And now, a trio of comments on Sinclair’s piece.
1. I think Sinclair’s right to point out that Beazley’s tax cuts are also regressive, a point that few (if any) other commentators have made. I’m no fan of Labor’s approach here.
2. Sinclair argues that the marginal utility of money doesn’t decline – in other words, giving $100 to Kerry Packer increases his happiness by just as much as giving $100 to a homeless guy on the street. His basis for arguing this is that money is fungible. Whereas we might get quickly sated with a single good (eg. pizza), we can buy lots of stuff with money. This definitely means that the marginal utility of money doesn’t decline as rapidly as the marginal utility of pizza. However, it doesn’t mean that the marginal utility of money doesn’t decline. Since everyone only has 24 hours in a day, there must be limits to the amount of stuff we can consume/enjoy each day. If this is so, the marginal utility of money will decline.
3. Sinclair argues that all tax cuts will be regressive. This is true if (a) you don’t allow for the possibility of introducing a negative income tax (or EITC) now in place in Britain, Canada, the US, and most of the rest of the developed world, and (b) you don’t allow for the possibility of raising the income tax threshold, but only for those earning below $50,000. The first was ALP policy in 1998 and 2001. The second was ALP policy in 2004. Both are progressive tax cuts.