tax

Work to barely pay for returning mothers, inquiry told

Published by Anonymous (not verified) on Mon, 18/06/2018 - 4:11pm in

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childcare, tax

The third and final stage of the government's proposed income tax cuts would overwhelmingly benefit men, late evidence presented to the Senate inquiry shows.

The inquiry will report on Monday that calculations prepared by the Parliamentary Budget Office show 1.894 million men would benefit from the final flattening of the tax scales and only 767,000 women.

The third stage lifts the threshold for the top rate from $120,000 to $200,000 and removes the 37 per cent rate, producing a flat marginal rate of 32.5 per cent between $41,001 to $200,000.

The PBO has previously told the inquiry the final stage would deliver $30.35 billion to men over four years and $11.25 billion to women.

It finds that the impact of the first two stages is much more even.

In a second piece of late evidence requested by the committee, Melbourne University tax expert Miranda Stewart reports that the effective marginal tax rate facing women considering returning to work after having children would remain as high as 95 per cent even after all three stages of the tax cuts and the changes to child care benefits due to begin on July 1.

Effective marginal rates include tax, the Medicare levy, lost family benefits and the cost of the childcare needed to return to work after government subsidies.

On July 1 the two existing childcare subsidies will be rolled into one providing a means tested subsidy of up to $11.77 per hour at an extra cost to the budget of $4 billion over four years.

Professor Stewart said at the moment the effective marginal tax rate for a second earner with two young children paying for childcare at that rate was 65 per cent when returning to work one day a week, 85 per cent on the second day, 95 per cent on the third day and 140 per cent and 160 per cent on days four and five, meaning those families lost income when mothers moved from working part time to full time.

"It was extraordinary that second earners went back to work full time at all," she said. "The reality has been that a proportion of women do go back to work, and the family is essentially bearing the net cost, unless they can use grandparents or friends for care or a cheaper option such as family day care.

The combination of the new childcare system and the first wave of the promised tax cuts would bring down the effective marginal rates to 45 per cent for day one, 65 per cent for day two, 90 per cent for day three, 95 per cent for day four and 90 per cent for day five.

"It means the returning mother will still only be able to keep $10 out of every $100 earned on day three, $5 on day four, and $10 out on day five," Professor Stewart said.

"It will certainly be worthwhile for a second earner, usually a mother, returning to work with young children to go back two days a week; however, for her to work three, four or five days a week would produce a negligible financial benefit."

A separate report to be released by the Australia Institute on Monday finds that since the tax changes that accompanied the introduction of the goods and services tax in 2000-01, most taxpayers have had all of so-called bracket creep returned in periodic tax cuts, whether bracket creep is calculated with reference to the consumer price index or the wage price index.

In real terms, high earners on $200,000 were up to $10,000 per year better off, low to middle earners on $40,000 up to $2000 better off, and middle earners on $70,000 only a few hundred dollars a year better off.

In The Age and Sydney Morning HeraldPeter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.

Pink vs blue tax: the case for taxing women lightly

Published by Anonymous (not verified) on Thu, 14/06/2018 - 4:20pm in

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column, gender, tax

If women were to be taxed differently to men, it wouldn’t be the first time.

Treasurer Scott Morrison says the idea is absurd.

“You don’t fill out pink forms and blue forms on your tax return. It doesn’t look at what your gender is any more than it looks at whether you are left-handed or right-handed,” he said last week.

He even said, wrongly, that Labor has been suggesting it.

But such a move has happened before.

In Britain right up until 1971, wives weren’t usually taxed on their income; their husbands were. A wife’s income was deemed to be “stated and accounted for by her husband”. It wasn’t until 1950 that wives ceased to be classified for tax purposes as incapacitated along with “infants, lunatics, idiots and the insane”.

South Australia broke ranks early, in 1884, taxing married women as individuals and giving them the right to own property. By the time the Commonwealth introduced national income tax in 1915, all the states had fallen into line.

What possible modern-day reason could there be for taxing women differently to men, as mentioned by Melbourne University tax expert Miranda Stewart in evidence to the Senate last week?

Morrison himself provided a clue while ridiculing the idea. He said the Tax Act was designed “to treat people’s income the same, and so you pay tax according to what you earn”.

But we don’t. Someone who earns $1000 from wages pays twice as much as someone who earns $1000 by making a capital gain selling an asset. Income from capital gains is taxed more lightly in accordance with what’s known as optimal taxation theory. It suggests taxing heavily things that tax is unlikely to stop, such as work, and taxing more lightly things that tax is more likely to stop, such as the movement of capital. It’s the basis of the argument for a lower company tax rate as well as a lower capital gains tax rate.

The concession isn’t “fair”, but it’s efficient.

As would be the logical extension, which is to tax female wages more lightly than male wages. Male work turns out to barely react to after-tax pay. Most men will continue to work full-time regardless of what happens to what they take home, regardless of how much they grumble.

Some will work a bit less if their take-home pay falls, because they are offered less of a reward. Others will work a bit more in order to get back the income they lost. On balance the “price elasticity” of their labour is close to zero.

Women are different. Most European and American estimates put the price elasticity of their labour between 0.4 and 1, meaning a 10 per cent boost in their take-home pay will lift their hours of work by between 4 per cent and 10 per cent.

The most efficient way to tax labour would be to heavily tax generally unresponsive male work and more lightly tax generally highly responsive female work, depending on elasticities. Economists Alberto Alesina from Harvard University and Andrea Ichino from the University of Bologna in Italy believe women should be taxed at no more than 80 per cent of male rates in the US, at no more than 68 per cent in Italy and no more than 91 per cent in Norway.

