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Monday message board

January 30th, 2006

It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please[1].

fn1. Given recent problems with trolls and generally heated debate, I’m going to come down harder on this. Please don’t use any abusive language, swear words including *ster*sked versions and so on.

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  1. Dave Ricardo
    January 30th, 2006 at 07:16 | #1

    The links between the twin threats to Western civilisation, Communism and Islamism, need to be carefully scrutinised.
    I believe they originated in 1967 when boxing champion Cassius Clay refused to be drafted into the US army, famously declaring “I aint got nothing against them Viet Congs”. This act fatally weakened American resolve to hold back the red tide in the Far East.
    Clay then converted to Islam and changed his name to Muhammed Ali.

    This is my last post. .Goodbye. It’s been fun.

  2. avaroo
    January 30th, 2006 at 07:28 | #2

    Muhammed Ali would be a shining example of CAPITALISM, not an ad for communism. He’s lived his life as the epitome of a capitalist and I can’t think of many people less identified with islam than Ali. I wouldn’t think you’d find many islamists anxious to claim Muhammed Ali. He hasn’t exactly spent much of his life exemplifying the tenets of islam.

  3. derrida derider
    January 30th, 2006 at 09:54 | #3

    Actually, I believe Ali’s line was “none of them vietcongs never called me a nigger”.

    But John, this no swearing rule is non-*****-Australian. Robust discussion is part of the charns of blogging.

    Edited by JQ to make a point. Honestly, it’s not so charming for me when I have to deal with the resulting flamewars

  4. Homer Paxton
    January 30th, 2006 at 10:12 | #4

    Dave,
    if you are reading this then the blogosphere is poorer for your departure.

    I believe that we only agreed on one thing. Australia needs a new Federal government however in your own idiosyncratic way you have made a large contribution to the blogosphere.

    I confess that I am less interested in blogs now than was the case.

    I fear that blogs have past their best years and are now on the downward slide.
    Too much banning and moderation I fear.

    Perhaps some people should read Jane Austen if they of the mind to put a person down with class.

    I told Paul Keating once only uneducated and poorly brought up people swore at people.
    I won’t type his reply. Funny though He had made the largest use of the English language of anyone I have come in touch with!

  5. January 30th, 2006 at 11:01 | #5

    I’d second Homerkles on his encomium [I'm still hoping it's not a eugoogly], Dave. You are one of the best commentators in the ‘stan: intelligent, eloquent, funny and always well-informed.

    Sorry to be so wet, but a blogsuicide note would be appreciated for closure, yadda yadda. That is, why?

  6. Terje Petersen
    January 30th, 2006 at 12:07 | #6

    Worth reading:-

    http://www.smh.com.au/news/national/work-loses-its-point-for-lowskilled/2006/01/29/1138469608056.html

    Welfare continues to be indexed with either the CPI or Average Weekly Earnings (the greater of the two I believe). Coupled with the likely reduced rate of increase for the minimum wage this is going to quickly create a situation where working causes the low skilled to be poorer than if they continue to sit on welfare.

    On the positive side this might at last create the necessary political imperitive to fix the tax/welfare system and all its perversity. However I will not be holding my breath.

  7. Terje Petersen
    January 30th, 2006 at 12:23 | #7

    Short of abolishing government based welfare (not a bad option, but politically unrealistic at this point in time) I still think the best way to fix the welfare system is to:-

    1) Make welfare payments taxable.
    2) Remove the means testing of welfare payments and let the tax scales moderate the benefits.
    3) Replace unemployment benefits with a social wage that can be redeemed by everybody as either a fortnightly payment or else a tax rebate on PAYG (or on the tax return at the end of the year).

    In practice this might mean scraping the tax free threshold and replacing it with a tax rebate as well as adjusting the size of welfare payments. Of course you could do all this and still stuff things up by getting the details wrong.

    Of late the ALP seems to be thinking a lot harder about this issue than the Liberals. I don’t know what the mood in the electorate is but putting together a serious reform of welfare/tax is in my view the number one issue that needs to be addressed at the federal level. I believe that the ALP should focus on formulating a bold yet workable plan in this area. It would be far more useful than revisiting the IR reforms. However it can not be done by tinkering at the edges. Something on the scale of John Hewsons fightback package needs to be layed out for the electorate.

  8. what the
    January 30th, 2006 at 13:20 | #8

    ..and as a trade analyst I always enjoyed seeing your nom de guerre, Dave, if it was such. I hope the future lies towards your comparative advantage too. cheers.

  9. Andrew Reynolds
    January 30th, 2006 at 13:29 | #9

    Homer,
    If I may disagree -there is not too much banning and moderation – at least not here. I think our host has been exceptionally tolerant (perhaps tolerant more one way than the other, but that is his perogative). All the swearing and flaming you sometimes see elsewhere just gets in the way of a good argument.

