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Comments on: National’s tax cuts: Prior to the release http://www.tvhe.co.nz/2008/10/08/nationals-tax-cuts-prior-to-the-release/ The Visible Hand in Economics Tue, 07 Oct 2008 22:46:57 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Matt Nolan http://www.tvhe.co.nz/2008/10/08/nationals-tax-cuts-prior-to-the-release/#comment-2688 Tue, 07 Oct 2008 22:46:57 +0000 http://tvhe.wordpress.com/?p=1422#comment-2688 “This would have the advantage of being totally transparent and, if applied to everyone, would go a long way towards reducing the high marginal tax rate problem”

True, it would solve the EMTR problem because without abatement you don’t need to worry about abatement rates 🙂

There are two issues I would keep in mind with this sort of policy though:

1) Participation: Extra transfers will reduce participation rates.
2) Cost: A scheme that is universal will be costly

The thing I like about your scheme though is the transparency – you are saying that there is some positive externality to having a child (that is valued at $5,000) and you are correcting for that. It is clear what the policy is, and what instrument you are using to achieve it.

In a sense it reminds me of the GMI (guaranteed minimum income) concept for income taxes.

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

This type of policy is very popular among many economists.

“I’m not an economist. So this may be a stupid idea. ”

Trust me, economists constantly have stupid ideas. Not being an economist does not disadvantage you in any way 🙂

]]> By: billbennettnz http://www.tvhe.co.nz/2008/10/08/nationals-tax-cuts-prior-to-the-release/#comment-2687 Tue, 07 Oct 2008 22:28:14 +0000 http://tvhe.wordpress.com/?p=1422#comment-2687 What would be really radical and, with a lot of work, cost-neutral would be to incorporate the working for families payouts into tax allowances. So, for example, a family gets, say, a $5,000 tax allowance for the first child… and so on. This would have the advantage of being totally transparent and, if applied to everyone, would go a long way towards reducing the high marginal tax rate problem.

It would also greatly reduce the bureaucracy associated with working for families.

I’m not an economist. So this may be a stupid idea. But I’ve always thought family tax allowances are a much neater way of delivering the right mix of support and incentives.

]]> By: Matt Nolan http://www.tvhe.co.nz/2008/10/08/nationals-tax-cuts-prior-to-the-release/#comment-2686 Tue, 07 Oct 2008 21:37:12 +0000 http://tvhe.wordpress.com/?p=1422#comment-2686 “Everyone beneath that threshold already, ie most taxpayers, will get nothing.”

It isn’t a lolly scramble – the government isn’t “giving” people money, they are just reducing the amount of the surplus they extract from the production process between workers and capital.

I think someone should tax a look at the average tax intake per person per income bracket and the average government spending on those tax brackets – that would be interesting.

]]> By: Matt Nolan http://www.tvhe.co.nz/2008/10/08/nationals-tax-cuts-prior-to-the-release/#comment-2685 Tue, 07 Oct 2008 21:32:54 +0000 http://tvhe.wordpress.com/?p=1422#comment-2685 “It’s average worker, Matt, not average person”

Agreed – sloppy writing on my part. I fixed it in the post

]]> By: Steve Pierson http://www.tvhe.co.nz/2008/10/08/nationals-tax-cuts-prior-to-the-release/#comment-2684 Tue, 07 Oct 2008 21:29:26 +0000 http://tvhe.wordpress.com/?p=1422#comment-2684 It’s average worker, Matt, not average person. Average person’s income is 27K from memory, average worker 46K.. and the medians are lower than that too. National will be targeting just the average worker, probably lifting that 33cent threshold or cutting the 33cent rate. Everyone beneath that threshold already, ie most taxpayers, will get nothing.

]]> By: Matt Nolan http://www.tvhe.co.nz/2008/10/08/nationals-tax-cuts-prior-to-the-release/#comment-2683 Tue, 07 Oct 2008 20:15:29 +0000 http://tvhe.wordpress.com/?p=1422#comment-2683 “Many regard any reduction in public spending as evil, further they do not accept that there are spending quality issue”

Indeed, I completely agree. However, I am not sure that National really has a plan for “improving the quality of government spending”. Call me cynical, but I think the institutional structure of many government departments isn’t suited for the efficient use of funds.

If National came out with policies that said “we will increase the transparency of government spending” and actually said what they were (Treasury showing some key statistics, quantifying outcomes) then I think that would provide a substantial boost to their credentials as economic managers.

“Labour have managed to confuse the electorate and National over this point”

I agree that Labour have “spun” the issue. However, I think the electorate understands the point better than we often give them credit for. Labour says the trade-off is 10c for a doctor – National needs to show that they are exaggerating the trade-off and then let the electorate make their own choice.

]]> By: adamsmith1922 http://www.tvhe.co.nz/2008/10/08/nationals-tax-cuts-prior-to-the-release/#comment-2682 Tue, 07 Oct 2008 20:03:05 +0000 http://tvhe.wordpress.com/?p=1422#comment-2682 I suspect that the approach may be more politically sound than economically sound.

Labour have managed to confuse the electorate and National over this point, coupled with the fact that much of the population is over dosing on middle class welfare. Many regard any reduction in public spending as evil, further they do not accept that there are spending quality issue.

Yet in Aussie some commentators suggest Rudd should move to get rid og middle class welfare

http://adamsmith.wordpress.com/2008/10/07/7947/

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