And there’s another argument for discriminating on the basis of gender. It’s that, for most of us, gender is innate. We won’t change it. Tax theorists say that, ideally, we should be taxed on our underlying ability to earn an income rather than the income itself. Otherwise some of us with ability will avoid tax by avoiding earning an income. Although the ability to earn is hard to measure, markers for it are easy to measure, such as height.

In a half tongue-in-cheek paper entitled The Optimal Taxation of Height, Harvard economists Gregory Mankiw and Matthew Weinzierl note that someone who is 183 centimetres tall can expect to earn $US5500 ($7300) more per year than someone 165 centimetres tall. They say tall people should pay several thousands more in tax than short people on the same income. It’s a way of getting at their earning capacity, as would be a higher tax on the earnings of men.

And there’s yet another practical reason to tax women more lightly. The withdrawal of family benefits and the imposition of childcare costs as mothers return to work mean some face extraordinarily high “effective” marginal tax rates of up to 90 per cent. If ever there were people who ought to be affected by high tax rates, it’s returning mothers.

But here’s what’s odd. Australian mothers are hardy. When the Productivity Commission recommended a new, simpler and more generous formula for childcare support along the lines of the one introduced in this year’s budget, it found it would boost employment by just 15,000 full-time worker equivalents in a workforce at present growing by hundreds of thousands per year. More than mothers in the United States, Germany and Britain, Australian mothers seem undaunted by tax rates. The case for treating them gently is strong in theory, weak in practice.

In The Age and Sydney Morning HeraldPeter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.

Ken Livingstone: The Establishment Is Terrified of A Socialist Getting in 10 Downing Street

Published by Anonymous (not verified) on Sun, 03/06/2018 - 2:23am in

This is a short clip from RT’s Sputnik programme of Red Ken in conversation with his old Labour comrade, George Galloway, and his main woman Gayatri. They’re discussing the prospects of Jeremy Corbyn and whether he can defeat the Tories in the next election.

The clip begins with Red Ken saying that Corbyn will fight on to the end, as they both know, because they’re like him and rebelled against the Labour leadership on the same issues. Livingstone says that he wishes a documentary-maker would come and make a film about all those rebellions, and see how many of them were right. Jeremy voted against war after war, and against the imposition of taxes on the poor. He then says that the establishment is terrified of a Socialist getting into 10 Downing Street.

Galloway then asks LIvingstone if he thinks this could really happen. He says that the Tories are ‘all at sea’, that Brexit is a mess, as is the economy, but the Tories are now4 points ahead in the polls. And Galloway’s afraid that if the Tories get in again, not only will Britain be broke, it’ll be broken. The Scots will almost certainly vote for independence, and even he – Galloway – couldn’t vote against it in those circumstances.

Livingstone replies by saying that the economy is indeed in a terrible state. Growth is negligible, there are jobs being created, but they’re low paid, insecure with no pension rights, and this is the worst economic situation they’ve seen in their lifetime. But there is a chance for Labour to get in. Before the last general election, they were predicting a Labour wipeout of more than 100 seats lost. But instead Corbyn led them to the biggest electoral gains since 1945, and they came within two per cent of beating the Tories. This was despite 81 of his MPs trying to unseat him. He says that Corbyn was able to make these gains despite the establishment running the smear stories about him supporting terrorism, or giving information to Czech spies, because once their in the election period, the TV has to give equal space to them. And Corbyn talked about issues, like low pay, and unemployment, which really connected with people. The same issues that fuelled the rise of Trump.

The clip ends with Leninspart predicting that the campaign against Corbyn will now become even nastier. There’ll be even more lies and smears, just as earlier Galloway remarked on how they’re now trying to get rid of Corbyn using salami tactics. But once the country gets into the election period, it’ll be different.

Frightened Davidson Tells May to Concentrate on Funding NHS

A day or so ago I put up a post arguing that Corbyn’s promise to renationalise the NHS had Tweezer and the Tories rattled, as there had been a story in the I that May had held the promise of repealing some of Andrew Lansley’s vile Health and Social Care Act. This is a long, convoluted act which basically absolves the Health Minister of the requirement to provide universal healthcare free at the point of delivery to everyone in Britain. It’s one of the major landmarks on the long campaign of the Thatcherite right – both Tory and New Labour – to privatise the NHS. May was also talking about increasing taxes to mend the funding deficit in the NHS. This was, however, spoilt by May acting true to form as a Tory. She immediately declared that everyone would have to pay this tax, which could be as high as £2,000. Mike’s posted a piece on his blog about how this was worked out, and pointed out that not everyone should have to pay the same amount. We have progressive taxation in this country, which means that the rich pay higher rates of tax than the poor, who can’t afford it. The Tories, however, hate progressive taxation, because they’re solidly on the side of the rich and despise the poor. And so Thatcher, Major, Cameron and now May have done their best to shift the tax burden onto the poor, in order to lower the tax rates on their rich friends. And Thatcher came unstuck in 1990/1 when she tried to promote the poll tax.

Like May’s proposed tax increase for the NHS, this was supposed to be a uniform rate charged on rich and poor alike. It was expected to replace the rates, which were charged on the value of your property. So a rich Tory donor living in a mansion was going to be charged the same amount of money as someone on unemployment benefit living in a simple terraced house. Never mind: Thatcher and her cabinet of grotesques claimed this was ‘democratic, because we all pay the same’. The British public didn’t agree, and there were massed protests and riots against it. I also know of a number of magistrates, who resigned because of it. As Justices of the Peace, they would be required to enforce this piece of legislation, which they personally felt was terribly unjust. And rather than find people guilty in support of a law, with which they profoundly disagreed, they obeyed the calls of their consciences and resigned. And I have every respect to these people for doing so. Thatcher was then outed in a coup, Major installed as her replacement, and unfortunately the Tories carried on in power until Blair’s victory in 1997.

