Hey VMC,

The point was about tax incidence – where the tax is levied isn’t the main issue, it is where the burden ultimately falls! My point was that we may have the firm taking on some of the incidence of the tax in the labour market – but if demand is very inelastic in the goods market they will pass these costs onto consumers! If it is profitable firms, which a left wing government would view as having a greater “ability” to pay, that can pass on the incidence this may be taken as unfair.

There is a bit much in there, but I think it shows just how convoluted tax incidence can be – and how hard it can be to figure out “who pays”!

There is significant disagreement about the elasticity of taxable income – and it needs to be estimated on a country by country basis. The only literature we have here that does that directly suggests very little revenue gain.

Note that I put it towards the end of my point though – as I didn’t want to go as far as saying there would be no revenue, especially with only one study. Instead my point was that the estimate of $500m was a MAXIMUM – it is likely to be lower.

I think some would argue that other countries are doing stupid things, or that the top rate cuts in further in the right tail of the income distribution. That is fine, but I’m not going to make that argument either 🙂

Luc, I don’t disagree with you, except on your attributing my post to Eric Please note: Eric would never use a cricket metaphor!

Yep, more research needed for sure!

However, I think we can say for sure that since we deliberately marginalised the poor via Rogernomics, Ruthanasia and WFFs, we have ended up with an immoveable block of under-endowed kids and it’s time to try something different. I don’t think a small extra tax on the highest income earners and a relatively minor redistribution to the poorest children is particularly revolutionary or economically disastrous.

Morality issue? Not quite sure where that crept in. Is that my approval of Eric’s suggestion of a wider net?

And in an indication how these discussions can rapidly drift, we now have your bold assertion that all tax is a deadweight cost for the taxpayer. I can swallow the line that there may or may not be some deadweight cost in the sense of measurement of the utility derived from the government spending my money and the utility derived from me spending it, but it’s an extreme case to make that no utility is derived from any and all tax spending, but you may not have meant to make that case 😉

In reply to your final point, look, we abandoned the private charity fix a long time ago for the very good reason that it simply didn’t work. Universal provision is the proven successful strategy – apologies to Paula Bennet who ‘believes’ in targeting – and taxes are needed to pay for it.

To convince me otherwise, perhaps you can point me to a tax-free utopia in the advanced economies that I haven’t noticed.

Well I’m not so sure about the ’empirical evidence’ as there is plenty of evidence to support my assertion too. I guess it comes down to the overall structure of the tax and welfare system. For example, did you know in Finland that all tax records are public information?

In terms of compliance, there is always more that could be done… however, there has been plenty done in this regard over the past several years. What probably holds the IRD back from better work in this area is super clunky IT systems, which were designed for the tax system 25 years ago… the $1.5b spend on that is necessary to make the tax system work better, which may solve a lot of compliance issues…

Finally, I have a different view. I completely disagree with the notion that tax is somehow a morality issue. Its a deadweight cost on the payer. If you have a personal desire to see less child poverty (however defined) then you would probably be best served by donating some of your time. it would be personally more rewarding and less annoying to me if you did that instead of imposing your world view on my wallet…

It’s not a matter, to me, of following the leader, it’s a matter of what works, and the empirical evidence that I recall is that there is a lower level of child poverty in countries that tax more highly. Feel free to disprove this. Of course there are definitional issues and wider issues to canvass as to the cause of the correlation, but broad brush evidence seems pretty clear.

The point of my post was purely the tax revenue effect of a change in the top rate of tax, remembering that the Clark government increased the top rate to 38% and it would appear that that increase generated significant revenue. So all I’m saying is that the quite small adjustment to the tax rate of a few high income earners is likely to raise the kind of revenue the Greens hope for, especially if compliance is given a high priority. Behavioural economics eg nudge theory may have a role to play here, which would be pretty cool to see.

I have now read Eric Crampton’s similarly impressive post on this and I think his last point is important. I don’t earn anywhere near 140k income, but I would be happy to pay a little more to have a decent go at making a difference.

Yes… especially those that created trusts last decade to avoid the 39c top tax rate and loaded up on loss making investment properties…

Just because some other countries have higher tax rates doesn’t mean that NZ should also… you also miss out that the reduction in the top tax rate was in part an offset to the increase in GST to 15%. I’m reminded that when Cullen increased the top tax rate to 39% the revenue increase was far lower than expected…

So maybe there is a asymmetrical relationship between increasing the top tax rate and revenue gains compared to lowering the tax rate and revenue losses. And there is some good research to support this… it comes down to incentives.

Finally a higher tax rate in somewhere like Sweden doesn’t necessarily mean that the after tax/transfers income of the tax payers reflects this… its only looking at piece of the puzzle… effective tax rates may be far lower.