentage rather than overall terms (I think)…

    Net gain as a percentage of income:

    If you earn $10K/year: 0.23%
    If you earn $100K/year: 2.17%

    Comment by bradluen — September 29, 2010 @ 9:42 am

  9. If your stated goal is to stop people with disposable income spending on consumption this doesn’t seem the way to go about it either.

    I thought the goal was decreasing spending on property rather than consumption…

    Comment by Stephen — September 29, 2010 @ 9:52 am

  10. brad – your figures are wildly different from mine…!? Are you using the DomPost figures, or one of the many other estimates?

    Comment by Sam — September 29, 2010 @ 9:53 am

  11. The DomPost figures ($0.90 gain/fortnight on $10K, $83.34 gain/fortnight on $100K).

    Comment by bradluen — September 29, 2010 @ 9:57 am

  12. Shifting the lowest tax bracket threshold up could have given everyone the same $$ amount tax cut, and it would have meant more to poor people.

    A programme of increased ‘no tax’ threshold rises would seem like a good election year promise that would appeal to both ends of the income spectrum. Could dismantle WFF to aid that cause but uh that sounds complicated.

    Comment by Stephen — September 29, 2010 @ 9:59 am

  13. Sorry – just worked out where I was going wrong with my calcs (I’ve never been one for math). I stand corrected…

    Comment by Sam — September 29, 2010 @ 10:01 am

  14. Does the “revenue neutral” aspect take into account Bling’s supposed step changing from consumption to saving?

    It always struck me that the RevNeut line was at best a pretty rough estimate, so when they cranked the numbers did they err on the side of ‘not blowing out the budget’ or on the side of ‘tax cutz!!’?

    Also, demand and paradoxes of thrift, if you catch my drift.

    Comment by Pascal's bookie — September 29, 2010 @ 10:03 am

  15. I’d just like to point out I hate your x-axis.

    Comment by mjl — September 29, 2010 @ 10:09 am

  16. David in CHCH,

    Rubbish. $500 is worth $500. It doesn’t matter what your income is. Saying that someone on a high income needs a bigger handout from the government than someone on a low income is just bullshit.

    In fact, exactly the opposite is true. The *lower* your income, the bigger a handout you need in absolute terms.

    Comment by Richard Love — September 29, 2010 @ 10:32 am

  17. “… also bearing in mind the median is noticably lower than the average.”

    Jaysus but I hate “average” being used as a synonym for “arithmetic mean”

    That article doesn’t state what assumptions they’ve made in their calculations, but the Harold has a similar table, that assumes all income is spent to come up with their additional GST figure. Given that most peoples’ biggest single outgoing is their rent or mortgage which doesn’t attract GST, it’s pretty bloody flawed analysis.

    Comment by James Stephenson — September 29, 2010 @ 10:43 am

  18. James: absolutely. I have done my own calculation for me, based on my actual spending, and I come out considerably ahead. I’ll be investing the new surplus, of course.

    Comment by Stephen Judd — September 29, 2010 @ 10:50 am

  19. Ah, Richard. So in other words you do NOT want percentage tax rates? Because that’s how this works.

    Someone on $14k (say) with the lowest tax rate pays 12.5 % on their income, which is $1750. Someone on $100k pays progressively more tax so that they pay over $30,000 in taxes, much more than the person on the lowest pay scale. They each pay _relative to_ their income.

    You can give each of them $500 more, that’s fine, and the _relative_ increase for the bottom tax rate is much greater than for the top tax rate, and the impact on each of those people is relative as well.

    That’s the point I am making. Measure the _relative_ impacts, not the absolute numbers. The absolute numbers are less meaningful.

    Comment by David in Chch — September 29, 2010 @ 11:01 am

  20. David,

    You have this arse about face. The relative amount of taxation is totally unimportant. What is important for individuals is the absolute amount left after taxation. And whether everybody can consider the amount that they left in comparison to what others have left is equitable (note, not equal).

    I am saying that these tax cut / GST nonsense policies should have been redesigned so that the low income people got more benefit in absolute terms than the high income people. Which I think might be what you are saying too. But it’s because $500 (say) is worth the same to everybody, and the high income people have already got $500.

