This article is a re-post from Fathom Consulting's Thank Fathom its Friday: "A lighthearted look at the week's events". It is here with permission.
By Kevin Loane*
In a performance from the 2000s, Chris Rock distinguishes between the rich and the wealthy. He says that Shaquille O'Neal, the NBA superstar, is rich; the team owner, who pays his multi-million-dollar salary, is wealthy. He goes on to list reasons why that distinction matters. Wealth, he points out, creates more wealth. It's passed from one generation to the next.
Meanwhile, being rich is temporary. It can be lost with "one crazy summer and a drug habit".
Debates over income and wealth inequality existed long before he recorded that segment. Such discussions have returned once more in 2017, following President Trump's proposals to cut taxes for America's richest.
When economists discuss inequality they use the so-called Gini coefficient to measure it. This was devised by Corrado Gini in 1912. It ranges from 0 to 1, with 0 equivalent to perfect equality and 1 perfect inequality. It has traditionally been used to assess the distribution of incomes within countries.
Since 1962, the US Gini coefficient has increased from 0.43 to 0.60. Once the effect of taxes and government transfers are included, this figure falls to around 0.4. Most left-wing politicians tend to focus on taxing the rich, in order to increase the share of national income that's redistributed to reduce the post-tax Gini by more.
While the distribution of wealth (as highlighted by the green line above) is much more unequal than that of income, few politicians have proposed policies to source greater government revenue from assets, at least outside of Caracas. The US household wealth Gini, for example, was 0.93 in 2016, having increased from 0.84 in 1962.
Despite that, wealth is lightly taxed when compared to income.
Indeed, taxes on labour income generate the vast majority of government revenue. In the US, around half of all taxes come from income with an additional 24 percentage points generated from payroll. Taxes on capital gains contribute just 3 percentage points, while levies on property, an important source of household wealth, add another 10 percentage points, around the same as corporation taxes. Warren Buffett has lamented this, pointing out that he pays a lower effective tax rate than his secretary. The same might be true of the owner of the LA Lakers and Shaquille O'Neal.
I can already hear arguments against the increased taxation of wealth. After all, isn't wealth simply the accumulation of saved income, all of which was already taxed? Many think it would be unfair for the authorities to double-dip.
In any case, wouldn't attempts to reduce income inequality bring down wealth inequality too?
Not necessarily.
There are many channels through which higher wealth can generate higher future incomes at an accelerated rate. The most immediately obvious channel would be that higher wealth enables individuals to invest in assets which generate additional income return. Hence wealth can create future income, which in turn becomes future wealth. Additionally, some assets, which appreciate in value, can earn capital return rather than income return. Examples of these are not hard to find - art, fine wine and trophy property all fall into this category. One could even argue that bitcoin should be included within this group. At present, individuals' capital gains tax only generates 3% of US government revenue.
Some studies also find that increased household wealth helps to determine future incomes via its effect on educational outcomes. Moreover, redistributionist income tax policies prevent the accumulation of wealth, as millennials forced to choose between buying avocado on toast, and saving for a deposit on a flat or their pension, can attest. These are dilemmas that those from wealthier backgrounds may not have to confront. Of course, intergenerational wealth transfers are taxed to some extent through various inheritance/estate taxes. However, these often prove controversial and typically contribute little to the state's coffers - for instance in France inheritance tax generates just 1% of total government revenue.
Irrespective of fairness, there are other problems with wealth taxes. A primary one is that they're easier to avoid.
Through some clever financial engineering, a wealth tax introduced in France may do more to improve the fiscal position of Belgium, as individuals seek to declare assets in Brussels rather than Paris. A second issue, in the US at least, is that a substantial portion of the wealthy's assets are held in private businesses. These are both illiquid and difficult to value. Such challenges aren't insurmountable. Some assets, property for example, cannot be transferred across border. And, in Switzerland, 5% of government revenue is generated via modest state taxes on wealth above canton-specific thresholds. Other countries might take note. In the US, it's estimated that such a system could generate over US$200 billion.
Despite the difficulties mentioned above, and current low levels of public support, wealth taxes may in the future become the least bad option for some. In the years ahead, already-stretched public finances will face further pressure from the dual headwind of increased healthcare and pension costs. Meanwhile, future technological advances may lead to even greater wealth concentration. (For more, see 'How technological change drives inequality')
All the while, persistently weak productivity growth risks capping income gains for many. If so, it's possible to imagine support for increased wealth taxes rising. For the owners of American sports franchises, that would be no laughing matter.
Kevin Loane is an economist at Fathom Consulting in London, England. This article is a re-post from Fathom Consulting's Thank Fathom its Friday: "A lighthearted look at the week's events". It is here with permission
166 Comments
There is a grain of truth in it though. The rich (and the poor) don't stay that way. Wealth is fluid. "It turns out that 12% of the population will find themselves in the top 1% of the income distribution for at least one year. What’s more, 39% of Americans will spend a year in the top 5% of the income distribution, 56% will find themselves in the top 10%, and a whopping 73% will spend a year in the top 20% of the income distribution.
Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12% of the population will experience a year in which they find themselves in the top 1% of the income distribution, a mere 0.6% will do so in 10 consecutive years.
...As such, we have much more in common with one another than we dare to realize."
https://www.nytimes.com/2014/04/20/opinion/sunday/from-rags-to-riches-t…
The challenge with focusing on wealth is that the usual outcome is to punish the prudent. I am the classic prudent saver. My career has been as a wage slave, albeit in a white collar job. I look where I ended up after thirty years of being a prudent saver as compared to the people that I worked with that had similar wages. It was early on that I realized that I thought differently than most. The awakening was when after a few years working, most of the people that I worked with of a similar age went out and bought fancy new cars as they had saved enough to buy. I had done the maths, and kept my old but serviceable car as I knew that buying that new car would require me to work at least one additional year in the future before I could retire. I was quite surprised to find out that my thoughts on saving was a decided minority.
The concept of taxing "wealth" will have unintended consequences, including reducing the incentive to save for the future. It bothers me that prudent savers are vilified, and conspicuous consumption is applauded. This prevalent mentality is a large cause of inequality.
Well said & who is it actually to be that defines the trigger as to where wealth begins. Remember only too well the Clark Cullen government, hiding in the shadow of Jim Anderton, slamming a so called rich tax into play even though as part of the Lange government they had introduced & then increased GST. According to their scale the fact that I had worked for 40 odd years and finally got up to a senior salary meant I was rich! So all that did was take for their own purposes, what I had hoped to put towards my retirement. Rotten lot if you ask me & looks likely to happen again.
While both of you seemingly like in your 50's now, I would agree in that context that what you claim is true, that was a time when job security were better and assets price were fair compare to a workers wage. Meaning savers were rewarded more compared to savers now. I get what you mean by govt should not punish savers back then or anytime because what they had was earned wealth, however I just cannot see how savers starting out now can get ahead like in the past without govt helping them with some kind of boost.
There are actually more benefits now in regards to being a saver, in that inflation is so low. People tend to point to the idea that savers in the past were getting such high interest rates. Well, the annoying part is that the interest was taxed, and that inflation tended to negate the gains received after tax. Even with the rather low rates of today, the after tax return on savings are better now than in the distant past. If one went for equity investment, one would have done extremely well in the last decade via dollar cost averaging for investment (far better than real estate, despite what one reads from the spruikers here).
To state more explicitly, I disagree with your statement that savers now are more penalized than savers in the past. Before tax, this is debatable. After tax, and including inflation, the numbers suggest differently. Of course, after 10 years of renting, 2 years ago I returned to home ownership as it was financially prudent for me to stop renting and start owning. A quick clarification, I've never treated home purchases as an investment but rather a fiscal drag on my finances. That said, one can time the market to get the least fiscal drag... :)
I think there's a huge difference between genuine wealth that can be used for investment in to business to help grow an economy. And then there's the false economy wealth 'ill gotten gains' generated by corrupt means, which does seem to be very prevalent in Auckland if the NZ justice website is anything to go by.
Rather than taxing wealth and the wealthy, as a first step we should really look to introduce this law a "Unexplained Wealth Order" as a means of how to catch the corrupt and corrupt money.
On 27 April the UK parliament passed an important provision of the Criminal Finance Bill that introduces a powerful new weapon into the anti-corruption arsenal: Unexplained Wealth Orders. This follows action already taken in Australia and Ireland.
https://www.transparency.org/news/feature/unexplained_wealth_orders_how…
Remember that drug case about a year ago - a young man with 9 years residency and no IRD income declared imprisoned for importing drugs via Auckland airport air cargo. Simply matching IRD annual income with permanent residency approvals for 'skilled' migrant would separate out the handful of cheating goats from the majority honest sheep. It ought to be a trivial database match - any average PC could do it in seconds. Of course each exception would need checking [drug importer or invalid or left NZ or dead or criminal] but the exceptions are few so a cheap starting point.
Just to make it clear most unexplained (criminal earnings) wealth is not by immigrants but since they supply a skilled work category on their application it is easy to track them..
Yes, rather than look at why those on the bottom are so poor, it is far better just to kneecap those on top. Why bother with a mere wealth tax when confiscating all the wealth would be better? Then the poor people can show how great they are at running a business and investing, proving that the rich haven't any special skill or ability and that none are required to build wealth. Anyone can be wealthy, all they need is to be given some wealth.
Anyone can be wealthy, all they need is to be given some wealth.
That works to a certain extent, as the wealthy use existing wealth to gain more. However, it's a bit of a strawman as the wealthy also have a greater understanding of money and investing, are more likely to be educated on financial matters, and have easier access to banks, financial advisers, hedgefunds, brokerages and so on. Simply giving people property or cash or equities and letting them figure out how to build wealth on their own with no advice or education won't work.
