The soft middle

Writing in New Matilda, Tristan Ewins contrasts the Beazley tax plan with the actual distribution of pre-tax income:

Speaking earlier this year at the National Press Club, Beazley had identified ‘middle Australia’ as those earning around $60,000 per year. At the same press conference, the Labor leader said he would like to target his tax cuts at people on around $55,000 a year.

But the real ‘middle Australian’ does not earn the average wage. Economist Andrew Leigh pointed this out in On Line Opinion, where he explained that the median income (i.e. the income of the person at the 50th percentile) is a far more reliable indication of what most people earn than the average, which is distorted by a minority of very high income earners at the top of the scale. The median Australian wage is around $26,000 per year; less than half of that characterised by Beazley as comprising ‘middle Australia’.

I don’t agree with all of the proposals that Ewins goes on to make, but it does seem striking that a Labor leader is offering a tax plan targeted at those earning $55,000-60,000 (about the 80th percentile of the individual income distribution).

Incidentally, I updated those figures recently for a paper in Public Policy. The table is on the left. I think Beazley has in mind the median household income distribution, which I calculated to be $69,000. If we had the 1950s model of one earner per household, tax cuts targeted at individual incomes of $60k would benefit the median household. But because many households have secondary earners, a tax cut targeted at individual incomes of $60k is likely to flow almost exclusively to above-average households (a tax cut to those getting $X is almost always a tax cut to those getting $X and above).

It seems clear that the government’s highly regressive tax cuts have skewed the political debate – this is the first time I’ve seen a raised eyebrow at the prospect that Labor will go to the next election with a tax package that only benefits above-median income households.

This entry was posted in Inequality, Tax. Bookmark the permalink.

38 Responses to The soft middle

  1. Andrew – Is there a subtle but important difference here between income and earnings? Median individual income is so low because it includes many people who earn little or nothing – they rely on transfers from family members and/or the state for their income. For people actually in the full-time workforce, Beazley’s idea of the middle is closer to reality than your tables suggest.

    And when I take a look at some of the money-wasting proposals in Ewins’ article (eg socialising Telstra’s mobile network) tax cuts look all the more appealing.

  2. Andrew Leigh says:

    Andrew, I’m not sure why you’d ignore everyone who doesn’t have a full-time job. Is it on the assumption that they’re to blame for their lax behaviour? Given that the economy hasn’t created any low-skill male jobs in the past decade, this seems a mite unfair.

  3. Andrew – But don’t these figures include pensioners with few responsibilities? I’d much rather men with earnings of $50-60K be allowed to keep their money, rather than having their families caught up in the welfare net, as they are now. And letting them keep their money is certainly a much better idea than daft proposals to socialise Telstra’s mobile network or ‘regressive’ proposals to reduce HECS.

  4. Andrew Leigh says:

    My concern here is linguistic, rather than substantive. If you and KCB will admit that $60k earners are rich, I’ll support a proposal that stops the bizarre process of recycling taxes into middle-class welfare, burning 20% of it via deadweight cost in the process.

    Incidentally, you probably know that your logic has been used to advocate minimum wage increases as an antipoverty measure. If we look across all households, minimum wage workers are in middle-income households. But if we focus only on employed households (dropping pensioners, unemployed, etc), minimum wage workers are in low-income households.

  5. Steve Edney says:

    Andrew,

    Since the Median household income is greater than twice the Median individual income by about $15k, there obviously is an income skew particularly at lower incomes (much smaller skew at 75% and above it seems).

    Is there a break down of what a typical median income house hold is divided? to me it seems it must be something like $52k and $17k. Under this kind of split calling the middle $55k or $60k doesn’t seem so out of line as it is typical of one income in a near middle income household.

  6. Sinclair Davidson says:

    Andrew L, I’m tending to agree with Andrew N. Your measure includes individuals who are counted as being unemployed. I don’t think we’re blaming them for being unemployed per se. I do blame those individuals who support high minimum wages and the like who price some people out of the market – but that is another debate for another time. Tax is paid on earned income, it seems arbitrary to include individuals into the calculation who earn no taxable income. On that measure why don’t we include all Australians irrespective of their labour market status?

