Wednesday, January 22, 2014

UBI (3). Taxes, income and Welfare.


An often repeated argument against increases in welfare, including UBI, minimum wages or payments to alleviate poverty, is that it will fuel inflation and most will end up no better off. (More market advocates don't seem to have the same faith in "the market" to hold prices down for the poor, as they do for the rich).
We never see that argument made against the 17 to 20% increases at the top end, which are already fuelling inflation, in food and housing, making prices too high for poorer people.

The answer is, to make the rich less wealthy.

The Laffer curve theory, the idea that Government share of the economy displaces private share, is often cited as a reason for not expanding the size of Government spending.
The theory is generally given as an argument against higher taxes along with the idea that higher taxes will simply be avoided.
 The evidence shows, however, up to a certain point, Government spending on infrastructure, education, health, services, welfare and social policy helps the private sector as well.
The worlds most successful economies generally have a Government share of the economy greater than ours. We have a lot of room to move in this direction.
However, a UBI is a change in distribution of incomes, not an increase in the size of Government.
WINZ will shrink, for a start. So will tax compliance costs for small business.

Higher progressive taxes are inevitable. As Obama said "it is math". We cannot have a viable economy/society while reducing Government services below a minimum and continuing to borrow, so a few wealthy people can pay less tax.
We cannot afford the compounding interest, on the billions required over time, for National's unaffordable tax cuts.

Middle to upper middle income PAYE earners claim, with some justification, they are paying a disproportionate share of taxes.
They are in the middle, between the better off, who can use tax dodges, and the poor, who do not have enough to pay tax.
A more even distribution of taxes, maybe, with capital gains taxes, financial transaction taxes, wealth taxes, which share costs more fairly around all sources of income/wealth, will  allow us to reduce PAYE income taxes share..
Broader definitions of income, for tax, makes the system fairer.

The psychological effect of universality. "I am getting something back for my taxes, even if I am paying more tax than I am getting back" should not be underestimated.
If New Zealand super was not universal, it would have been steeply reduced, or gone, 2 decades ago.

The highest marginal tax rates are paid by those on the lowest incomes. Then there are regressive taxes such as GST.  At the bottom end high marginal rates really are a disincentive to work. Abatement rates, plus work and transport costs means a welfare recipient that does some work is often worse off. At the other end I do not know of anyone who will turn down an extra million dollars in income becuase they may have to pay 600 thousand in tax.
Certainly didn't stop me from trying to work harder to raise my income, when marginal tax rates were 60%, in the early 80's..

I have no sympathy at all with those on high incomes who complain they use the same services as those on low incomes, but are paying a greater dollar amount of tax.
They are benefiting the most from the society NZ taxpayers and workers have built, and from Government services. That is how they became  wealthier! It is only fair that they pay the most. Chances are,  if they had been born in a country without our education, infrastructure, social and health systems, they would be the one in the cardboard box on the street.

Progressive taxation  is the price of living in a well resourced, pleasant, and cohesive society.

If you don't like it, move, to a tax free paradise, like Somalia!

But first, Please be consistent with your principles, and give back to New Zealanders all the proportion of your wealth that you earned because of our  efforts and support.

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