Hell, even some lottery winners fail to increase or even retain their wealth; https://www.youtube.com/watch?v=_n8KpD5ztNs
@ Skudiv. "Yes, rather than look at why those on the bottom are so poor, it is far better just to kneecap those on top." There are occasions when this is exactly what society should do. And an obvious situation; one seen all to often throughout history is when those that have been lucky enough to acquire a financial advantage, then use it to exploit others.
Didge, you & I see things quite differently. You say "those that have been lucky enough to acquire a financial advantage". In my opinion acquiring wealth has little to do with luck, remember that 90% of "lucky" big prize lotto winners, are poorer than they were within 5 years of their windfall.
I believe we make our own luck
.of course it is luck. Luck that you mother wasn't a P addict, your father a drunken wife beater, you were born in NZ and got educated, you were lucky enough to get good genes, luck that you in fact got born... the list goes on and on.
The role of luck is not acknowledged by the haves...because they want to delude themselves that even if born out of luck (like most of the underclass) they would have triumphed.
I think the truth is somewhere in between. Being lucky enough to be born into a stable, wealthy family and receive a good education makes it far, far easier to succeed in life. Still perfectly possible to screw it up, but that gives you a huge advantage compared to those born into poor or unstable families. Luck gives you that platform so you can reach up and grab success, while others have to jump.
"Why bother with a mere wealth tax when confiscating all the wealth would be better?"
The problem here is that, unless done, unannounced, with armed force, in the dead of night, against physical assets which are hard to disguise, move or destroy, the suggestion is quite impractical.
Any other approach simply causes flight, asset transference at the speed of light (bitcoin??) and a decades-long investment drought as offshore folks add the country to the 'Investment Blacklists' which inform most decisions. The nearest anyone has gotten to this in recent times is the EU OBR exercised in Greece and Cyprus, and even that skimmed only bank deposits exceeding €100K.
It's way past time we got rid of income taxes. These taxes fall too much on the middle and lower income earners. What we need is good investment incentives, which we won't get as long as the best investment is an asset with no tax associated.
Already many families get most of their tax back with WFF, a lot of families rely on WFF to survive another year. Our society is become divided along 'who managed to buy a house before prices went crazy'.
http://www.inequality.org.nz/understand/
Inequality that is going to be hard to sustain in a democracy.
"There are many kinds of inequality – of gender, ethnicity, sexuality, and so on. This site focuses on inequality of income and wealth, sometimes known as economic inequality or resource inequality because income and wealth are both things (resources) that the economy produces." Opening sentences. I do not know why one would focus on inequality of wealth and disregard inequality of gender, ethnicity and perhaps sexuality because quite frankly inequality of wealth goes right along with the other inequalities, or perhaps the prejudices that seem to go with such inequalities. It comes as no surprise to see who the bulk of the wealth is accumulated by.
Some inequality is inherent in life, but when inequality gets to high and people can't (or think they can't) work their way up from the bottom they will resort to taking what they want at knifepoint.. and maybe your life with it. Much better to have the taxman clip the ticket than the dispossessed clip an artery.
I have often argued that if one person is able to accumulate by the superiority of their guile, then surely it is fine for another to do so via the superiority of their brawn. Either they are both are okay or they both are not, valuing one way of gaining more than others is an equality we even legislate for.
We would have to be dellusional to give ourselves all the credit for our wealth, surely. To credit our intelligence, our hard work, our charm, these things alone. Absolutely dellusional. Charming, hard working, and humble I may be, but there's much more to it than that.
People need to wake up and realise how much benefit society has delivered to them, how much of a difference the support and opportunity provided by a reasonable society makes to their lot.
We also have an assumption seemingly without reason that workers' incomes should be taxed primarily, over and above things such as land. I've never seen anyone on this forum provide a good reason for why that assumption is valid, why consideration should not be given to balancing things back to other models that have been used - e.g. a mix of land and income taxes.
Land receives much value from the concentration of hoi polloi nearby. Why this base assumption that none of that value should be taxable? Seems an absurd assumption.
Instead we get straw claims that folk are out to confiscate all wealth, are seeking some perfectly level utopia, that everything is simply envy. Forgetting that it took things such as land tax to get land into the hands of average ma and pa Kiwis today. Was it envy when it was increasing home ownership rates for Boomers?
RickStrauss, I was reading an interesting book from early last century and came across these observations which reminded me of your views:
He does not consider for a moment that the community alone put him in the position to come to property. And that property without community is meaningless.
The federation of the propertied expands its reservation by all means and tries to transform property into power.
It creates the prerequisites for power through skillful use of the means that are available to it as a result of property.
He has no qualms about extracting the interest from his skillfully invested property and does not consider that the blood of the fallen sticks to this interest.
