Removing income tax entirely, can it be done?

English: Governor Bobby Jindal at the Republic...

Governor Bobby Jindal at the Republican Leadership Conference in New Orleans, Louisiana. (Photo credit: Wikipedia)

Could it be possible…no income taxes at all? Bobby Jindal thinks so:

Governor Jindal has unveiled a specific proposal.

The plan will eliminate two major tax types: personal income tax and corporate income and franchise tax. Eliminating income taxes in a revenue-neutral manner and improving sales tax administration will dramatically simplify Louisiana’s tax system and reduce administrative problems for families and small businesses. The effective start date of the program is January 1, 2014. …The plan will ensure revenue neutrality by…[b]roadening the state sales tax base and raising the state rate to 5.88%.

This is a superb plan.

Of all the possible ways for a state to generate revenue, the income tax is the most destructive.

That’s why researchers consistently have found that states without this punitive levy grow faster and create more jobs.

It’s also worth noting that jurisdictions such as MonacoBermuda, and the Cayman Islands manage to be very prosperous in the absence of an income tax, though the incredible wealth of these places is partly a function of bad policy elsewhere, so the comparison isn’t perfect.

Anyhow, Gov. Jindal expands on this research with some very powerful data. 

Over the last ten years, more than 60 percent of the three million new jobs in American were created by the nine states without an income tax. Every year for the past 40 years, states without an income tax had faster growth than states with the highest income taxes. Economic growth in the nine states without income taxes was 50 percent faster than in the nine states with the highest top income tax rates. Over the past decade, states without income taxes have seen nearly 60 percent higher population growth than the national average. …While we have reversed the more than two-decade problem of out-migration, we can do more to keep people here. Here are a couple of staggering statistics. Between 1995 and 2010, according to IRS data, Louisiana lost $3 billion in adjusted gross income to Texas.

Amen.

Would John Key have the stones to do something similar? Or is his government as addicted to tax and spend policies as Labour would be?

I particularly like that he recognizes the power of tax competition as an argument for better tax policy. Taxpayers win when Texas and Louisiana compete to have less oppressive tax systems.

Indeed, this should help explain why I am so fixated on the importance of making governments compete with each other. Simply stated, governments are very prone to over-tax and over-spend if they think taxpayers have no escape options.

Might the taxpayer win in New Zealand if we competed with Australia and other Pacific rim nations for the least oppressive tax regimes?

 


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  • Roger Douglas said it was so in Unfinished Business, albeit with compulsory health insurance, compulsory private pensions, compulsory accident and personal income insurance and compulsory education accounts for the kids.

    Still, more choice for users, and the state would be funded pretty much entirely with GST alone.

    • blazer

      well a resident accountant on this site maintains GST is a neutral tax.As for Douglas has never had an original idea in his life.

      • chopsuey

        GST is a simple tax, but would be easy to amend that by getting rid of income and cororate tax, and then making it so businesses can’t claim GST back

      • CJA

        I believe that was me. Anyway by neutral I mean one business can claim a GST input tax and the other returns a GST output tax hence forth offsetting e.g. one pays it to the government and the other receives it therefore being tax neutral. Consumer spend is obviously different since we cannot claim any GST but I would doubt the government’s tax take from GST would be very high. Based on last numbers (I stand to be corrected) that the governments tax take was about 80% PAYE and salary earners so therefore the other 20% is made up of GST, FBT, tax on overseas income etc.

  • ConwayCaptain

    N Korea doesnt have income tax!!!

    • kohibruce

      N. Korea is ultimate socialization rather than capitalization – doesn’t have private businesses to make profits, pay salaries and be slugged with taxes.

    • blazer

      probably because it doesn’t have….income!

  • cows4me

    Our leaders would never consider such heresy as much as we hate to admit it New Zealand is socialist and built on a base of egalitarian society. The cap between rich and poor now continues to grow and our blinked politicians see the only way to close this cap is to tax till the host dies. The ability to tax is power and this power is like an aphrodisiac to politicians. Taxing gives them the power to play class warfare, pick winners and buy votes. I doubt our leaders lack the courage to try something like this but they certainly have no wish to show they were not right.

    • Mr_Blobby

      It is the cleanest, easiest and fairest TAX. But because our Government expenditure is so high as a percentage of GDP so would the GST, probably about 45% that would kill our Tourism industry as they would go elsewhere.

  • US states are not independent. What is missing here is that they still pay Federal income tax, this pays for their pension, retirement healthcare, healthcare for the poor, defense spending (and the Yanks buy a lot of this), and coming shortly healthcare subsidies for the poor.

    Would this work in New Zealand? Well we have to pay the pension bill, the healthcare bill, the unemployment bill and the DPB/Invalids all of which take up a massive amount of tax revenue (about 50% I believe).

    Add to that sales tax revenue is much more volatile than income tax, thus our booms will be boomyer and our busts bustier.

    If we did this we would either have to have compulsory savings like Singapore or compulsory health insurance.

    • I’d be up for that.

      • Have a look at Singapore – very low healthcare spending (about 4%? of GDP) compared to NZ (10%) and yet nobody is denied essential healthcare like the USA; The govt subsidizes healthcare spending based on your income and everyone saves to pay the balance. And there is a fund to apply to if you run out of money to pay the bill.

        • Mediaan

          Agree on income tax because it absorbs too much personal and corporate time, keeping up with it.
          But Singapore doesn’t tolerate laziness: everybody works. And there is more central direction of the state. And, since the casino culture arrived, things have worsened there.

          • Gary Lindsay

            Maybe New Zealand shouldn’t tolerate laziness either.

  • I recall Carter once proposed a massive income tax cut in the USA – but it would be funded by a tax increase on fuel. It died very quickly.

  • Gary Lindsay

    I’d come home to be a tax resident of New Zealand if they dropped income
    tax. While continuing to work in Australia as a contractor of course
    ;-)

  • Ururoa

    Having lived in and run businesses in countries with separate compulsory pension, health and unemployment insurances, along with sales, land, state and city taxes (Japan and Thailand), you have no idea how incredibly burdensome and expensive the compliance is for both the individual and the company charged with collecting such taxes. NZ is blessed with one of the simplest of tax compliance regimes. Don’t throw the baby out with the bathwater.

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