It struck me at the time, as I said in my previous article, that May was probably trying to scare people with the £2,000 figure, which many poorer people wouldn’t be able to afford, so she could claim that the NHS is unaffordable as it stands. Cue more privatisation. Despite the fact that we could easily afford it if we took a leaf out of the European’s book and spent more on the NHS, and increased the tax rates for the rich instead.

But the fact that May is holding out the prospect of undoing her predecessor’s legislation, and raising taxes for the NHS, shows that Corbyn’s got her rattled.

And not just May. It also seems to have worried ‘Rape Clause’ Ruth Davidson north of the Border. The I ran a story on Tuesday reporting that Davidson had warned may to concentrate on increasing funding for the NHS, and ditch plans for more tax cuts. If she didn’t, she risked relegating the Tories to history.

This shows just how far the panic is spreading in the Tory party. Quite apart from Davidson and Gove forming a think tank – surely an oxymoron in their cases – to reinvigorate the Tory party with new ideas. Because, they warn, if they don’t have them, the Tories may be out of power for a whole generation.

Well, I’d just love to see this vile party and its horrendous politicians thrust out of power, and not just for a generation. That’s too short a time.

As for the gurning, smirking leader of the Tories in Scotland, today’s I carried pieces from a couple of newspapers predicting that Davidson is too young, ambitious and talented to be content to remain head of the Tories in Scotland. According to them, she will most probably try to head down south to forge a political career in Britain and Wales. What a terrible prospect! Davidson is responsible for trying to implement the government’s wretched austerity campaign in Scotland, including its demand that women, who’ve had more than two children due to rape, should have to prove this is the case when claiming child benefit. Hence her soubriquet of ‘Rape Clause’. It’s a nasty piece of vindictive legislation which punishes already vulnerable women, who have been traumatised by their sexual assault. But this is the Tories, who have absolute contempt for the poor, the weak and the underprivileged. Davidson is supposed to be a ‘liberal’ Tory, but there’s no evidence of that except her sexuality. And despite May’s attempts to position herself as a feminist, this is a thoroughly misogynist piece of legislation. The last thing the rest of Britain needs is for her to come down south to spread even more misery down here.

Actually, reading between the line, it’s possible that Davidson may not have a choice. For all that she’s supposed to have masterminded the revival of the Tories in Scotland, she didn’t actually increase their vote. Instead, the SNP’s vote decreased and Labour’s revived, which split the opposition and allowed the Tories to emerge as the largest single party, even though most
Scots voted against them. Which is another argument in favour of proportional representation. Given the parlous situation of the Tories in Scotland, it’s possible that the Scots may vote them out. This would result in the party looking around for a new leader, and Davidson given her marching orders. In which case, if she wanted to continue her career, she’d have to go south.

I don’t want her coming to England and Wales, but I look forward to the Scots voting out the Tories and their thoroughly grotesque and objectionable leader.

Principles Of Canadian Municipal Finance (And Why A Land Value Tax Is Inferior)

Published by Anonymous (not verified) on Sun, 20/05/2018 - 11:00pm in

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Canada, Housing, tax

 Canadian Local Government Revenue As A % Of Total GovernmentThe funding of Canadian municipal governments is not normally thought of as interesting topic; even Canadian fixed income investors are not particularly excited about it. However, there are two side issues that are of general interest. The first question is: what happens to Canadian municipalities if the housing bubble pops? (As a spoiler, not very much.) The second question is the feasibility of a Land Value Tax (LVT) which is a concept that gets some people on the internet very excited. I will then outline why a LVT is inferior to the Canadian property tax system (which is not that different than the American system for that discussion).

Canadian Municipal BasicsIn interests of brevity, I will focus on how the Canadian municipal government system differs from that the United States. (Since I never saw opportunities to look at sub-sovereigns elsewhere, I will not discuss the comparison to other countries.)

The big difference for government finance between Canada and the United States is that Canadian provincial governments have much bigger economic footprints than American states. Canada has a larger welfare state, and it is largely implemented at the provincial level. Furthermore, Canadian provinces do not have balanced budget laws (which would make implementing the welfare state at the provincial level impossible). Modern Monetary Theorists would argue that the welfare should be implemented at the Federal level, but the Canadian Constitution trumps economic common sense.

When we drop to the municipal level, I believe that Canadian municipalities have less independence than is the case for American municipalities. For example, the Quebec government unilaterally decided to merge municipalities as a move towards cleaning up administration in the early 2000s. (The citizens revolted, and a number of those mergers were unwound.) I believe that most American states lack the authority to do anything similarly obnoxious.

Municipalities exist within a legal framework set by the province, and revenue raising has to be using specified means. (The British North American Act divided up the revenue pie between the Federal and Provincial levels of government.)

Details obviously vary across the country, but as in the United States, property taxes are a major source of municipal revenue. (Taxes for schools and utilities like water or garbage collection would be at this level. I think that school tax rates are linked to property tax rates, but might not be included in the property tax numbers in the chart I show below.) To distinguish a property tax from a Land Value Tax, a property tax is levied on the value of both the land, as well as the buildings on the land.