It's the type of rant I expect from a 'dyed in the wool' leftie. With the battle to get people to join unions (proud to say I was only a 'forced' member of the Public Service Union for 10 months) close to futile, I think the Left is using housing and child poverty as its stalking horse (no pun intended on the PM's teeth). It must rankle that this Government has to actually fix the 'problem' rather than pontificate. Fake it until you make it doesn't wash with voters. All we need to see now is NZ First's vote fall consistently below 5% and it's all on. Bring on 2018.
Surely Marx is intellectually responsible for more deaths and human suffering than any other person ever. He identified that capitalism was flawed (gosh, who knew), and then in his reductionist way advocated dictatorship "on behalf of the people" as the only solution.
The whole effect and thrust of the democratic institutions in the Scandinavian/English speaking world has been to continually find ways of resolving the flaws that exist in society where one group of special interests gains unfair advantage over others. Marx makes the catastrophic assumption that there is only the one way forward as it is the only one that he can see. This is a mistake that many deductive intellectuals make, ie, there is no alternative; when in fact there may be many alternatives that other people are aware of, or that are only a creative leap away. Dictatorship is a really nasty form of government, and every mass murderer of the 20th century was given a handy intellectual excuse for their actions, resulting in 100s of millions murdered and made miserable in Europe, Russia, China, North Korea, Cuba, South America and Africa.
The answer to the riddle is Edmund Burke, who identified that a democractic society needs to be continually adapting to changing circumstances. In this way, difficulties can be resolved in a timely manner, whereas, if the tensions in society are not resolved in a timely manner then they build up and result in bloodshed. So adaptation not revolution is the way to create a better society. Revolution means spilling blood.
Marx advocated bloodshed and his effigy should be ritually burned each year as a warning to the future.
I met an expat Vietnamese woman with excellent English. She was very uptight around Police. I asked her why and she said the Police in Vietnam targeted her family as they were not 'communist' enough during the war. I asked how the system worked? She said it's now nepotism and ruling class 'plus ça change, plus c'est la même chose'
Bougainville Island in our own "backyard" is testimony to the futility of revolution. Although the violence is now historical, the damage to infrastructure on the island was almost absolute. Plus some estimates of up to 20,000 deaths which was a sizeable percentage of the then population. If we want such a lose lose event then revolution is surely the way to go. My experience there is one reason why I am so against the social injustices of our short sighted housing ponzi.
Having worked extensively in the Pacific I can say it's a very long bow to draw suggesting NZ is subject to the same pressures. The Government of the day has committed to building 100,000 houses. I'm not sure why any of you care what price existing houses are with that supply coming on.
Perhaps sections of NZ society are subject to similar pressures. What are the motivations and causes behind the horrific attacks on owners/staff in our local dairies, and service stations etc? How much do high housing costs contribute to the attitudes of the attackers? Are we seeing merely the start of future trends?
The abstract "This paper uses data from a randomized housing-mobility experiment to study the effects
of relocating families from high- to low-poverty neighborhoods on juvenile crime. Outcome
measures come from juvenile arrest records taken from government administrative data. Our
findings seem to suggest that providing families with the opportunity to move to lower-poverty
neighborhoods reduces violent criminal behavior by teens." Studies such as this surely indicate that overly high housing costs are part of the reasons that promote youth violence. It is surely sad that our hard working service providers take the brunt of communities anger. While those more responsible for such poverty escape the consequences and furthermore deny any involvement.
http://www.nber.org/mtopublic/baltimore/mto_balt_delinquency.pdf
The biggest factor in your life outcome is how rich your parents are - no other factor can compensate for this
https://www.ted.com/talks/helen_pearson_lessons_from_the_longest_study_…
A less inequal society would have better overall outcomes.
There are many missing Einsteins due to lack of wealth.
https://www.nytimes.com/2017/12/03/opinion/lost-einsteins-innovation-in…
It is more likely the other way round - a wealthier upbringing leads to better education outcomes which leads to better wealth outcomes.
Good post. I'm not a fan of the argument that often seems to be made explicitly or implicitly on here, that any suggestion of change (e.g. rebalancing of tax) is a commendation of communism. Seems a tad lazy when there are many societies approaching such issues in much more sophisticated and effective ways - including as NZ has.
Edmund Burke is much more interesting to me than Marx, and a good antidote to these absurd implied claims that any discussion of issues we face is advocacy of communism and dictatorship.
Rick, from one of the 3% paying 24% of all tax, I can't see how you can see it as unbalanced in people like my favour.
https://www.stuff.co.nz/business/81429047/small-number-of-taxpayers-bea…
663,000 households - or 40 per cent - receive more in tax credits and other benefits than they pay in tax. Thousands more are neutral contributors, or are close to it.
You missed an important point, as did the article.