  7. My original point was getting at a view we can see clearly in public opinion – that those who earn money have stronger claims over it than people who are making no contribution to the economy. I’m reading Judy Brett’s book on the politics of ordinary people, and this comes out clearly in some of the interviews, as does an aversion to taking welfare. People like to be self-reliant. I know I do. I’ve never taken a cent in welfare and I hope I never do.

    I take an anti-tax view all the more strongly when the motivation seems to be an abstract idea of increasing income equality, or a desire to spend extra money on flakey schemes.

  8. I would strongly disagree with Andrew Norton on the worthiness of redistributing income, particularly if the open slather in the labour market results in the American situation of most of the benefits from economic growth going to a tiny fraction of the population, but he has a point about the wackiness of some of the schemes advanced in the articles.

    Resocialising the mobile phone network? Free public transport? More winner-picking in ‘sunrise’ industries (want to bet that he has things like solar power and domestic greywater recycling units in mind)? For crying out bloody loud.

  9. Tristan Ewins says:

    Andrew – do you consider investing in medical training and health infrastructure to eliminate waiting lists a ‘flakey scheme’? Is universal dental care ‘flakey’? Or is it just the very idea of resocialising anything that appears ‘flakey’ to you – despite the fact it would then provide a steady stream of revenue – because it goes against the hegemonic neo-liberal ideology which determines privatisation as a ‘one way’ and irreversible trend? Is investing in more teachers and desperately needed school infrastructure more ‘flakey’ than spending the money on school chaplains? What about a Carbon Tax at $5/tonne – and investing money raised in renewable energy? Is that ‘flakey’? Is investing in aged care: to improve nurse:patient ratios and quality of care – a ‘flakey’ scheme? And – assume not all these ‘schemes’ are ‘flakey’ as you suggest – where does the money come from if we are pushing tax cuts for those on relatively high incomes? Even John Howard realises that the resources boom won’t last for ever – and when tax receipts fall the already massive tax cuts (again mainly benefiting high income earners) pushed through by Costello will be revealed as being essentially irresponsible. That Labor feels compelled to emulate Costello on tax cuts – when Howard himself has queried the wisdom of further measures – shows the bankruptcy of Beazley’s position. Of course, it’s ok to punish single parents and those on disability pensions – but don’t touch the incomes of the relatively well off – that’s sacrosanct!

    Tristan

  10. Sinclair Davidson says:

    Tristan – that’s about right. Everything that’s not national defense or law and order is ‘flakey’ or on its way to being ‘flakey’.

  11. Tristan – I must admit I stopped reading when I got to the bit about socialising Telstra’s mobile network. But I hadn’t agreed with much to that point.

  12. Leo says:

    Getting a bit hot under the collar aren’t we?

    Beazley is aiming for the marginals. It is about politics, not policy. Take a gander at Peter Brent’s pendulums over at Mumble. Around $1000-$1200/week median income covers Lindsay, Parramatta, La Trobe, Macarthur, Deakin, Moreton, Adelaide, Dickson, Kalgoorlie, Macquarie, Greenway etc. Redistributions and demographic change will have amended this somewhat, but the broad point is clear.

    Just as Bob Hawke pledged ‘no capital gains tax’ and John Howard said ‘never ever a GST’, don’t expect what the Bomber says about tax now to reflect what he’ll do in government. He’s not stupid.

  13. Leo says:

    PS – And Swanee’s recent prognostications on tax foreshadowed eliminating the bottom rate (a universal tax cut costing at least $15 billion) and the top rate (only $2 billion or less going to the rich).

    Relax.

  14. Tristan Ewins says:

    I know – whatever Hawke and Keating said – and remember Hawke originally opposed privatisation – we got successive rounds of tax cuts at the upper end of the scale. Also – Macarthur is held by the Libs by 7.0%, Kalgoorie by 4.7%, LaTrobe 3.7%… Some of these may sound marginal – but when you look at the pendulum, you see they are amongst those seats that will be hardest for Labor to win. What about the other seats? Also, remember, as I mention in the paper, that most Australians would prefer higher quality services to tax cuts. Where do these people factor into the equation?

