Poor case for super
If this is the case for compulsory super, then I guess I better figure out where I’m going to move once it gets introduced – as it is obviously going to be poorly thought through and adhoc.
Lets start:
Archive for month: August, 2010
Subsidising household services?
Eric Crampton notes that Peter Dunne views income splitting as a subsidy for “household services” – as he thinks the secondary partner in a relationship should be at home more often.
Ok, well he is right that it is discouraging second earner labor supply, and so will end up with second earners staying at home instead. But is he correct when he says we need to subsidize household services like cleaning and required pest control services of which you can learn more here.
Just yesterday CPW pointed out to me that we don’t tax household services provided in a relationship – even though it is a service. As a result, it is already subsidized. In fact, we could argue that we should be taxing the imputed rental value of said services – given that they are part of the inherent structure of the household (and households are effectively just firms).
Arbitrary tangent
In many ways we could say allowing people to form families is a way of “dodging tax” is that something a civilized society such as New Zealands wants to promote!
Overall, I think Peter Dunne has convinced me that we need to not only avoid income splitting – but start taxing people based on how much they clean their own house. Sure, looking at how I keep my house, this would see a significant fall in my tax burden – but I swear I’m not asking for anything on the basis of self-interest ….
Tangent over
So, in seriousness, we have to ask – why do we have someone wanting to implement a policy on the basis that it will reduce labour force participation by secondary earners? Does he seriously want society to revert to some sort of 1950’s traditional household mold? Even if he does, and even if YOU think that this is what society should do – do you think it is right for government to implement policy to achieve such goals?
That my friends is really a bridge too far – no-one, not even economists, have the foresight and the knowledge to say that they should be the ones determining societies institutions.
Income splitting turns up again
So Peter Dunne has, again, stated that he is trying to bring up income splitting for tax purposes (ht Dim Post).
Now, we’ve discussed this before, over two years ago. Our primary point was:
If we then view individuals as the appropriate economic unit, income splitting seems un-equitable. By allowing income splitting we are giving a tax advantage to those in a relationship versus those that are not … something we should only be willing to entertain if there is a positive externality associated with that household structure.
I didn’t realise it was governments role to promote a certain family unit – sounds a little like social engineering to me. But I digress.
Eric Crampton brings up important points regarding marginal tax rates – something I was aiming to mention, but now don’t really have to. His main point is that this policy will, in places, increase the MTR’s on second income earners (who are very responsive to taxes in terms of labour supply) and slightly reduces it for main income earners (who are relatively unresponsive in terms of their labour supply).
I would add that, to keep tax income sufficient for the level of spending (so assuming tax neutrality) we would need higher marginal tax rates on some section of households who aren’t this ‘standard unit’ Peter Dunne is targeting. So their incentive to supply labour will be lower – and their tax burden will in fact be higher.
SO, the only way to support the policy, really, is if you believe that there is some external benefit from having households form in a certain way – that is an argument I wouldn’t be willing to make, so I genuinely dislike the policy.
Update: Frogblog also dislikes this policy. Fundamentally, I believe that we agree that treating the household as the economic unit rather than the individual is not going to be conducive to optimal tax policy. I would also like to point out that there are people who support the policy in the comments – and they are good comments from the other side, so if you like read them (and my corresponding replies). My key point is that, yes there are situations where we would want to do certain things – but this seems like a ninth best solution, rather than any type of sensible, reasoned, and targeted policy.
Update 2: The Standard also attacks the policy. But I would note that if you don’t think the current tax system is equitable, these numbers would just reinforce the point that some earners are currently paying “too much” tax rather than saying a change would be unfair. This is why we need to discuss the allocation issues from first principles, rather than relying on the change from status quo per see.
Update 3: No Right Turn is also against on the grounds of discrimination on the basis of family status.
The elephant in the room: Compulsion
Compulsory super is being suggested, again.
I agree with Kiwiblog’s first statement that compulsory super is bad policy – but then he states:
However KiwiSaver is close to de facto compulsory as it is opt out, and the subsidies are so great you have to be very poor or very stupid not to take them up.
Serious, what the frik.
It is opt out, because it wants to “change the framing” of saving, in order to see if people have a framing issue with savings. However, they messed any potential for using this as a test for framing by epically subsidising the scheme – subsidies which are inefficient and generally unfair.
I wouldn’t use the dumb subsidises in Kiwisaver as any sort of argument for compulsion.
Trust me, if we are about to get into a debate on the merits of compulsory superannuation there is going to be a lot of “against” posts on this blog – lets hope we don’t go there.
Update: An anti-compulsion post on Policy Progress that is worth flicking over.
The ultimate policy?
If there was a way that the government could:
- Reduce government debt levels,
- Cut income taxes,
- Destroy the Green party and eat up sections of Labour support.
Would it want to do it? I suspect so.
As a result, why aren’t they legalising and taxing drugs?
Note: None of these provide particularly good reasons for legalisation in my book – I am more pro-legalisation on choice grounds. However, better to do the right thing for the wrong reason then keep doing the wrong thing right!
Ridiculous statement
So Chris Barton in the Herald stated:
Those who call for a cost-benefit analysis of the (broadband) plan don’t understand the internet
O.o
It is obvious from this statement that Chris Barton doesn’t understand what a cost-benefit analysis is, and just wants fast internet so badly that he is willing to ignore any points against such a scheme.
His implicit point is that there are benefits in the future, and there is uncertainty around how these benefit will pan out – while this is true, it makes a proper cost-benefit analysis more important, not less. Bleh.