Michael Duffy points to a truly bizarre quote by the PM, speaking to Alan Jones this week:
“I yesterday made some inquiries about this issue of not having tax returns [in Britain and New Zealand at least 70 per cent of people don’t even have to file a return] and I have been informed that there was quite a lot of research carried out on this and it indicated that a surprisingly large number of people like the idea of putting in their own returns because they felt they could get deductions that they might otherwise not get â€¦
“People like getting a cheque from the government. They like that cheque, that Reserve Bank cheque made out in their favour giving them a tax refund, and a lot of people I talk to say, ‘I get my tax return done by a tax agent, it doesn’t cost an enormous amount and he makes sure that I get all of the deductions that I am entitled to, and if I didn’t have it done by him then I wouldn’t get as much back’.”
Most economists, left and right, understand that marginal tax rates have a deadweight cost, and therefore that a tax-and-churn system must impose an excess burden on the economy. This burden could be pretty big – one study in 1982 estimated it at 25-65 cents in the dollar, while a 1997 study suggested 19-24 cents in the dollar. I had always assumed Howard implicitly understood this, but his quote implies that if he does, he puts much less weight on it than on the politics of cutting cheques for the voters.