    Even if what you say regarding those seats is true – what about the rest of the seats concerned – what is there to say for appealing to outer-suburban voters on the basis of their class interests, undercutting Howard’s attempts to appeal to some of these peoples’ cultural conservatism? You can’t give everything to everyone – even though you might be tempted to appear to do so in an election.

  15. Tristan Ewins says:

    Also – $1000 a week is $50,000/year. Beazley depicts ‘middle Australia’ as comprising those on $60,000/year. Sure – tax cuts for the rich don’t cost as much – but the effect of successive cuts compounds over the years, and the result is that – proportionately – those on lower incomes end up paying more. Finally – why eliminate the lowest threshold when it is much cheaper to have targeted tax credits delivering relief specifically to those most in need?

  16. derrida derider says:

    Median *income* indeed includes those on welfare payments, as well as the ~8% of Australian adults surveyed who claim to have no income at all. That explains why median income is only about a third of average income.

    But median *wages* is the median of those with some wages, not of all people. Average total earnings is around the 70th percentile of earnings. Average hourly earnings is about the 60th percentile.

  17. backroom girl says:

    What’s always confused me about this discussion is why you think it is inappropriate to target tax cuts to median (or thereabouts) taxpayers? After all they are the ones who are paying the taxes in the first place.

    It’s pretty difficult to target tax cuts to median-income individuals, because they already pay very little in the way of tax, and many are in fact net recipients of other people’s taxes through income transfers, so from one point of view not really taxpayers at all.

  18. Leo says:

    Actually, I think you’ll find Beazley said an ‘individual’ on $55,000 up to a ‘household’ on $100,000 was his idea of middle Australia.

    I am baffled by your talk of the ‘class interests’ of outer-suburban voters. Care to elaborate?

  19. Tristan Ewins says:

    My point re: class interests of out suburban voters – is that many of these people are working class – many on relatively lower incomes – and they have an interest in the provision of infrastructure and services where they live – financed through progressive taxation. Many like to portray these people as selfish ‘aspirationals’ – but in fact many simply cannot identify with a Labor Party that no longer appeals to their interests, and which has successfully potrayed by Howard as the party of ‘middle class elites’.

    BTW – Beazley mentioned both $55,000/year incomes and $60,000/year incomes – and it would unclear which he intended to portray as ‘middle Australia’. He suggested tax cuts for those on around $60,000/year.

    re: those on lower incomes ‘not being taxpayers’: the tax free threshold is about $6000 – everyone above this, not purely on welfare – is a taxpayer.

  20. backroom girl says:

    While it is true that many people on low incomes pay tax, the income transfers (welfare payments) they receive will often be greater than the tax they pay. If you consider such income transfers as simply the other side of the income tax coin (ie a negative income tax), the point at which a person eligible for income support becomes a net taxpayer is much higher than $6000 a year.

    For example, a single childless underemployed person earning $6000 a year is also eligible for at least $8750 in unemployment benefits (more in some circumstances). Thanks to various income tax rebates, he or she pays about $300 tax on this combination of earnings and benefits. Such a person does not become a net taxpayer until he or she is earning around $18,000 a year. Where initial income support entitlements are higher (eg a person is eligible for a pension-type payment or has dependent children), this breakeven point can be much higher.

    So some of the people on the median before-tax income of $26,000 are net taxpayers and others are not. To my knowledge no-one has actually done the calculations necessary to produce an income distribution for people who are net taxpayers, but I dare say the median income of that group would be considerably higher than $26,000 pa.

  21. Leo says:

    I’d like to know where these ‘outer suburban’ marginal seats with lots of low income voters are.

    There are regional seats with ‘low income’ voters that Labor can win like Page, McMillan and Eden-Monaro. There are outer suburban marginals on incomes generally above $50,000/year that Labor may hope to win. There are few if any urban seats with lots of voters on ‘low’ incomes that Labor does not already hold.

    Targetting seats like Reid and Blaxland would not be very clever.