    Comment by Richard Love — September 29, 2010 @ 11:41 am

  21. I thought welfare for families meant you didn’t pay tax under ~45k?

    Comment by insider — September 29, 2010 @ 11:43 am

  22. No Richard, $500 is NOT worth the same to everybody. Because it is _relative_. To someone on $20k a year, $500 is worth a lot more (because of its size relative to their income) than to someone on $100k a year. That $500 is only worth the same when injected into the economy (as spending or savings). It depends on how you look at it.

    And how do you figure that the “high income” people already have $500? I am supposedly a “high income” person but sure as hell would welcome $500 in my pocket, $500 I don’t have after mortgage, food, transport, etc., especially after the earthquake.

    Comment by David in Chch — September 29, 2010 @ 12:23 pm

  23. Arguing about whether relative or proportional values are more important is irrelevant, because these changes favour the better off on both counts. By quite a lot. Bradluen’s point that the percentage of the net increase in terms of income is greater for someone earning 100k than someone earning 10k is absolutely right.

    On the Dom Post figures (taking linear extrapolation from the 70k mark to go beyond 100k salary), someone earning 40k will benefit annually to the tune of $517, or 1.29% of their gross income. Someone earning $140k benefits annually by $3666, or 2.53% of their gross income. The rich person isn’t just getting a bigger absolute benefit (by a factor of more than 7), but they are getting nearly twice the benefit on a proportional basis. In both absolute and proportional terms, the wealthy person is a lot better off.

    The government have been very clever, since they can argue that nobody is likely to be worse off. But it’s definitely the well off who are winning here. Berend often used to point out that the government was borrowing squillions every week, and that its spending wasn’t sustainable. Where is he when you need him?

    Comment by Dr Foster — September 29, 2010 @ 1:48 pm

  24. I am waiting for someone to come out with a post on how economic growth HURTS the poor.

    Two people – one on $10k per annum. One on $100k per annum. Difference of $90k per annum between them.

    Economy and wages grow 20%. One person now on $12k, the other on $120k. Difference between them has grown from $90,000 to $108,000. Gap between rich and poor growing.

    Conclusion: Economic growth obviously hurts the poor. You could show it with a graph and everything!

    Comment by J Mex — September 29, 2010 @ 1:55 pm

  25. I am waiting for someone to come out with a post on how economic growth HURTS the poor . . .

    We had 0.2% economic growth in our last quarter.

    Comment by danylmc — September 29, 2010 @ 1:59 pm

  26. That still hurts the poor Danyl, as the gap between the rich and the poor will have still widened.

    Comment by J Mex — September 29, 2010 @ 2:08 pm

  27. J Mex. Quite. But in your example, eveyone is better off by the same proportion. Under the present tax policy, the 100k person gets a bigger proportional share of the increase than the 10k person, not just a bigger absolute share. So you are still suggesting a much more equitable distribution of wealth than our government is prepared to do.

    Economic growth can help the poor, or it can hurt the poor. It all depends on how it is distributed. Ask people in Vietnamese sweatshops whether economic growth is helping them. Compare and contrast their answer with, say, Nike. I know that is an extreme example, but the general point is that economic growth is just growth – it’s what you do with it, and who benefits from it, that counts in producing a better society with a higher standard of living.

    Comment by Dr Foster — September 29, 2010 @ 2:19 pm

  28. Economic growth for all does not increase inequality. Pretty much every serious measure of inequality works by some function of ratios of income – see http://en.wikipedia.org/wiki/Income_inequality_metrics

    In your example, originally the rich person earned 10 times more than the poor person. After growth this is still 10 times.

    Comment by no.one — September 29, 2010 @ 2:30 pm

  29. Also, didn’t someone promise tax cuts “north of $50 a week”. The net effect of the GST increase and income tax cuts meets this promise. But only if you’re earning more than about $110,000.

    Comment by Dr Foster — September 29, 2010 @ 2:31 pm

  30. @27 And the entire argument is about point-in-time.

    The government take $100 a day off you as tax and now say give me only $98 a day.

    Your argument is that the person paying $98 a day in tax is getting $2 a day as a gift and this is wrong.

