Guaranteed minimum income. Where did it come from
So I see Gareth Morgan is suggesting a set minimum income level and a flat tax rate. Very nice, I can see merits in some of the set up for sure given my personal value judgments.
Some on the left will think this is right wing (where is the progressivity!),
Some on the right will think its left wing (we are giving benefits to everyone!),
Others will like it (it lowers effective marginal tax rates and ensures that everyone can live),
Others will hate it (churn in the tax system, don’t need to work to live, its tax, it involves government, the rich will pay less)
So where did this come from?
Hint *. Guess who else suggested it in the 80s.
Tell me, does this change the way you view these two people as well? Or does knowing that these people came up with the idea change how you view the idea. If that is the case, why?
Update: The Standard supports, DimPost does not.
It doesnt’ change how I view these people, or how I view the idea. sounds interesting. The problem with many reforms is that only part of the package is palitable, and passed into law. its when part of the package is missing that problems arise.
Are you going to comment on the 2025 taskforce? I wouldn’t mind hearing your opinion.
@steve
Hi,
Thanks.
We would all like to comment a bit on it over here at TVHE – but we’ve all found ourselves a bit knee deep in work. Hopefully we can add a bit of (late) commentary next week.
You know that Charles Murray came round to the same view, right? The same Charles Murray who basically caused welfare reform in the US?
New Zealand has a problem with limited availability of capital for equity investment and too many people receiving welfare and no incentive to work. So what do we propose. Lets tax capital and provide a guaranteed minimum income.
With a few wording changes I’d agree with you Phil. New Zealand has a problem with limited capital that we’ve typically addressed by throwing more manpower at the problem, resulting in very low unemployment but also very low productivity. So what do we propose? Let’s tax capital and make ourselves even more reliant on labour.
It seems to rely on forcing productive use of existing land, buildings, plant and equipment (by taxing them in a static way regardless of output it forces owners to “use it or lose it”). I can’t quite get my head around what it would do for new capital accumulation though? This seems to be a significant problem at the moment that the tax system should be looking to incentivise.
@Phil Sage (sagenz)
@Miguel Sanchez
@garethw
I am not commenting on the CCT, only on the GMI.
One thing I would note is that I find it funny that there are currently complaints that New Zealand has too little capital and complaints that there are “hot inflows” of capital driving up the exchange rate. Either we have too much or too little capital right 😛
This brings me back to the composition issue – we don’t have too little capital in aggregate – its just in the wrong stuff.
Now I’m staying out of the CCT argument for now, that does not mean I’m pro it, just that I’m not getting involved 😉
@Matt Nolan
“I am not commenting on the CCT, only on the GMI.”
I don’t think you can treat any of these tax proposals in isolation. But to answer your original question: I wasn’t surprised. I read Roger Douglas’ books back when I was a callous youth, and even voted for ACT in 1996 (though I don’t remember if they were campaigning on a GMI at the time).
It shouldn’t really be a shock to anyone – even the most hardened Rogernome/ Reaganite/ Thatcherite would never suggest that the unemployed should starve to death. The problem is that a blanket approach doesn’t work in practice – Gareth Morgan has already said that it would need adjustments for things like larger families, which runs the risk of introducing the kinds of weird effective marginal tax rates that exist in the current system.
matt – I knew you would give me a slap. But I was specific enough to say ” limited availability of capital for equity investment”. I have thought a lot about your infinite supply of capital comments a few days ago and serendipitously saw a comment that Australia has ~6.2% of GDP invested in housing vs new zealand ~5.6% ( of that relationship and I think annually).
That caused me to think you might be right to be less concerned about residential housing. Perhaps the answer is that Australia’s mineral extraction and economy is big enough to justify an efficient capital market whereas New Zealand is simply too small and provincial.
Either way Key and English are proving to be pgymies when it comes to 2025 parity with Oz. Wishing it is not going to make it so.
@Miguel Sanchez
Indeed, the issues of redistribution will always cause inefficiencies – that is the nature of the equity efficiency trade-off.
The main reason I like the GMI is:
1) I believe that in a modern society everyone deserves a minimum income,
2) It is transparent as a way of setting up a tax system.
The first one is a definite value judgment, it is personal opinion for sure.
@Phil Sage (sagenz)
Hi Phil,
The slap wasn’t aimed at you – it was aimed at the fact that in policy circles both issues are being discussed at once. Your point did have a significant element of truth to it after all!!
Tell me, does this change the way you view these two people as well? Or does knowing that these people came up with the idea change how you view the idea. If that is the case, why?
I thought a guaranteed income was some crazy ‘hard left’ idea when I first heard of it (i think it was from a lefty group at the time, to be fair). What subsequently happens to tax rates determines what the right/left think of it IMHO.
@StephenR
“What subsequently happens to tax rates determines what the right/left think of it IMHO.”
An extremely important point StephenR.
Ultimately, the real question is the rate of tax and the exogenous level of government spending that supports. The tax system is a means of raising revenue after all – it is the spending where the real redistribution occurs.
What reason do you think Morgan has for not keeping a progressive income tax system with his proposal??
…and when someone (Hickey) says something like:
I’d love them to argue for a 25-25-25 equalised income tax rate
…and don’t mention the words ‘progressive’ or ‘flat’, what are they getting at?
1. Progressive taxation: this is progressive. It doesn’t have lots of levels like people are used to, but a $10,000 minimum with 25% tax means that:
– someone with $10,000 income pays -400% tax
– someone with $40,000 income pays 0% tax
– someone with $50,000 income pays 5% tax
– someone with $100,000 income pays 15% tax
– someone with $200,000 income pays 20% tax
and so on.
The remainder of the tax comes from tax on capital, and of course rich people have lots more capital. In fact, in that sense it is more progressive than our existing system. Our existing system taxes those with lots of income, but ignores those with lots of wealth. This system also taxes those with lots of wealth.
2. On why tax capital, the simple reason is that it makes it hard to avoid tax. Lots of people have businesses that just never seem to make any money, but those business just grow and grow in value. Like people with rental houses that never make enough rent to cover the mortgage, but when you sell the house it’s worth $50,000 more than your bought it for. A capital tax catches all that. Hiding returns in capital gains is the biggest way that the wealthy avoid paying taxes.
1. Oh. So it is.
@PaulL
Very true. However, along the same grounds current tax policy would be seen as significantly more progressive if we included benefits.
As you say the progressivity of the scheme in aggregate is not clear because of the capital tax. Of course, I was only talking about the GMI which would (without the capital tax) probably have to be less progressive (depending on the relative makeup of the flat tax and transfer payment).
“Hiding returns in capital gains is the biggest way that the wealthy avoid paying taxes.”
I find this idea concerning. As long as we tax the profit from the sale of capital then there is no issue here – they will be taxed. Taxing the flow of capital as well seems a little like double counting.
By buying capital it just looks like businesses/asset rich people are deferring tax, not avoiding it.
However, I cannot really talk about the capital tax concept and so I have to leave that here.
Guaranteed income can be come from internet marketing.