Rodney Hide on the drive for a rich pricks tax

Rodney Hide discusses the wonky thinking of the Tax Working Group as it drives towards a rich pricks tax: Quote:

In heading up the Tax Working Group Sir Michael Cullen has produced a great many reasons for taxing capital gains, including that it would help pay for future retirees, be fairer to women, and wouldn’t be a new tax.

Not one stacks up.

The problem is that for the Tax Working Group capital appears manna-like, unearned and untaxed.

That’s nonsense. Capital has to be earned and is already taxed. End quote.

But socialists think capital is readily available to be taxes, realised or unrealised. Quote:

Imagine, a tax-free world in which Bob earns $100. He buys 100 apples with his income. Alice likewise earns $100. But instead of spending her $100 she invests her income as capital in a business to earn $100 in a year. At the end of the year she has $200 and can buy 200 apples.

Now Sir Michael Cullen is emphatic he wants everything taxed the same and that must include apples today and apples next year.

So let’s now tax Bob and Alice on their income at 33%. They each earn $100 but after tax Bob can only buy 67 apples. Alice has only $67 to invest. She still earns the same return and doubles her initial investment but after a year can only buy 134 apples. Her loss of 66 apples out of the untaxed number of 200 is 33%. She is taxed the same as Bob.

But now include company tax at 28%. Alice’s profit of $67 is taxed to become only $48.24. She can now buy only 115 apples. In a world without tax she had 200 apples. Her effective tax rate is 42.5%. Her apples are taxed twice.

Of course, to buy the apples she has to sell her business for $115. According to Sir Michael her gain of $48 ($115 minus $67) is taxfree, a distortion, a loophole, unfair, et cetera. It should be taxed as “income,” the purpose being “to provide a significant and growing revenue base [for government] for the future.”

That would mean Alice would be taxed on her gain of $48 at 33%, leaving her with only 99 apples.

Her effective tax rate is over 50%.

The tax on ordinary capital income is a double tax. The tax on capital gains is a triple tax. End quote.

Which is why socialists want such a tax…to get the rich pricks who create capital. Quote:

The move to tax capital gains would be disastrous, highly distortionary, very complicated, and bad for the economy and especially so for households reliant on wages because wage growth depends critically upon capital investment and entrepreneurship.

The focus of the Tax Working Group should be how to raise the tax that government demands at least cost. That means not taxing capital gains at all and, for even lower cost, eliminating income tax entirely in favour of GST.

That would mean taxing all income only once. GST-only would ensure both fairness and a booming economy. Everyone would be richer, even government.

Of course, the least-cost solution is not considered by the Working Group: Its purpose is to provide political cover for taxing “rich pricks” ever harder in a mad attempt to further engorge government. End quote.

Which is why we need organisations like the Taxpayers Union to challenge rapacious politicians intent on stealing even more than they do now.

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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

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