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.

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.

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?

“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.

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.

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!!

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.