Property taxes are based on an assessed value. In my municipality, there is a periodic reassessment of property values (every few years) based on market pricing, plus you will get your assessment bumped up if you foolishly do major renovations (which I am about to do...). Since all property transactions are registered by the municipality, they have a very good idea what prices properties are transacted at. My feeling is that the assessed property values are pretty good estimates, but with a tendency to be slightly low (across the board). Having the assessed values being somewhat below the true market price is a useful way to keep the number of challenges to assessments limited. The only way the market value of your property is far below the assessed value is that you have some serious hidden defects. However, most homeowners know enough to not run to the entity that has the power to condemn properties as unfit for human habitation to argue that their assessment needs to be lowered because of mould on their  house's framework.

Since the assessment is close to where everyone feels the market price is, I'd argue that the tax is viewed as fair. (As a spoiler, this is no longer the case for a Land Value Tax.)
Less Cyclical than the United StatesCanadian municipal finance rules are straightforward. The municipality just follows the given algorithm.

  1. Determine the sum of all assessed property values in the city.
  2. Figure out how much property tax the city wants to raise.
  3. Divide (2) by (1) to get the tax rate.

The city will need to take into account property tax rates in nearby municipalities, but that is about it.
The flexibility of the tax rate means that changes in house prices alone have no effect on property tax revenue. (There are other channels, noted below.) If assessed house prices rise by 10%, they just cut the tax rate by 10%. This means that homeowners just need to look at the tax bill (and scream); the assessed property value is there for entertainment purposes only.
This means that Canadian municipalities are not going to be crushed by falling house prices by themselves (which is different than what was seen in some American municipalities). There would be some forced austerity at the local level, but it would be small potatoes. A housing development boom does help municipal finances, via new developments raising property values, as well as the Orwellian "Welcome Tax" (a tax paid when buying a house). Those positive factors would reverse, but it would not force widespread retrenchment. In a deep recession, the worry would be about the provinces, and whether they are "too big to fail."
(In any event, attempting to short Canadian municipals seems like a suicidal trade. Very few institutional investors trade the things, and so one would face extreme short squeeze risk.)Is the Property Tax a Good Tax?Before I get to the Land Value Tax, I want to first discuss the desirability of its close cousin: the property tax. My discussion here is extremely Canada-centric -- although I would argue that the situation is not that different in the United States. For other countries, there are differing institutions and political constraints. In interests of space, I am not going to discuss all issues with the tax, rather a more practical question: is it possible to greatly increase the property tax?
The first problem is constitutional, that appears applicable to both Canada and the United States. Property taxes are levied at the municipal level, and that is the wrong level of government to get a massive revenue boost. Us Keynesians who want "big government" don't refer to municipal governments -- as they do not provide much in the way of welfare state coverage. If we increase municipal governments, rich municipalities will get even more services relative to poorer ones. If your objective is to even out economic opportunities across the country, this makes the problem worse. (Another practical issue is that this would have to be implemented by municipal politicians. If you want to run as a municipal politician on a "let's raise property taxes" platform, expect to get less votes than the Marxist-Leninist candidates.)
The macroeconomic problem is that property taxes have no counter-cyclical properties. They tend to be flat across the cycle, and so they will not help counter-act recessions, nor are they particularly good for inflation control. Municipal governments are too small to apply Functional Finance principles to, but we need to worry about Functional Finance for aggregate behaviour.
Finally, the key problem is that property taxes are levied with no strong link with the capacity to pay. If you want to get theoretical about it, you are levying a tax on a stock, while incomes (and taxes) are flows. Believers in 19th century economic theory might believe that "economic rents" are constant over time, whereas casual knowledge of capital market behaviour tells us that it has to vary with time (assuming it exists..).
The basic law of taxation is that you can't get blood from a stone. No matter what your personal political animus against the stone is, it just ain't happening. Property taxes fight against that principle.Insignificance of Property Taxes In General Revenues For Big Governments Canadian Property TaxThe chart above shows percentage of "real property taxes" in total revenue for the General Government sector (which includes contributions to the Canada Pension Plan, which are indeed taxes). (As a disclaimer, this data set from Statistics Canada is new, and I am unsure about the details. It may be that some of the local government taxes are levied based on property values, and might be lumped in with property taxes.) As can be seen, it is a small number.
In order to help personalise the issue, I will discuss some back-of-the-envelope numbers for my local municipality. If you have a single earner household that has not bought an insanely large house, the property taxes would drop to about 10% of all taxes paid at an income level somewhere below $100,000. For those of you not familiar with our funny-money currency, $100,000 is a solid upper middle class salary -- more than a junior financial analyst, but probably less than what a competent plumber is making right now. (Since homeowners are often married, the ratio more generally would depend on how income is distributed.) Since all-in marginal income tax rates in the People's Republic of Quebec is around 50%, the importance of property taxes rapidly collapses as incomes rise above $100,000.
Let us imagine what happens if the property tax were doubled? For this hypothetical household, it's a 10% rise in the total tax bill. An annoyance, but survivable. (Since property taxes are not deducted at source -- and the typical Canadian household has almost no financial assets -- such a move would be psychologically painful in the short term for many. However, since many people roll their property taxes into their mortgage payment, the effect might get smoothed out.) 
However, this no longer the case for seniors. The Canadian system has dealt with the problem of senior poverty by letting them putter around in their houses. This is achieved by giving them a minimal Canada Pension Plan (Quebec Pension Plan) and Old Age Supplement (plus need-based transfers). They can survive on low pre-tax incomes since they pay little taxes (mainly the value-added tax). Raising property taxes is a direct assault on their limited fixed incomes.
In other words, raising property taxes will be a mosquito bite for the rich, and you will end up liquidating the class of senior citizens. "Why do you hate old people?" is the correct response to anyone advocating a massive increase in property taxes. Anyone with knowledge of Canadian seniors is that they are ornery, and taking them on politically is suicidal.
I lived in England, and I grasp the historical tribal class divide between land-owners and renters in European politics. From what I have observed in England, it seemed to me that this distinction was breaking down. In Canada (and the United States), that binary division does not fit the political facts on the ground.
I grabbed the following quote from the summary of this Statistics Canada study: Income from owner-occupied housing, 1969 to 2011

From 2006 to 2011, home ownership rates increased from 27% to 35% among 20- to 29-year-old households, and from 67% to 71% among households aged 70 or older.