663,000 households - or 40 per cent - receive more in tax credits and other benefits than they pay in income tax
Income tax is not the only tax these people are paying. Income tax only makes up ~40% of the Government's tax income.
Given that so much of the company tax burden falls on labour, it would be much better to reduce company tax as part of the rebalancing too.
Desai, Foley, and Hines derive estimates ranging between 45 and 75 percent of the burden of the corporate tax falling on labor. Their baseline case—which uses panel data and controls for country fixed effects —shows 57 percent of the burden falling on labor. Not controlling for country fixed effects increases the share of the burden falling on labor to 71 percent. Using annual cross-sectional data, the authors find that 69 percent of the burden fell on labor in 2004; that estimate drops to 49 percent when they do not control for the workforce’s education.
Source: https://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/122xx/doc12239…
Now...surely it's good for our capitalist society to encourage more productive investment via reducing personal and company taxes? Why would we want to encourage land banking instead of this?
Not so Marxist here, eh.
Heya Ex. I'm in that 3% too. The question is more one of why we assume that incomes are the fairest thing to tax rather than a mix of income and land. Especially if - for example - someone like yourself pays less tax overall after re-balancing.
As noted earlier, land tax was seminal in breaking up land banks and getting land into the hands of ma and pa Kiwis, with the result that the likes of you and I own our own land. Is it more fair or less fair to reward land bankers now instead, and insist the tax burden should fall instead on people who are working to live?
On what do we base the assumption that the status quo is the fairest way?
The 4% withdrawal rate rule (i.e. save 25*expenses) for retirement is based on assumption that you will have to sell some of your assets to pay expenses. This is the most efficient way to achieve a retirement income. If you never want to touch assets, then you are looking at a 2.5% rule (assets=40*expenses) which involves much more saving
I don't understand your obsession with my (just) generation's increase in net worth due to housing price increases. I can't access that wealth in a meaningful way. It's a home, that I will hopefully pass onto my children. What is your objective? To offset my eventual super income? To force me to subdivide, or to force me out of my home so someone more deserving can live in it? To ensure that my children aren't given any advantage in their middle age?
The Government have promised 100,000 new homes and the bears here are talking 60% housing price crashes. If that happens our property values may be last decades news.
If you cannot access it then what's the issue with policies that encourage investment in more productive avenues while increasing access to home ownership for more generations? Seems like a win for many more NZers and indeed supportive of meritocracy.
As you noted in another post, if you were in your 20s you'd have no issues with the TOP's policies. What's better about protecting the position of one or two generations rather than making NZ more a land of opportunity for many while encouraging investment in business?
I'd have no issue with TOPs policies because I would have time to avoid their taxes. In my case, I wouldn't have repatriated my expat earnings. They would be invested in property outside IRD's clutches in another country. I'd then pocket my NZ tax savings and leg it to retire in the country where my property was located.
Any NZ property you still hold would be subject to NZ tax even if overseas (and claimable under a double tax agreement). Also, if you left then your NZ super would be subject to income tax in your new country, probably at a higher rate. Kiwisaver withdrawals would be treated as income overseas versus tax free here. So it is all a balance.
Geo-arbitrage exists now - overseas people buying NZ property due to the lack of restrictions or CGT. It will still happen in the future.
My situation would be no different to the Kiwi diaspora. Is TOP looking to tax every asset held by a NZ citizen worldwide? I would become a non resident for tax purposes like every other kiwi overseas. BTW: Given the rules for receiving super while overseas and given my expat years discount the amount, I wouldn't bother to claim it.
Personally, I'd be quite happy with the outcome that inheritances are effectively taxed. My point of view is my favourite time to be taxed is after I'm dead, and children of the rich do not require any additional leg up beyond the education, upbringing and experience that arises from having rich parents.
I'd quite like a situation where each generation stands on their own two feet and those who achieve wealth do so as a result of their own hard work, rather than the luck of birth.
Not sure what 'significant' is, but a mortgage free single family home in Auckland's Eastern Bays as a starter is going to put us well above the mean. If I was 20, I'd have no issue with TOP policies, I'd arrange my affairs to avoid the asset tax and take advantage of the lower income tax. As a 50 plus income earner with assets it's a very different situation. In reality if TOP policies were implemented I'd likely migrate and become a non resident for tax purposes.
Based on your comment that you are one of the ones who pays the majority of tax, you will have a high income. If a wealth tax of 1% was added with an associated reduction income tax rates of 10% then only those with equity exceeding 10 times their income would pay more tax.
Isn't TOP looking to tax every asset at a fixed rate? That would be interesting when you look at a risk/reward payoff. Another potential distortion to portfolio selection with capital intensive but reliable cash flow businesses not attracting investment unless they pay above the natural odds leading to balance sheets run at unsustainable leverage levels.