    The government thinks that $95 a day is a decent rate, but as they can’t afford to only levy what they should they still collect $98.

    Rather than getting a $2 gift the taxpayer still overpays tax by $3 a day. Lucky indeed !?

    Comment by cj_nza — September 29, 2010 @ 3:00 pm

  31. CJ, that’s a different argument. You’re saying something about what the right rate of taxation is. The debate here isn’t about that, but about who sees the marginal benefit from a change in taxation. Nothing in any of this discussion has any bearing on what the overall level of taxation should be, and whether the total tax burden is the right amount. I tend to think that it is right, more or less. But that’s not the point at issue.

    My argument isn’t that the person getting $2 a day receives a gift – my argument is that some people are getting a marginal benefit of $2 a day, and some people are getting $4 a day, and that this is not distributed across the income range according to greatest need. So it is a very badly designed tax cut from the point of view of helping those in greatest need, but well designed from the point of view of making the rich richer.

    I personally benefit very generously from this tax cut. But I’m not sure that I’m the kind of person the government should be most concerned about. There are very many people who need it more than I do.

    Comment by Dr Foster — September 29, 2010 @ 3:27 pm

  32. @David “An extra $50 to someone on $10,000 per year is the same as $500 to someone on $100,000 per year.”

    riiighhht, cos obviously the poor person lives in an alternative universe where everything costs less??? Actually both people have to pay the same amount for food, dentists, doctors etc… $50 doesn’t go very far in the real world (for either person) but $500 does for both.

    Comment by LucyJH — September 29, 2010 @ 3:37 pm

  33. Dr Foster @ 27 wonders “Ask people in Vietnamese sweatshops whether economic growth is helping them. Compare and contrast their answer with, say, Nike.”

    Well, they have jobs that didn’t exist before Nike arrived. Somehow Nike convinced them that a sweatshop was better living (some combination of better money, less risk of drowning, etc) than fishing or plowing rice paddies with the aid of a buffalo.

    Comment by Clunking Fist — September 29, 2010 @ 4:48 pm

  34. @ 32 And somebody on $10,000 per year is not necessarily poor.

    When you don’t have food and you find a $5 note it makes a world of difference. If you have excess then $5 is not noticed.

    Which is the point David tries to make.

    Comment by cj_nza — September 29, 2010 @ 4:52 pm

  35. Dr Foster (not picking on you or nuffink) @ 31 states “You’re saying something about what the right rate of taxation is. The debate here isn’t about that, but about who sees the marginal benefit from a change in taxation.”

    Come on: you are not making sense. The gummint is “changing” my tax rate to 33%, 3.14 times the tax rate of some poor prick on 10.5%, yet still you say I am “benefiting” from that “change” in tax. Me thinks you don’t hold a mathematics doctorate.
    And you point is probably addressed by the poor-pricks having the access to WFF that I lack.

    Comment by Clunking Fist — September 29, 2010 @ 5:11 pm

  36. Economics, actually.

    It’s all about the change from state A (pre tax cut/GST raise) to state B (post tax cut/GST raise), and who does much better or only a little better in that change, not a judgement about the absolute rightness of either state. Of course you’re benefiting from the change. How much tax someone else pays has nothing to do with how much benefit you get from a drop in your tax rate. And would you rather be the “poor prick” who the government charges at only 10.5% tax because their income is so low? Thought not. Neither would I.

    The people working in sweatshops in Vietnam may well find that it’s their best option right now. But if economic growth as a consequence of foreign direct investment has made traditional subsistence farming unsustainable (for example), or has removed other economic choices, then growth may not actually be helping them much. They may well have had other choices before Nike’s arrival which they can no longer exercise.

    Comment by Dr Foster — September 29, 2010 @ 6:29 pm

  37. Be careful Dr. Foster you are making way too much sense. I don’t know what David from Chch will do now…you seem to have proven that people in New Zealand can still add and that we are not all financially illiterate.

    Comment by Tim — September 29, 2010 @ 8:08 pm

  38. If you consider that government debt is eventually going to be paid off by taxes. Borrowing to pay for these tax cuts should be burdened back on the tax payer in any analysis to do with costs/benefits. Maybe the total loss of government revenue could be spread over the tax payers to show the long term effects of these tax changes. This would show that the low income earners will be worse off. Now obviously this is only a simply regression but in the future the people who got the least benefit will be the young and the old will get the most benefit. This is assuming that the young currently earn low income and will earn higher income in the future.