Home ownership is not the mark of the ultra-rich; it's 71% of the senior population. Furthermore, there is no guarantee that the renters are poor; luxury apartments and old folks homes are a thing.  It may only be the well-to-do households that can afford to move out of their homes into rental dwellings once they have difficulties getting up and down the stairs. (Admittedly, a class division might be more obvious in the larger Canadian cities, but less of a factor in the smaller population centres.)
Furthermore, rural incomes tend to be lower than urban. However, land is cheap, and there are almost no building code enforcement. Anyone who has been working for most of their life should be able to afford a shack somewhere in rural Canada.
Class warriors might think that renters will be spared. It is likely that in the short term, property taxes will not be passed through into rents. However, it is only possible to squeeze landlord profit margins, but there will always be profits. There will be no rental supply forthcoming at a loss. Large increases in property taxes raise the cost of doing business for landlords, and they will be passed through to renters.
This is what happens when you impose taxes that are not linked to the capacity to pay. You have to go where the money is, and only income flows point us to that location. This is why modern welfare states are powered by income and value-added taxes.
(If one is a free marketeer that wishes to shrink government, a reliance on property taxes helps limit its size. This because you hit pain capacity constraints relatively quickly.)Land Value Taxes: SuboptimalIn addition to the modern revival of Social Credit on the internet, Land Value Tax bugs have arisen from the ashes of dead economic theories. Fans of the proposals are very happy to send you 200 page PDF's that describe its merits. (As regular readers might guess, I did not bother reading any of those 200 page PDF's. I try not to waste my readers' time, nor my time.)
If you live in a jurisdiction without a competently-run property tax system, a Land Value Tax might be a good idea. It may also be easily implemented in ridiculous postage stamp countries like Singapore, or on targeted districts like Manhattan. My comments here refer to the merits versus a property tax, and for countries like Canada that are large enough so that swinging a cat around by its tail does not involve having its nose pass through several border controls.
Taxing land alone would be a straightforward change to the property tax system: we zero out the value associated with the building on the assessment, adjust tax rates accordingly, and send out the new property tax bills. However, no municipality in Canada is crazy enough to do that. Why?
The first problem is that it would be a steeply regressive change to the distribution of tax. In urban areas, plot sizes are relatively uniform within a district, while building values are not. Taxing land alone redistributes taxes from young people living in McMansions to old people who live in bungalows. "Why do you hate old people?"
Within city cores, you will be subsidising high rises (in case any of my readers are liberals, that includes Trump Tower) at the expense of the various low rise support buildings around them. Once again, the rich get richer.
Furthermore. this exacerbates the breakdown between the taxes imposed and the capacity to pay -- which was already a problem for property taxes. Since you are now squeezing the poorer income segments even harder, you will probably have to lower the aggregate tax take.
I had interlocutors on Twitter object to this. Might not development plans change? Sure, if you have a magic want that can costlessly restribute land and buildings. Even if there eventually was a new equilibrium that was in some sense reasonable, there is no assurance that we can get here from there.
There is no guarantee that the high density utopia that Land Value Tax devotees appear to favour would appear. More dense construction practices implies a greater need for local government services. (For example, a high rise with lots of apartments raises the number of tots that show up in the local school.) If the government does not get increased revenue as a result of the development, it is financially suicidal to approve the development plans.LVT Administration IssuesThe next problem with a Land Value Tax is that it breaks the administrative process. We know exactly what people pay for properties -- but the values for land are not observed. Since mortgages are based on property value, there is a large private sector infrastructure for home valuation. This infrastructure keeps property assessments in line with the facts on the ground.
Conversely, in urban areas, land values are purely hypothetical. Almost all transactions involve properties with buildings on them. In my district, my guesstimate is that there was exactly one land deal for sure over the past decade, and possibly a couple more where the houses involved burned down.
Furthermore, as soon as such a tax was imposed. everyone with a couple of brain cells to rub together would throw sand into the land valuation process. At the extreme, every single property transaction would involve a pair of (linked) transactions, with the land given a nominal value of $1, and the building getting the rest of the value. Since mortgages are assessed on both (and lower tax values raises the credit capacity of the borrower), everyone has an incentive to structure deals this way. Since these are the only observed prices, any market-based approach to valuation would have to use them. (Even if a plot of land had no building, people would just slap a pre-fabricated shack on the property to suck up the valuation.)
An idealist might say that the government should pass a law against such abusive tactics. However, the law is what a judge says the law is. Most judges own houses. The government would have its posterior handed to it in court.
The government is stuck with assessing taxes on a purely administrative basis, removed from market pricing discipline. (This will be just as efficient as the tax on windows.) In a big country like Canada, there are three options.

  1. It is a flat tax imposed on a per-square-meter basis across the country. However, if one glances at a map, one realises either that the tax rate would be laughably small, or it would wipe out the farming industry.
  2. It is administered solely at a local level. The problem is that if the local governments control it, the local governments involved would tell the LVT backers exactly where they could put their LVT, and it would not be implemented.
  3. A central government (probably provincial in Canada, courtesy of the BNA Act) imposes guidelines based on broad categories (rural versus urban zoning, etc.)