Most elderly are already relying on interest from investments currently. If they have less money stored in an asset from which they cannot easily extract it (as Ex Expat notes, the value in his house isn't useful to him because he cannot get at it) and more in interest-bearing investments they're better off by virtue of having more disposable income.
You can of course debate the merits of portfolio mix - shares, fixed interest, bonds etc. - but it's not like housing is not as risky an investment.
The idea of getting taxed on both the interest and the principal is odious, and has perverse unintended consequences. Far too many people at present do not bother to save for their future, of which there are far too many very sad examples in the elderly. Some, well, they had a tough and unfortunate life that prevented meaningful savings. Others spent their income on conspicuous consumption without saving for the future. Instituting a wealth tax will strongly reduce the incentive for people to save for their future. Why should I pay more than my compatriot of equal income and means that did an annual overseas holiday trip instead of saving for their future? Absolutely ludicrous...
Exactly. As a non Maori male, if I make it to 65, I can expect to live another19 years. Assuming my home stays at its current value, a 1% tax would leave my estate with a $475,000 tax bill. Effectively a push on the super annuation payment, paid to my Wife and Me. You’d have to be naive if you didn’t think Morgan and Co see this as way of sugar coating effective means testing of super.
....I assume you are basing the $475K on the present value of your home? House prices will likely drop under such a scheme.
So your estate has a bill......you'd rather the shut out first home buyers pay this instead i take it? Of course your estate beneficiaries could help you pay the tax on the way through...but once gain, you want someone else to pay it for you. ..
By a large margin, the majority of my wealth is in term deposits or similar (not housing). From my perspective, a home is a place to live and should not be treated as an investment. Houses are overpriced here in my opinion... For a retiree, their home value is not germane to their true wealth, as it is hard to buy essentials with a home while planning to live in it for the remainder of ones life. My total tax bill on this wealth tax (Assuming gains that keep abreast of inflation) for the remainder of my actuarial life would be around 700k, not including property values. Adding in the family home value, the total wealth tax would increase to less than $1M.
The idea of earning money and paying tax on it, then continuing to pay additional tax every year on the remainder if one doesn't spend all of the money is utter madness. Truly nasty unintended consequences abound.
You are probably thinking of the Black Book of Communism when you think of the blood spilt by regimes derived from Marxist thinking? It's a load of rubbish, capital is just as guilty:
http://guerrillaontologies.com/2014/05/attempting-the-impossible-calcul…
Neither systems are innocent, and I think neither Adam Smith or Marx would be happy with what people have done under their banners of the Invisible Hand or Marxist ideas. Capitalism is a heartless beast that thrives of inequality unless regulated and controlled, Marxism is an impossible ideal that is hijacked by power seekers wherever it is attempted. If we look at different compromises empirically, I think something like what they have in Scandinavia with a market system but highish tax, excellent education and government provisions looks most appealing. But you'll never convince the NZ neo-cons that it won't ruin the economy..
I wouldn't agree with that conclusion re Korean war either, but that does not have any bearing on his argument re death toll of capitalism/communism. There is probably a better source as many people have shown that statistics in Black Book of Communism are a load of rubbish
It is self evident whom among the Americans and supporting nations had the most to lose from the spread of communism. That of course were the moneyed echelons; another expression for capitalists or as we often call them now our so called elites. Those that are ruining our planet.
It's a easy way of avoiding the fact that land reform and land tax did succeed in breaking up the land banks, and that these and other measures such as Housing Corp loans and government efforts to increase supply etc. did help get NZ's earlier generations (up to the 1980s and 90s) into home ownership.
If it hadn't been for such benefits of NZ society today's older home owners would not be home owners. Hard to get around that, even by saying "Eww, ikcy, Marx".
Do we really need to instantly jump to the slippery slope, where anything and everything must ispo facto lead to communism?
And we're not consistent, are we? While as older NZers we want to lower taxes for ourselves (and break a few eggs of social services we provide to following generations to do so, but ah well), we're not clamouring to leave younger NZers more of their own incomes by offering to stand on our own two feet in old age.
No, we seem to have this strange idea of fairness, where it was fair that we had cheaper education and more affordable housing off the back of previous generations higher taxes and greater efforts, it's fair that we lower taxes for ourselves and provide less of those benefits to following generations, but oh, it's fair that we tax their income in taxes for ourselves in our old age.
I'd prefer a little philosophical consistency. If it's the politics of envy when it comes to land, then heck, it's time for older folk to stop envying young folk the fruit of their labour and asking for it to be taken and given to them instead.
Of course, no one answers the questions about why Boomers were entitled to benefit from such measures but young Kiwis now are not.
skudiv - inequality will still exists in all forms. Taxes are only a percentage of the value so it will not wipe out assets. Taxing wealth just makes inequality less extreme. So rather than the top 10% owning 80% of all assets, they may only have 60% and the remaining 90% will see material gains. There will still be rich and poor but less polarised.