    Comment by Steve — September 29, 2010 @ 8:16 pm

  39. The people working in sweatshops in Vietnam…

    as we hobbits squabble over crums of what isn’t even elvish bread my bet is wihtin a generation those Vietnamese wouldn’t even consider migrating to NZ.

    Comment by NeilM — September 29, 2010 @ 8:46 pm

  40. “Economic growth for all does not increase inequality.”

    No s**t. But that doesn’t stop people cherry picking absolute numbers and turning those into percentages and claiming that does.

    “It’s all about the change from state A (pre tax cut/GST raise) to state B (post tax cut/GST raise), and who does much better or only a little better in that change, not a judgement about the absolute rightness of either state”

    And this is part of the problem. There is nothing “correct” about a 10.5% tax rate vs 33%. If top tax rates were 84% and got dropped to 80%, the same sectors would be screaming about “tax cuts for the rich” regardless of the inefficiency. Arguing the change from A to B is far less useful than figuring out if c is a far better option outright.

    The people working in sweatshops in Vietnam may well find that it’s their best option right now. But if economic growth as a consequence of foreign direct investment has made traditional subsistence farming unsustainable (for example), or has removed other economic choices, then growth may not actually be helping them much. They may well have had other choices before Nike’s arrival which they can no longer exercise.

    So a Nike factory wipes out subsistence farming does it? Bollocks. Both options continue to exist. People will choose work in a factory, if the outcomes for them are better than the alternative (i.e subsistence farming for longer hours and less reward). You prefer to force them into the worse option because it doesn’t affront your senses.

    Your argument seems to be “stick with the shittier option, it might get better” . Not much help to the person who wants a better life now and has a change at a better life by taking the factory option right now.

    Comment by J Mex — September 29, 2010 @ 9:15 pm

  41. Well, if we’re arguing about the virtue or otherwise of a policy, which is what I thought we were doing, then the position before and after that policy is implemented seem to me to be the relevant points of comparison. I agree that an 84% top tax rate us excessive, but I don’t think it’s unreasonable to pay 30-40% tax on the top part of my income, and I think there are people who should benefit from government fiscal policy before I do. So, in my view, this tax change is bad policy.

    The economic growth thing is really a response to the implication that economic growth is always good, and always benefits everybody. It can be good, and it can benefit everybody, but it doesn’t necessarily follow – it all depends upon how the growth is distributed. The industrial revolution was a period of huge economic growth, but it didn’t necessarily improve your living standards if you were, say, a piece work weaver – hence the Luddite rebellion in Yorkshire. People lost the economic choice of working independently, and were effectively forced to work in factories or starve. It was more efficient, and represented a great leap in economic development, but the locals didn’t like it much. The benefits flowed to mill owners, and to other people who could buy cheaper textiles. By the rather stringent criterion of welfare conventionally used by economists, this was an inferior state – some people are better off, but at least one person is worse off.

    I’m really not taking an extreme position here, and I’m certainly not saying that economic growth isn’t mostly a good thing – only that it doesn’t automatically benefit everybody all the time, and that the less well off can sometimes be exploited. Which is hardly a radical point of view. Economic growth is important, but it is one of the functions of good government to develop policies which share the proceeds of growth, and improve living standards for the whole of society.

    Comment by Dr Foster — September 29, 2010 @ 11:33 pm

  42. […] Danyl over at DimPost has produced an excellent graph of the gains from National’s Tax Swindle. […]

    Pingback by Tax Swindle Graph « The Standard — September 30, 2010 @ 7:46 am

  43. “Well, if we’re arguing about the virtue or otherwise of a policy, which is what I thought we were doing, then the position before and after that policy is implemented seem to me to be the relevant points of comparison.”

    That sure is one way to “frame” the discussion, but it is not the only way. If you want to discuss virtue, then surely you need to consider motivation and context.