The final option might attract some LVT fans, but it would be rejected by anyone with any knowledge of politics. The objection is straightforward. Imagine you are in the position of a Democrat living in a blue state. You should be very concerned about the possibility of handing the Republican-controlled Federal government the power to levy an arbitrary tax that can be targeted on the basis of ZIP codes. Unpopular minorities (like English-speaking Quebecers), tend to cluster geographically; giving central governments the power to target people on a geographic basis would raise civil disharmony.
In order to avoid obliterating farmers (a political group that is almost as ornery as seniors), farm taxes per square foot have to be lower than urban land taxes. This creates a massive problem on the border of almost every urban area. If you start of at the centre of a town or city and walk in selected directions, you will eventually hit a border line between a suburban and rural land. The typical case is that on one side of a road is a farm, and on the other side there are houses. Under a property tax system, those houses pay way more tax per square foot. If a LVT were assessed on the value of land, it would be the same as the farm on the other side of the road. In order to avoid obliterating farmers, the administrative rule would have to impose higher rates on the households -- which they could avoid be being zoned as farms. Since practically all suburbanites have tomatoes in their backyards, we would suddenly have pressure to have most of the country declared as rural properties. The central government would suddenly be facing off in court against most of its voters in swing ridings. Good luck with that.Concluding RemarksIf your model suggests that a Land Value Tax is more efficient than a property tax, your model is wrong.
(c) Brian Romanchuk 2018

Here's my big dangerous tax idea: let us keep our money

Published by Anonymous (not verified) on Thu, 17/05/2018 - 8:09pm in

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column, tax

Suddenly we’ve wised up. As far back as any of us can remember, all the way back to the beginning of income tax, we’ve been easy to bribe.

Here’s how it has worked in every election and in almost every budget: “You’ve been working hard and paying too much tax. We feel your pain. We’ve magically found some money from somewhere. We’re pulling a tax cut out of a hat. You can thank us later.”

That the rabbit was our own money, taken from us in ever-increasing amounts through an automatic process known as bracket creep, and then only partly returned, was the trick we weren’t invited to dwell on.

Here’s how it will work this time. In the year ahead wages will probably climb 2.1 per cent. It’ll push a greater proportion of our pay into the highest rate of tax we pay. All by itself that will push up the total amount of tax we pay by around $6 billion, even though our actual buying power, our inflation-adjusted wages, might not much change. The budget tax cuts will give us back some of it: around $4.4 billion.

Hey presto. We’re supposed to be awed.

Even after 10 years, after the third and most expensive phase of the Morrison tax cuts announced on budget night, middle earners will still find themselves paying 3 per cent more of their income in tax than they do right now: 18 per cent instead of 15 per cent, according to the Grattan Institute. Only the very highest earners - the top 10 per cent - will get their bracket creep back.

(We need to rely on organisations such as the Grattan Institute and the Parliamentary Budget Office for the calculations because the government won’t provide them for us. It wants us to be in awe of the trick without seeing how it's done.)

It helps that bracket creep isn’t widely understood, certainly not by shock jocks such as Sydney’s Ray Hadley (“it simply means that people who were formerly taxed at the lower income rate through no fault of their own go on to the next income rate”), Nor, on the face of it, by the Treasurer himself, who on Monday said that the third and final stage of his plan that levelled the tax rate between $41,001 and $200,000 meant that “for most Australians, who will earn over their lifetime somewhere between $40,000 and up to $200,000, they will never face bracket creep again”.

Bracket creep happens even if you don’t change brackets. Whenever your income climbs, a greater proportion of it ends up in your highest tax bracket, leaving a lower proportion of it in your lower brackets and beneath the tax-free threshold.

Imagine you had been earning $75,000 and inflation pushed up your wage to $77,000. Your buying power wouldn’t much improve and you wouldn’t change tax brackets, but your tax bill would climb from $15,922 to $16,572. The chunk of your salary lost in tax would climb from 21.2 per cent to 21.5 per cent. A lower proportion of it would be protected by the tax-free threshold.

It’d be easy to fix. You would index the tax-free threshold and each of the other thresholds to the general rate of wage increases, or to the general rate of inflation, both of which at the moment are near 2.1 per cent. So the $18,200 tax-free threshold would climb to $18,582 and then to $18,972 and so on.

It would be devastating for the budget and devastating for politicians. Without automatic tax increases they would no longer be able to announce regular 'tax cuts' that only partly returned our money in return for applause.

But the applause has stopped. This week’s Fairfax-Ipsos poll found that 57 per cent of voters didn’t want the cuts they were offered. They would have rather had the money used paying off government debt. Only 37 per cent wanted the tax cuts, and many of them would have regarded them as unsurprising. It’s probably Peter Costello’s fault. By repeatedly cutting tax rates under prime minister John Howard, he destroyed the magic.

Indexation would make the magic real. And it would make budget choices real.

At the moment we grant the government leeway for indulgences such as spending $50 million commemorating the voyage of Captain Cook, or $247 million keeping chaplains in schools. If those indulgences meant an explicit increase in tax rates we would indulge our politicians less.

As it stands, most of the promised $80 billion cut in the company tax rate is to be funded by bracket creep. If indexation removed that option it would have to be funded by an explicit increase in income tax or another tax, and we would be less accommodating.

On the other hand, we would become keener to accept tax increases where they were the only way of getting things we wanted, such as they were with the National Disability Insurance Scheme. Without bracket creep, if we wanted more spending on something like health we would have to agree to pay for it. Or disagree, in which case we wouldn’t get it. We would become prepared to pay more tax where we had to, and keener on getting value for what we paid.

We would start treating our money as if it was ours.

In The Age and Sydney Morning HeraldPeter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.