  22. Tristan Ewins says:

    I admit that I haven’t got statistical evidence of lower income families living in the outer suburbs – but you’d suppose given the availability of cheap land – that people on lower incomes would gravitate there – where there is also less in the way of infrastructure and services. I know, for instance, that I could never afford to live in inner Melbourne, or even afford a house of my own where I currently live – in Box Hill, Melbourne.

    re: tax and those on welfare or low incomes – I don’t know what you’re suggesting, but the argument I’m making is that these people should be included in our reckoning of median adult incomes – rather than ignored or cast as being ‘irrelevant’ – simply because they are on lower incomes, and do not pay as much tax. The disadvantaged should not be excluded from the equation because of ‘downwards envy’ and the reluctance of some on higher incomes to support a social wage. These people – and their rights – are important as the rights of any other citizen.

  23. Leo says:

    On the topic of ‘Howard’s battlers’ and the ‘outer suburbs’, the article at this web address is worth a read.

    http://www.mumble.com.au/published/Liesandstatistics_July19.htm

  24. Tristan Ewins says:

    From Mumble:

    “Howard’s battlers, a western Sydney-centric myth, was concocted by Liberal director Andrew Robb in 1996. There are 16 that could fit the western Sydney category, and Labor holds 13, including the seven poorest.”

    Surely, though, even losing three seats, which theoretically ought to be Labor’s core constituency, shoulds that Labor is losing touch with these people.

    Also – assuming Labor lost many lower-income voters in inner suburbia in the last election: surely recapturing these votes – which would probably be reflected in the outer suburbs also – should be a key aim.

    Finally, as the Australian Survey of Social Attitudes shows, many of these people would prefer expenditure in health and education to tax cuts.

    If, though – as you suggest – the only seats that count are affluent marginals – and I’m not sure you are right – it makes me wonder whether or not we need a new workers’ party to represent the broad Left’s core constituency – and to hold Labor to account – forcing policy compromise on issues like tax and social expenditure. Oskar LaFontaine was of a similar mind when he split from the German SPD to join the Left Party. Of course, I know I am a Labor member – and such talk will be viewed negatively by other members – but if – as things remain now – the only perceived option is successive rounds of spending cuts and tax breaks for the relatively affluent – how else is the Left to regain leverage? And how else if the broad Left’s core constituency to count for anything?

    I do not, however, believe that tax cuts are the only way to win elections – so as things stand I will continue to work within the ALP to promote a progressive tax system and a greater social wage.

    Tristan

  25. Michael Moriarty says:

    Tristan,

    I think is essence there is some truth in what you have to say. The ALP has to target a different group of voters to win the next election. Before I take an absolute bucketing you have understand I have always been a long time labor supporter.

    My baptism of fire such as it was arose out of Enmore Branch and the YLA of the late seventies and early eighties.

    Apparently according to the data I am in the Neo Rich. Well the 90th percentile. That came as shock to me since I consider my self to be middle Australia.

    Your data about it being popular to send monies is social services in lieu of tax cuts is I am sorry to tell you just wrong. There is a tendency in these surveys to say the things that are popular and do not reflect true personal belief.

    The agenda you suggested in you piece would be simply disastrous if adopted by the ALP. Like it or not the era of small government is here. Keating and Hawke saw to that it can not be reversed. Your Goughanomics are the wrong time and the wrong place.

    National Labor has to appeal to a new middle class. A genre that grew from the lower middle class. The problem with the Australian Dream of being rich is that more of us think we can achieve it than disbelieve.

    Labor has to look inwards and ask why a trendie leftie is sitting and pondering what is in it for me to vote Labor. They have to embrace the Neo Middle Classes. Why ? Labor will all was be the choice of the financially disadvantaged…always. It is loosing voters like me because we are being courted by the Liberals.

    Andrew Don’t raise your eye brows at an election strategy that is aimed at winning voters.

    Will I ever desert the ALP probably not but I will put a green ahead to show my disgust.

  26. Michael Moriarty says:

    Andrew you said “I don’t agree with all of the proposals that Ewins goes on to make”. Do you actually agree with any of the points has to make?

    Tristan is off in an ideological maelstrom. Not only do we expect fiscal responsibility we demand it from Govermnet.

    I know, you know indeed blind Freddie knows that the platform proposed would see the ALP decimated at the elections.

    For god sake a death tax with a $1,000,000 threshold.