One problem about talking about inequality in New Zealand is there is a certain cultural cringe factor - some see it through the lens of 'mother england' or the voluminous writings and partisan apporaches in the US or EU. Your link is part of all that ('Spirit Level' et al.)
We need to talk about inequality as it affects NZ. And without resorting to a stream of anecdotes carefully pieced together to match a pre-formed partisan position.
And there is a respected body of work that does that, the MSD comprehensive survey. It does not say there are no problems. In fact it lists many. But it does say:
There is no evidence of any sustained rising or falling trend in BHC household income
inequality over the last two decades using the Gini and top 1% share measures.
This is a survey up to 2016, much more current than most overseas studies.
The main issue it identifies locally is housing, which is hardly surprising, and which has needed urgent attention for decades. The issue here is not incomes, which is the overseas narrative
Oh, DC, you should know better than to inject Facts into a thread where the main activity is lobbing electronic missiles from firmly entrenched anecdotal positions.
But good on yer for doing so, despite the vanishingly low probability of changing - er - minds.....
Instead of income tax If deposits in banks were taxed then a lot more money would go into Government coffers. I would tax only deposits except if money were transferred overseas then I would tax it on withdrawals too. It would be a simple way to get those multi oversea conglomerates to pay their fair share.
Confiscation from prudent savers... you do realize that your proposal incentivizes people to stop saving? The net result is that more people will ignore saving for their future, and then even more will become reliant on government for funding their retirement. Better to teach to fish than to take away any fish caught...
No, yankiwi, it has nothing to do with savings. There would be no income tax at all. ALL money would be taxed. So think of all that goes through the supermarkets into say Pak & Save’s Bank account. That would be taxed. Call it a turnover tax if you like but it would replace income tax and the percentage amount would be far less than the current taxes so people could save more.
Sowell on the intellectual fixation with inequality: “Too many discussions of large fortunes attribute them to "greed" — as if wanting a lot of money is enough to cause other people to hand it over to you. It is a childish idea, when you stop and think about it — but who stops and thinks these days?
The transfer of money was a zero-sum process. What increased the wealth of society was Rockefeller's cheap kerosene that added hundreds of hours of light to people's lives annually.
Edison, Ford, the Wright brothers, and innumerable others also created unprecedented expansions of the lives of ordinary people. The individual fortunes represented a fraction of the wealth created.
Even those of us who create goods and services in more mundane ways receive income that may be very important to us, but it is what we create for others, with our widely varying capabilities, that is the real wealth of nations.
Intellectuals' obsession with income statistics — calling envy "social justice" — ignores vast differences in productivity that are far more fundamental to everyone's well-being. Killing the goose that lays the golden egg has ruined many economies.”
In the end Profile, despite all the opinions about inequality and appropriate solutions, which on this site is always a discussion about ways to take more for the haves and give it to the have nots, the facts are that in NZ the top 17% of tax payers are paying 97% of the tax - solutions need to be more creative than the forementioned which to my mind are clearly driven either by envy, lazy thinking, or an ignorance of the facts.
Yvil, ouch! talk about stereotyping!
Who are these people that you describe as poor at money management? Are they all beneficiaries? Are they all low income families? What about Superanuatants?
When the tide goes out, a lot of property speculators who took the great bet will be left high and dry. Are you going to include them in this box of poor money managers? After all, this might include you!
Best not to judge......
The natural conclusion to the lack of judgment concept when applied to taxation is the implementation of a flat tax where all are treated exactly equal regard less of income level.
I'm not certain that this would be fair, correct, or appropriate myself. One needs to judge fairly to get a taxation system that is appropriate for the betterment of society.
Meanwhile back here in New Zealand
Is there any correlation between the introduction of WFF plus AS and the rise in poverty and homelessness
What would the levels of poverty and homelessness be today in 2017 if those welfare programs hade not been introduced
would they be
(a) higher?, or
(b) the same?, or
(c) lower?
In Japan they have very few benefits and very few beneficiaries, very few solo parents, an egalitarian society ruled by an emperor god.
I have an idea, lets tax working and give free money for not working, and when people complain that they haven't got enough free money to afford the basics like woodstock 8% we should give them more money for nothing, because they deserve to have a lifestyle equivalent or better than someone who is stupid enough to actually work.
What about viewing income tax as an inequality tax. If that were our mindset I think we would view taxation very differently. In my view when a sovereign country can print money, especially for infrastructure, that is the only way to view taxation. And by the way WFF is a subsidy to all employers - it lets them pay less in wages while the taxpayer picks up the tab for the consequences.
Firstly you need to clearly define "Rich". Many kiwis that thought they were "Average" would be shocked to find they made the cut into what is considered "Rich" in a global sense. You only need to be mortgage free on the "Average" Auckland house and you are already "Rich" so while you sit back and laugh while you think someone else is picking up the tab, think again.