Suddenly, the tax choice is clear

Published by Anonymous (not verified) on Fri, 11/05/2018 - 8:21pm in

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tax

Labor’s decision to back only the first stage of the Coalition's budget tax cuts and then build on it offers voters a clear choice.

The Coalition is offering a tax cut that most benefits middle earners on between $37,000 and $90,000, delivered in the form of a rebate after the end of each tax year, followed years later by a second and third stage of more expensive tax cuts that would most benefit very high earners on $160,000 and above.

Labor is the offering the same tax cut aimed at middle earners, bulked up by 75 per cent a year later in 2019.

Labor’s plan cheaper over time. The eventual cost of the Coalition’s plan, not yet revealed in Parliament despite requests, is probably $18 billion per year, which is more than the Commonwealth spends on the Pharmaceutical Benefits Scheme, and half what it spends on Medicare.

Labor’s plan is more expensive than the Coalition’s in the early years; a total of $19.2 billion over four years compared $13.4 billion, but it will cost much less over the longer term, because there will be no stage two and stage three targeting high earners, unless Labor later decides to offer one.

It thinks it can find the extra $5.8 billion pretty easily. It is cracking down on negative gearing and capital gains tax concessions, it won’t proceed with the rest of the company tax cuts (at least until the budget is in a better position) and it won’t hand out as many dividend imputation cheques.

The savings mean it will be able to offer a low earner on $40,000 an extra tax credit of $218, which when added to the Coalition’s $290 will amount to $508. A middle earner on $60,000 would get an extra $398, taking the total to $928.

Beyond the $90,000 mark both tax credits would shrink, falling to zero after $125,000. Very low earners beneath the $18,200 tax-free threshold would get nothing under either scheme.

But high earners won’t completely miss out under the scheme unveiled by Opposition Leader Bill Shorten on Thursday night. He says Labor will support a separate Coalition measure that will lift the $87,000 tax threshold to $90,000 from July this year, giving a small benefit of $135 per year to all high earners, even to millionaires.

But that’s all high earners will get from Labor, at least all that it is taking to the election and to the byelections due next month. It is firmly focused on the middle earners Treasurer Scott Morrison says he is is focused on, and nothing else down the track.

In The Age and Sydney Morning Herald Peter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.

More BBC Bias as Question Time Panel Tonight Almost All Right-Wingers

Published by Anonymous (not verified) on Fri, 11/05/2018 - 2:29am in

Mike over at Vox Political has put up a piece commenting on the selection of the members of tonight’s panel for Question Time (10th May 2018). You probably won’t be surprised to hear that it’s made up nearly exclusively of members of the right. It includes Alejandro Agag, a businessman; Esther McVey, Tory MP and murderer of the poor and disabled; Chuka Umunna, the Blairite Labour MP, and Chloe Westley from the Taxpayer’s Alliance. The only person, who is probably left-wing and therefore may have something sensible and interesting to say is the rapper Akala.

Mike goes on to remark that he understands the show’s producer is a member of the hard-right BBC Tory hierarchy, and so there’s absolutely no point hoping that the situation will improve in the future. Mike clearly finds it disgusting enough that McVile is on the show, let alone the rest of the right-wingers. He therefore recommends that instead of watching it, you may as well go out instead.

Intriguingly, he ends his post by saying that he’s going to be down the pub trying to do something constructive. This may possibly be planning the launch of a balanced debate show on social media.

https://voxpoliticalonline.com/2018/05/10/esther-mcvey-to-appear-on-question-time-so-lets-all-go-out-instead/

If a truly balanced political/ topical issues panel show like Question Time on TV, and Any Questions on the radio does get going, then it’s bound to worry the BBC even more. The mainstream media is worried now that increasingly more people are taking their news from social media, indeed of sitting down and watching the corporate, right-wing biased material they pump out. You can imagine just what kind of explosion will happen at the Beeb if they suddenly find that more people are watching the internet’s answer to those two shows: there will be more huffing and puffing in the media about how the consensus is being destroyed and politics more fragmented, because people are watching the parts of the internet they agree with. This, I think, is a particular problem for the Beeb, as it’s the national broadcaster and so likes to consider itself the former of the nation’s opinions. Just like the various pompous Tory broadsheets, the Times and Torygraph. The result of this will be more scare stories about fake news on social media. And if the panel show is on RT or another foreign-owned station, they’ll try and work up a scare about it being a source of evil foreign propaganda.

The presence on the panel of a member of the Taxpayer’s Alliance is another example of the Beeb’s Tory bias, as I got the impression that it’s basically a kind of ventriloquist dummy for the Conservatives. It’s supposed to be independent, but a friend of mine told me he’d looked at their leaders, and found that they were all members of the Tory party. Those that weren’t in jail for dodging taxes, that is. Thus, it isn’t even remotely independent in reality, but this doesn’t stop the Beeb pulling them regularly on news programmes and claiming that they’re an independent group. This is presumably in the same way that Laura Kuenssberg and the rest of the Beeb’s news team are unbiased. As unbiased as Nick Robinson when he edited out former SNP leader Alex Salmond’s full answer to his question when reporting on his speech about the Scots referendum.

The Beeb is increasingly showing its right-wing bias, despite the snotty answers it gives those who dare to write in to question this. And as it does, more people are going to log on to the alternative news sites. Mike’s suggestion that a truly balanced topical issues show like Question Time might be on the way on social media sounds very interesting, and just the thing we need to replace the Beeb’s own biased programming.

Meet the weirdest collection of tax cuts on record

Published by Anonymous (not verified) on Thu, 10/05/2018 - 8:32pm in

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column, tax

Has there ever been a more weird collection of tax cuts?