    Comment by cj_nza — September 30, 2010 @ 9:47 am

  44. “Not much help to the person who wants a better life now and has a change at a better life by taking the factory option right now.”

    yep, factory workers in vietnam have a real chance of a better life. Thanks Nike!!!

    Comment by nommopilot — September 30, 2010 @ 11:04 am

  45. “But if economic growth as a consequence of foreign direct investment has made traditional subsistence farming unsustainable (for example), or has removed other economic choices,”

    Subsistence farming? In spite of being “traditional” an’all (and therefore double-plus good in some folks books), it sounds like a shitty existence. In NZ, we all want again the option to work in factories, look how our lower paid/lesser educated fare now that their unions have priced them/NZ out of the factory choice. Still: plenty of jobs cleaning offices, in call centres or as a shop assistant, eh? (No disrespect to those professions, just making the point about how they usually pay less than factory jobs.)

    “Economics, actually.” LEFT-WING economics by the sound of it! Do you not think that (arguably high) marginal rates have any effect on our behaviour?

    “And would you rather be the poor prick” who is likely entitled to WFF, so their REAL rate of tax is waay lower than 10.5%. What do you think of the idea of a flat(er) rate of tax allied with an $80/week adult allowance? The idea is that there is less impact of effective high marginal rates through abatement (or at least over a narrower range), as you don’t lose any of the $80 by taking on a job or a few more hours.

    ““But if economic growth as a consequence of foreign direct investment”
    So growth as a result of FDI is bad? Or is it merely less desirable than investment generated internally from our own savings? The savings that will be boosted by way of a tax cut?
    “They may well have had other choices before Nike’s arrival which they can no longer exercise.” Typewriter repair d’ya mean? Look, some industries just change over time; we have to live with it. Nike didn’t shut down farming. Don’t you think that it could be that productivity has increased on the land, meaning less farm jobs? Is this Nike’s fault, or the fault of the Vietnamese gummint? Perhaps evil foreign NGO’s introduced the farmers to higher yielding crops, better ideas on irrigation or pasture management? So as the farmers are saved from relative ignorance, perhaps we should be grateful that Nike stepped in to provide jobs.

    “I agree that an 84% top tax rate us excessive, but I don’t think it’s unreasonable to pay 30-40% tax on the top part of my income”
    Actually, some of us think that 30-40% is excessive since a lot gets pissed away without creating any additional social welfare, in spite of contributing to GDP numbers.

    “it all depends upon how the growth is distributed”
    Sure, poor pricks only got a 2% point cut in tax while this “rich c0unt” got a whopping 3%. Has not study after study shown that real (not state-spending spree) growth is good and trying to “distribute” the grwoth only fecks it up? Have you not noticed that as the middle and rich classes earn more, they pay more tax (even in a flat tax environment) and call less on govt assistance? Off topic(ish) did you know Sweden has a voucher system for schools?

    Comment by Clunking Fist — September 30, 2010 @ 12:54 pm

  46. Steve @ 38 – “Borrowing to pay for these tax cuts should be burdened back on the tax payer” couldn’t agree more: current taxpayers are being given a tax cut funded by their children and grand children. This is not right and is way most “right wingers” see a necessity for a cut in govt spending. We should start with the families commission!

    Comment by Clunking Fist — September 30, 2010 @ 12:54 pm

  47. “yep, factory workers in vietnam have a real chance of a better life. Thanks Nike!!!”

    Not as wholesome as subsistance farming then, eh, nommo?

    Comment by Clunking Fist — September 30, 2010 @ 12:56 pm

  48. “Economic growth is important, but it is one of the functions of good government to develop policies which share the proceeds of growth, and improve living standards for the whole of society.”

    Says who, Dr Socialist? Anyways, we ARE sharing the growth with the poor: through benefits when folk need them and WFF, so no one need starve in NZ.

    Comment by Clunking Fist — September 30, 2010 @ 12:58 pm

  49. If we graphed reversing this tax cut after it is implemented it would be the same graph for ‘tax increase’ . It’s the way progressive taxation works. You can’t support the progressive taxation model unless you accept this consequence. When you put tax rates up the rich get hit harder, when tax rates come down the rich get the biggest relief. You do understand progressive taxation don’t you danyl?

    Comment by burt — September 30, 2010 @ 9:11 pm


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