  27. Tristan Ewins says:

    Michael – you act as if a $1,000000 threshold is onerous – but we’re only talking about the top 10% of wealth holders here – and if you still have a problem, you could always exclude the family home. Either way, the proposal if fair – and would only affect a small minority of Australians.

    As for the package as a whole – I don’t believe it’s possible to get the whole thing up, no. But the Left should be arguing for what we SHOULD be doing – getting the arguments out there, and refusing to allow the party to become a policy prison house that suffocates social democracy. I have also argued elsewhere for wage-earner funds… Now the labour movement is not nearly as well organised and mobilised to succeed in the struggle for such a program – even in Sweden the Meidner proposals were eventually defeated… But it’s a matter of getting the arguments out there, and relativising the field of debate – hopefully mobilising people to realise these aims later on – when the movement is stronger, and conditions more favourable… I think, here, that Labor really missed its opportunity in the 1980s – but we have to fight to create those opportunities again.

    The Left is unlikely to get the numbers in its own right in the FPLP. It’s role should be to argue for what is right, and to relativise the debate, creating room for more moderate, but still principled – not opportunistic – voices in the Right to argue for a compromise. If the Left allows itself to be silenced for the sake of opportunism, it only vacates the field, allowing the hard Right of the Party to drag the whole spectrum of debate further to the Right. The Left is mindful not to be controversial – but meanwhile people like Shorten are creating new frameworks for debate by going out on a limb and arguing for a flat tax. As Evan Thornley has argued in ‘Coming to the Party’:

    “John Howard has figured out that having the fundamentalist churches or even his own back bench running down his Right flank publicly on policy simply allows him to move to the Right while looking reasonable.”

    Similarly, the ALP Left needs to be more aggressive – and create the ideological space for a path of compromise to arise.

    But regardless – even if only some of the package was embraced – and remember John Howard won with a GST – the benefits in terms of social wage expansion would be significant. Removing dividend imputation alone would deliver enough revenue to eliminate hospital waiting lists, refurbish state schools, and eliminate full fees for Australian students. Even a half dividend imputation scheme – suggested by Quiggin and Langmore in ‘Work for All’ – would today provide a significant stream of revenue. Wealth and inheritance taxes – even more so – aimed squarely at the top 10% of Australian wealth holders – would be likely to gain public support if you could make the connection between the taxes and the social good gained.

  28. Leo says:

    Tristan,

    The key thing is that those 3 seats are not low income seats. Macarthur, Parramatta and Lindsay were all in the top 36 highest income seats in the nation at the 2001 census. They have been lost not because ‘heartland’ Labor voters are abandoning the ALP, but because there are now fewer heartland Labor voters in those seats!

    A point from above: I am not saying there are no poor people in the outer suburbs! Far from it. But Labor already holds all the low-income outer suburban seats in the country (Oxley in Queensland is an example), so on a political level targetting low income suburban voters is not a good strategy while in opposition.

    And I don’t disagree with your inheritance tax proposal by the way – except from an ideal policy point of view, I reckon $1,000,000 is too high.

  29. Michael Moriarty says:

    My real concern with repealing or partially repealing the ITC is that it has already been taxed !

    The Death Tax as it would ultimately been called is a very real problem. In an age where the Nation expect retirees to be fiscally responsible and fund their own retirement you would Tax them. Not to mention the fact that their accrued wealth has wait for it…already been taxed.

    The threshold of $1,000,000 is repugnant. To suggest that this figure is too high is insane. What about Australian Farm as if they don’t have a hard enough time already you want to Tax them to extinction.

    I would like to think that when I retire I will have over $1,000,000 in which to live the life I worked hard to achieve. Being mindful of an aging population and the inability of my government to fund my retirement I will fund it my self. These actions will remove the burden on the Australian Tax payers.

    You are however quite right about the obligations of the Left. Slowly and steadily the left has sold out its principals. A spot light need to shine brightly on those most in need. We need to create opportunities for all Australians to acquire wealth. We don’t however have an obligation to hand that wealth to them.