Ahead of the budget we were promised simple cuts. What we got was a collection of changes so eccentric they are almost impossible to explain quickly and even harder to make sense of quickly. Here goes.

Instead of concentrating tax cuts on low- and middle-earners as promised, Scott Morrison has changed a tax threshold, one faced by only the top 20 per cent of earners, and overlaid a new and bizarrely-shaped so-called tax offset on top of an existing offset to give Australians earning between $48,000 and $90,000 a year an extra $530 a year and Australians below $37,000 a lower sum of $200, and those earning something in between, something in between.

But they won’t get it in their pay packets as extra pay. In fact they won’t get it at all during the next financial year, even though it is due to come in on July 1.

Instead they’ll have to wait until beyond the end of that financial year to put in tax returns and get back with their refund cheque something between $200 and $530.

In his post-budget address to the National Press Club Morrison said it would help them with “bills to be paid”, but it won’t, unless those bills are annual and come in at the same time as their tax return.

Most of us face quarterly bills and make weekly visits to the supermarket. It’s why the pay-as-you-earn system takes tax from us evenly; in order to help with our bills.

The weirdness in what Morrison has designed makes his demand that the Senate approve his changes by July 1 redundant. They could be leglislated up to three quarters of a year later and still take effect on time, as previous late changes to tax laws have made clear.

The only people who would suffer if the Senate declined to abide by the Treasurer's near-immediate deadline are the high earners on more than $87,000 (millionaires included) who would miss out on $2.60 per week for the change in the second-highest threshold.

But, just as how the Hitchhiker's Guide to the Galaxy said that if anyone discovered exactly what the universe was for and why it was here, it would instantly disappear and be replaced by something even more inexplicable, the complicated changes Morrison wants to bed down would disappear in 2022 and be replaced by something much more expensive, that by 2024 morphed into an even more expensive fairly flat tax structure with zero rate up to $18,000, a 19 per cent rate to $41,000, then a 32.55 per cent rate all the way to $200,000 followed by a top rate of 45 per cent.

Morrison wants the parliament to vote for it straight away, even though the final stage of the transformation wouldn’t take place until 2024. And, unfathomably, he doesn’t want to tell it how much each stage would cost.

Asked repeatedly in parliament on Wednesday to outline the year-by-year cost of what he was asking the parliament to vote for Morrison refused and accused his questioner of being “tricky”.

“The cost of the measure is $140 billion over the next 10 years,” he said. “The bill is on the table, vote for it or oppose it. Whichever way you do it, the Australian people know where you sit on tax and where they sit on tax: higher tax on Labor, low under the Liberal and National Party."

Which didn’t answer the question. But it suggested answers. The Treasurer is required to publish in the budget papers the cost of the first four years of the tax changes (the years that encompass the bizarre tax offset). It’s $13.4 billion, which works out at $3.35 billion a year.

Simple maths suggests the cost of the remaining six of those 10 years would be a very large $126.6 billion, which works out at $21.1 billion a year. So large is $21.1 billion per year (six times the size of the tax cut in the first four years) that it is almost impossible to find a tax cut to compare it with. None of them, not since the ones that brought in the goods and services tax at the turn of the century, has been anything like as big.

It’s almost as if Morrison has deliberately made his scheme complicated and of unknown long-term cost in order to have the Senate reject it.

A simple cut, of the kind we thought we were promised, would have sailed through. Morrison could have cut the 19 per cent rate to 17 per cent or the 32.5 per cent rate to 30.5 per cent at a cost of $4 billion or $6 billion a year. Taxpayers would have understood it and enjoyed the benefits from day one.

Labor could have understood it and topped it as well, perhaps as soon as Thursday night in the budget reply speech, which might be another reason why Morrison has opted for something so complex and ungainly that no-one would want to top, let alone replicate.

Or it could be that he just likes tinkering. Whatever the reason, he served us poorly on budget night. We could have had a tax cut we understood and could spend. We might have thought we deserved one.

In The Age and Sydney Morning Herald Peter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.

RT Video Shows the Awkward Facts about Safid Javid

Published by Anonymous (not verified) on Thu, 03/05/2018 - 4:45am in

This is another short, excellent little video from RT. It states that its about the uncomfortable facts the media is trying to cover up about this son of a bus-driving dad. When he was working for Deutsche Bank, his annual salary was £3 million a year. He voted 16 times against a tax on bankers’ bonuses. He was responsible for a speech vilifying Momentum as the ‘hard-left Fascist group’. ‘Hard left’ and ‘Fascist’ are contradictions in terms, as Fascism is far right, whatever Tories and American Republicans try to argue. Momentum is actually neither. It’s traditional centre left, Labour’s traditional post-war political stance before the destruction of the social democratic mixed economy and the welfare state under Thatcher. Oh yes, and he was responsible for the government’s failed promises to the Grenfell victims, and just this week warned that the government was about to break another one. They weren’t going to be rehoused any time soon. So much for Tweezer’s claim that they’d all be rehoused within twenty weeks, and it would be a top priority.

In short, Safid Javid is another massively overpaid, corporate banker. Like Rees-Mogg he votes consistently for the benefit of the rich, his own class, and cares nothing for those beneath him. Which includes the victims of the Grenfell Tower fire.

He and the rest of the Tories should be sent a message through the council elections tomorrow that people are sick of them, their contempt for ordinary people, their own monstrous, unrestrained greed and their vile treatment of the poor – the victims of Grenfell fire, the members of the Windrush generation they’ve deported, and just about everyone their policies have attacked and reduced to insecurity and misery – the unemployed, the disabled and those on low incomes, who are now having to choose between eating and paying the bills. Vote them out!

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