Myths of Socialism #2

“Tax Cuts For The Rich”

Today there is yet another diatribe at Red Alert against National’s Tax Cut Package on the grounds that it is unfair. Stuart Nash is quite right, of course, the distribution of tax cuts is very unfair. But not in the way Stuart means.

“Is it fair that the top 10% of wage and salary earners get 42% of the tax cuts and the bottom 20% get 2%?”

Consider this table on tax distribution found here:

Those with better powers of observation than Stuart will note that the top 12% of taxpayers contribute 49% to the tax load while receiving 43% of the tax cut. The bottom 20% contribute a mere 1% of the tax take but receive 2% of the cut. The bottom 20% therefore get proportionally more than twice the tax break of the top 12%. Of course this translates to a tiny amount. There is only so much one can do in tax terms for people who pay so little tax. This is a simple reality of life – tax cuts are of little interest to people who pay little or no tax. However this does not stop the redoubtable Stuart from posting disingenuous examples:

“Is it fair that someone on $1,000,000 gets $1,000 a week extra in the hand per week, and someone on the median income of $28,053 gets $4.64 in the hand per week after GST?”

And:

“Is it fair that the Minister of Revenue gets a tax cut of around $140 per week in the hand whereas someone on the median wage in his electorate gets about $5?”

Actually the taxguide calculations for a minimum wage worker is example #7 here. The actual amount is $6.36 a week for a person earning $26, 520 a year, so I’m not certain where Stuart gets his figures. Nevertheless, this is not as relevant as the tax paid by the worker in the example $74.22 before the cut and $60.40 after. This means that Bill English’s tax cut is twice what the minimum wage worker in this example is paying in tax in its entirety.

So what exactly is Stuart suggesting? That the minimum wage worker should pay no tax at all? That the property owner and the business owner, neither of whom appear to be “rolling in it”, should take a bigger hit on their income because of this? That the marginal tax rate should stay at 38% just to make sure that all those trusts remain worthwhile?

Here is an idea, Stuart. How about reducing state expenditure by a sufficient amount to accommodate both the “rich persons” tax cut and the minimum wage workers zero rating? And don’t give me that “Health and education are important” drivel. I could finance zero-rating on minimum wages by the simple expedient of removing all quangos and irrelevant commissions. That is what these WOMBATs (Waste Of Money, Brains And Time) are preventing – zero taxation for the poor.

But the real myth here is not that tax cuts favour the rich (because they do – and always will). The real myth is that tax cuts give people more money. They don’t. Tax cuts take less money. This is a simple, even simplistic point. This money does not belong to the government. It is not distributing free money. This was our money all along. Yours and mine.

It is utterly ludicrous to suggest that tax cuts take money from the poor to subsidize the rich when it is manifestly obvious even to the stupidest among us that the government is still taking vastly more from the “rich” – arbitrarily everyone earning over $70,000 – than it takes from the poor. It is also clear that, not only do low-income groups contribute the least, they receive the lion’s share of the government’s largesse – both in terms of direct funding, via benefits and working for family payments, and in terms of subsidized medicine, housing and the like.

Note that this is not a criticism of low-income groups at all. Even the most right-wing flat tax and minimal welfare model would still produce similar, but less skewed results (I do not subscribe to this model). No, this is a criticism of the thought processes of people who forget exactly where tax dollars come from and who think that this money is theirs. It is not. It is still ours and no amount of legalised theft by taxation will make it otherwise.

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