    There will always be a group of people who are the have nots in any democratic society. I was one of these. With out going into the long winded details it fair to say I have been there. I dragged my self up and now find I am a target for the funding of your social reforms. Don’t get me wrong in an idealistic world every one should have access to:

    Universal Dental Care
    Effective Medical Care
    World Class Education
    Internet Access
    Telecommunications Access
    Affordable Housing

    I just don’t want be the one paying for it. I am already funding this for my family out of sheer hard work. What is objectionable is the suggestion that I have a moral and social obligation to fund it for some one else’s family.

  30. Tristan Ewins says:

    Michael – we live in a world where peoples’ wages are shaped by many factors: from their collective bargaining strength, to demand and supply for the relevant skills. None of this has anything to do with how hard a person works. In short, the market mechanisms for determining income are unfair. Then there are those, including the disabled and carers, who have little opportunity to work – but who should not be denied basic services and quality of life because of their misfortune. How do we pay for this? Well, if you have user pays: a) re: the US health system – it’s going to be wasteful and expensive – b) it’s going to be like a flat tax – grossy inequitable – pushing the disadvantaged ‘out of the market’. Flax taxes are reprehesnible for broadly the same reason – they are grossly inequitable. The only alternative is to have a regime of progressive taxation.

    Now, if you have anywhere near $1,000,000 in assets, and are on a high wage, then you’d probably be in the top 10% of Australians. Why should other hard working Australians, and the disadvantaged, have to pay for your tax cuts? (as has occurred under Howard – and as Beazley seems to be promoting) And why should Labor governments worry themselves about what a wealthy minority think when they have the prospect of rallying the majority of workers behind them on the basis of quality universal service provision, labour market regulation etc?

    If we’re going to give incentives and support for those on low incomes and moving from welfare to work somehow – we also have to pay for it – and I suggest paying for it by restructuring the rest of the PAYG income tax system.

    In a civilised society – we do have a responsibility to support one another in crucial fields necessary for survival and everyday life – from shelter to communications, transport, health and education, welfare for the disadvantaged etc. And those who benefit from an advantageous position in the labour market – or who have benefited from inheritance – ought not be excluded from paying their fair share.

    One thing Marx got right: “from each according to their ability, to each according to their needs”.

  31. Michael Moriarty says:

    Tristan,

    I had long since forgotten the joy of this sort of discussion. Marx Got it right ? Well Louis Blanc coined the phrase “à chacun selon ses besoins, de chacun selon ses facultés” which literally translates to “with each one according to its needs, of each one according to its faculties”, well before Marx borrowed it.

    Utopian society is one with no government. One where technology has advanced to such a state that the absolute need to work does not exist. One in which workers contribute to society out of a desire to participate. One in which according to Marx money does not exist. I suspect however that you have read the whole quote and the various thoughts as to the meaning.

    There is growing wealth in Australia. With this increase in personal wealth come a growing gap between the have and the have nots. The Labor should not and can not alienate the new middle ground of this country. If it is to enact social reform it needs to govern, to govern it must be elected. Labour need to embrace the new middle class of Australia, some thing it seems loathed to do.

    Like any decent human being I believe that all must have their needs met. I remember at school looking at needs, wants and desirers. Each thing is diversely different. Things can always be better and the grass is always greener I am happy to see the needs be met.

    You paint me as a top 10% wealth holder that is far from the truth. I do realise that in 15 years when I retire I will need to have around $2,000,000 in assets. All things considered I will probably get there. It will however be a struggle as I forgo current spending for future security. I was not born with a silver spoon in my mouth. I attended public schools. I did not go to university. I got a job and used my abilities. I pay for private health Insurance and have done so my whole life. This action alone subsidises the health system and reduces the waiting list yet still I pay my medicare levy.

    You know what I have and do pay my fair share in fact I pay multiple times my fair share. Guess what I don’t complain about paying my taxes it is the responsibility of every citizen. I am very much middle Australia. Labour needs to win the votes of middle Australia if it is to have any chance of having the big offices in Canberra..

    Now comes the crunch this tax cut…I don’t want it. It is socially irresponsible and fiscally unwise. The demons on my right are yet to out number the angels on my left.

    I trust you will forgive the intellectual snobbery at the start of this post. If I was discussing this in person I don’t think I would have been able to help myself either.

