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Comments on: Desperate bleg: GST http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/ The Visible Hand in Economics Fri, 14 Aug 2009 10:19:00 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: steve http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/#comment-21039 Fri, 14 Aug 2009 10:19:00 +0000 http://www.tvhe.co.nz/?p=4276#comment-21039 yes ,def diminishing marginal utility of consumption. richer consumers pay relatively less tax (in terms of utility) under a GST only scheme. i.e. the drop in utility by increasing GST is greater for lower level consumers because their marginal utility is higher. therefore it punisheds the poor. that’s a great argument for a progressive tax over a flat tax (like GST), thanks keith.

]]> By: Keith Ng http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/#comment-21037 Fri, 14 Aug 2009 06:30:35 +0000 http://www.tvhe.co.nz/?p=4276#comment-21037 Yeah, but diminishing margin utility still applies for any given individual.

]]> By: Samuel Konkin http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/#comment-21033 Fri, 14 Aug 2009 00:59:45 +0000 http://www.tvhe.co.nz/?p=4276#comment-21033 Value is subjective.

]]> By: Keith Ng http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/#comment-21003 Thu, 13 Aug 2009 12:08:42 +0000 http://www.tvhe.co.nz/?p=4276#comment-21003 It’s the Dickensian aspect, I suppose. 😎

]]> By: Keith Ng http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/#comment-21002 Thu, 13 Aug 2009 12:06:08 +0000 http://www.tvhe.co.nz/?p=4276#comment-21002 Diminishing marginal utility of money? Say, a reduction in purchasing power of $500 for someone on $20k may cost them a pair of shoes, two GP visits and a Christmas hamper (cheap Christmas hamper? I dunno how much they cost), while $2500 for someone on $100k may mean no new laptop or a crappier hi-fi.

It’s an issue with flat tax rather than GST specifically, but there you go.

]]> By: Eric Crampton http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/#comment-20965 Thu, 13 Aug 2009 00:47:27 +0000 http://www.tvhe.co.nz/?p=4276#comment-20965 @Matt: Best next argument is that the rich disproportionately spend money abroad, where it does not attract GST. The money you spend on holidays jetting out to Hawaii, etc. Not the airfare, of course, but the money you spend while there. Or, that the rich just enjoy sitting on piles of money that they never ever spend (muhwah hahahahahaha, etc).

]]> By: Samuel Konkin http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/#comment-20964 Wed, 12 Aug 2009 22:26:31 +0000 http://www.tvhe.co.nz/?p=4276#comment-20964 The problem with Bill Bennett’s analysis is that saving is deferred consumption, and there are numerous studies that show, over a lifetime, consumption of income is largely constant as a percentage regardless of total income.

]]> By: Nick Rowe http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/#comment-20961 Wed, 12 Aug 2009 13:23:58 +0000 http://www.tvhe.co.nz/?p=4276#comment-20961 Following from Bill Bennett:

If we define “poor” as people having low current income (as opposed to low permanent income), then the poor will have a higher average propensity to consume. GST taxes consumption, whereas income taxes tax current income.

The logic is good, given the definition, but I’m not sure I would buy the definition.

]]> By: Bill Bennett http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/#comment-20960 Wed, 12 Aug 2009 05:44:58 +0000 http://www.tvhe.co.nz/?p=4276#comment-20960 The argument I saw when GST was introduced in Australia is poor people tend to spend a higher proportion of their after tax dollars on things that attract GST. In contrast, rich people who can save a proportion of their money don’t have to pay tax on that proportion.

I’m not saying I buy that line of logic.

But there is another more plausible argument. A seriously rich person like James Packer probably doesn’t pay any GST because most of his purchases are, somewhere along the way, GST deductible. This wouldn’t apply to Kenny who cleans the toilets on Melbourne Cup day.

]]> By: Matt Nolan http://www.tvhe.co.nz/2009/08/12/desperate-bleg-gst/#comment-20959 Wed, 12 Aug 2009 04:44:16 +0000 http://www.tvhe.co.nz/?p=4276#comment-20959 @Eric Crampton

@Eric Crampton

I completely agree here – the movement from a progressive to a flat tax is the argument I would have run with as well (as we assume we have a given level of progressivity BECAUSE the proportional loss of income hurts lower income people more).

I’m interested in seeing if there are any *additional* arguments regarding how a GST increase could hurt people on a low income more.

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