People, people, people. We aren't short of money or "wealth" ... they can print all they like and run deficits til the cows come home. In fact they are. We are short of RESOURCES. .. the stuff that actually generates incomes.
The income pie that is delivered by the resource base is more than tapped out and is flatlining. You cant "tax the rich" to restore the resource base - its done & dusted and fast entering decline per capita.
Under capitalism the wealth claims of the rich only hold together as long as the purchasing power of the masses holds ... but as central banks are finding, you cant just conjure up purchasing power from thin air.
Are some people consuming too much? Probably
Are some people consuming too little? Probably.
But the key concept is that if you "gave" all the wealth claims of the rich overnight and distributed them to the "poor" you would quickly collapse all resource bases.
ie the wealth claims are simply an illusion and must NOT be redeemed.
Property makes Kiwis $1.5 trillion richer over last decade HOORAY!!: Statistics NZ
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=119…
More tax on wealthier people/entities? Absolutely, no doubt - YES. Just look at the historical figures on those graphs - proportionally more & more paid as income taxes, less and less paid by Companies since WW2.
Just look at the corresponding impacts - the strangling of the middle class, children less educated than their Boomer parents, increased homelessness, fewer manufacturing jobs, the threat of AI / robots, and ever greater challenges confronting governments including healthcare, the natural environment and superannuation.
How can anyone doubt that the playing field is now tilted, nay, *completely captured* by the top 1% and their corporate entities? Trump's recent tax changes are all the evidence you need of the Decline & Fall of the American Empire...
The tricky questions then - Who is classified as "rich"? What about wealth taxes rather than just income taxes? What about international tax enforcement (re Ireland vs the EU)?
These then are the challenges of the 21st century along with the legacy of negative externalities on our natural environment - those further *untaxed* gains made at the expense of our natural capital such as air pollution, species loss and climate change. Deal to that, or witness the return of a new Medieval Age with some internet thrown in as a distraction for the masses.
The combination of the Medieval or earlier with modern technology is a common and appealing science fiction trope. Star Wars, Star Gate, Nausicaa and similar fantasies follow this theme. I'd be in if we could have annual burning Wickermen on Auckland's volcanic cones live streamed on the Internet from circling quadcopters..
So who exactly are the wealthy ?
Am I wealthy ?
I enjoy simple things like running my dog in the mornings or a $15 bottle of Champagne with my wife with platter of cheese and crackers at sunset at Greenhithe wharf at high tide, of fishing off a vessel with my sons near the Harbour Bridge at 5.00pm looking at all the lemmings streaming over the bridge rushing to God only knows where .......... and I think I am incredibly wealthy when I do this.
I dont actually measure my wealth in monetary terms , it changes daily , so its a silly thing to do and a waste of time ....... and anyway it does not make me feel and better or worse emotionally .
Its just a number on an Excel spreadsheet , and anyway if I converted my surplus to notes and coins i would not know what to do with the cash .
I have my health , and I have time to enjoy life .
So am I wealthy ?
The real question is ..... how is anyone going to tax this if they decide I am liable for a wealth tax ?
I think any definition of wealthy is more likely to focus on the value of the stuff you own, rather than your hobbies or drinking habits. For an example, you could look at the FiF tax regime on foreign shares, where you pay tax as if you had generated a 5% return on the value of your investment. Another obvious wealth tax would be a tax on the value of land, which has the advantage of being difficult to avoid.
I look at inequality from a different point of view.
If money supply grows at a compounded rate of 7%/yr
If House prices grow at a compounded rate of 6%/yr
If wages grow at a compounded rate of 5%/ yr... then
When does the lower growth rate in wages become problematic..??
With wages we moved from single income householdsin the 1970s' , to 2income households in the 1980s' onwards, ..so it has taken a while for the wealth gaps to emerge.
Average wage in 1975 $6500 compound at 5% over 50 yrs gives an average wage of $79,000 in 2020
Average house prices in 1975 $24,300 compound at 6.5 gives av house price of $600,000 in 2020
Average house price compound at 7% equals $800,000 average house price in 2020
M3 money 1975 (est) $6 billion which grew to 290 billion in jan 2017.. this is a compound growth rate of 7.8%
The point I'm making here is that it is wages that have lagged behind the growth rate of monetary inflation.
House and land prices are a better proxy for monetary inflation.
Consumer prices have risen at the much lower rate because of the productivity gains.. ( productivity gains are a deflationary force).
I am arguing that it is monetary inflation , in and of itself, which is the main transmission mechanism for wealth inequality , and the transfer of wealth..
because of the nature of exponential functions, this only becomes a HUGE problem over a long period of time..
Logically, if Money supply continues to grow at 7%/yr, then this disparity in wealth inequality will continue to grow.
Taxing wealth is addressing the symptom.
The real issue is a corrupt monetary system, that inherently favours some over others..
It is a major aspect, and has been the fuel, for the "financialization" of the Western world..
just my view
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