  32. Michael Moriarty says:

    Andrew,

    I have a question for you. I recall from my High School days calculations on Marginal Propensity to Save and Spend. These two things have a direct affect on the multipliers. I really do hope I’m recalling this correctly.

    Is there a difference be it significant or other wise of giving a tax cut in the upper or lower band of the tax brackets. Is one group more likely to pay down debt or save as opposed to spending the monies on goods and services.

    It occurs to me that any cut the net result of which is debt reduction or increased saving is generally counter productive to economic growth. A tax cut should be targeted in such a way as to increase the demand for goods and services. I think my teacher referred to this a push economics.

    You should bear in mind I have a limited knowledge of economic principals. I was actually taught that Phillips had a pretty valid curve. So my conclusion may well be skewed.

  33. Leo says:

    The point about inheritance is that it is a clear gain of wealth for an individual who has done nothing to earn it. We tax capital gains and wages, which are obtained (usually) by effort. But we don’t tax something that is gained by accident of birth.

    ‘Reward for effort’ is an effective (if debatable) argument for lower income tax; it is not an effective argument against the concept of an inheritance tax.

  34. Michael Moriarty says:

    I have just discovered that a move to reintroduce the “Death Tax” will have an affect on the Actual Death Rate. Isnt that so Andrew. Man did you have way to much time on your hand that day. It would cause a measurable in crease prior to tax coming into law.

    Dont point a finger at me its Andrews Data…pity about the other guy getting a Nobel Prize.

  35. Michael Moriarty says:

    Leo,

    If i was to put my after tax wages in the bank and died provided it was above the threshold you would tax it…ITS ALREADY BEEN TAXED !

    If you really want to tax something tax Lotto Winnings…not as stupid as it might sound you know.

  36. Leo says:

    Whereas if you spent your after tax money you’d pay GST on it. So what on Earth is your point?

  37. Andrew Leigh says:

    Michael, to answer your 3.37pm comment, the rich save more than the poor, so a tax cut to the rich is more likely to go into savings than a tax cut to the poor.

    The question of which is better for growth is harder. In a closed economy, more savings means more investment, so a tax cut to the rich would be better for growth (under most assumptions). But in an open economy, in which Aussie investors’ ability to raise capital is largely unrelated to the amount of domestic savings, you’re probably right that a tax cut to the poor does more for growth.

  38. Michael Moriarty says:

    What amazes me is that there are some immensely intelligent people who read and post to this blog, yet on occasions they choose to ignore certain realities.

    I don’t pretend to be an academic. That being said I probably have an above average level of understanding of economic issues. That is dangerous really in that my conclusions will generally be skewed.

    In a climate of rising interest rates don’t you have to question if a tax cut won’t have a negative affect on interest rates. The net result of which would be a further interest rate increase. Sure the flow on effect would take a while to bite. It seems to me though that when monetary policy is trying to slow the economy fiscal policy should not adopt a contrary policy. Sorry just my pop economics kicking in.

    Tax cuts should not be talked about, if the flow on affect has not been calculated. Most of you know but have ignored the fact in your posts that the tax cut being discussed could well be revenue neutral at a federal level. We know with out doubt it is revenue positive at a state level. It is a simple irony of our tax system that some times the best way to increase revenues is to reduce taxation.

    Expenditure at a federal level is unlikely to reduce. So let stop talking about the money being better spent on social services and the like.

    The thing that needs to be assessed in arriving at targeted tax cuts is a meld of primary and secondary affects. At the extreme end of the tax scales what people do with the tax cut differs. The poor will spend it the rich well an additional $30.00 per week will most likely be saved. I doubt it would even be noticed.

    Assessment number one need to be a determination of where the economy is going and where it needs to be driven.

    The calculation after that should really be quite simple don’t you think ? Well simple for the likes of Andrew and one or two other of you. When I refer to the primary affect I am referring to the immediate benefit of the recipient how it benefits them. The secondary affects are the multipliers kicking in and perhaps a reduction on the social services costs. An increase on the demand for goods and services and consequently an increase in the demand for labour.

    All that being said do you think Big Kim had any of this in mind when he floated his proposed cuts ?

    The $64,000 question is how big and where to make the tax cuts based only on economics ? Andrew, Sincs either one of you two want to have a stab.

Comments are closed.