  10. David Michie
    January 30th, 2006 at 14:05 | #10

    Terje Petersen,
    There is much that appeals to me about proposals such as John Humphreys Reform 30/30 but I am concerned about equity. Yes I know the tax free threshold or negative income tax can make these so-called “flat tax” schemes progressive, but can such a massive tax cut for high income earners ever be considered equitable?

    John Garnaut wrote a great piece on this a couple of weeks ago.

    I do agree that the ALP should be putting forward some proposals on welfare/tax reform. They’re headed for inevitable defeat if Kim just keeps on waffling and complaining for the next 18 months, so I don’t see what they have to lose by proposing something radical.

    On the other side, Costello is gutless, Turnbull has been gagged and John Howard probably thinks the tax/welfare system is perfect as it is … with perhaps just a bit more bias to single-income families.

  11. jquiggin
    January 30th, 2006 at 15:16 | #11

    I’m hoping Dave’s farewell post is some sort of obscure joke.

  12. avaroo
    January 30th, 2006 at 15:27 | #12

    If any of you have not yet seen the movie “Crash” directed by Paul Haggis, I highly recommend it. Very, very moving, it makes you think long and hard about things you don’t think you think, if that makes any sense. Cast of thousands, all good, Don Cheadle is especially affecting as is Thandie Newton and Terrence Howard.

  13. Dogz
    January 30th, 2006 at 15:40 | #13

    Dave Ricardo’s blogsuicide is something I have been considering for myself for a while now. My reasons: it is too addictive and too time consuming. So good bye and thankyou all. It has been very very entertaining. (Cold turkey is the only way I know of to treat addiction, so I won’t be lurking).

    Must…. hit….. submit…….

  14. January 30th, 2006 at 16:06 | #14

    “can such a massive tax cut for high income earners ever be considered equitable”

    Why does it have to be, as long as it accomplishes its goal? (The removal of disincentives to work).

  15. Andrew Reynolds
    January 30th, 2006 at 16:14 | #15

    Most high income earners carefully structure their income to reduce their tax anyway – if the flat tax was introduced without exemptions it would probably mean an increase in the amount of tax that the seriously wealthy pay.

  16. January 30th, 2006 at 16:23 | #16

    “So good bye and thankyou all.”

    Blimey, JQ, they’re dropping like polar bears! I blame global warming.

    Can’t wait to see Homer Paxton’s new sock puppet: “Bring Back EP at LP…and David Ricardo – the not dead yet one…oh, and Dogz”.

  17. David Michie
    January 30th, 2006 at 16:34 | #17

    Yobbo:
    “Why does it have to be, as long as it accomplishes its goal? (The removal of disincentives to work).”

    Firstly, it might be a little hard to sell politically, and secondly, its just plain unfair. For a NIT policy to fly, especially something coming from the ALP, you would have to maximise benefits at the low end. Perhaps Reform 35/35 would be more palatable to the electorate. i.e. move the tax free threshold to $35K and tax every dollar earned at 35%

    Andrew Reynolds:
    “Most high income earners carefully structure their income to reduce their tax anyway”

    I completely agree, but try convincing the electorate of that. The current tax system really punishes the upper middle class, while the very wealthy corporatise and capitalise their income to take advantage of our idiotic tax system.

  18. Katz
    January 30th, 2006 at 17:27 | #18

    Andrew Reynolds:

    “Most high income earners carefully structure their income to reduce their tax anyway�

    The word “income” in this case is too broad to enable focussed discussion of the relationship between producers and the tax system.

    It is useful to break down the different types of persons who fit under the category of “high income earners”.

    High income earners aren’t the problematic taxpayers when the relationship between tax and incentive are concerned. Income earners who earn the bulk of their income in the form of taxable income are often driven by more complex imperatives than their marginal nett income. Careerism, commitment, seniority, drive such salary earners up the income tree without enormous regard for marginal tax rates. Older high income earners of this type eventually achieve large tax concessions by salary sacrifice into superannuation and into negatvely-geared investments at a time when they own their own houses, have educated and farewelled their children and are at the peak of their earning power.

    The problematic taxpayers who earn their incomes on a fee-for-service basis, such as dentists, plumbers, self-employed accountants, architects, lawyers, etc. These taxpayers structure their compensation packages to minimise nett tax, and/or they ration their work output by paying themselves with leisure, or they stoically accept high marginal tax rates.

    I’d be surprised if many of this second group were paying themselves with leisure simply because of the income tax system.

    A more potent disincentive for this group, based on personal knowledge and acquaintance with members of this second group, are the various overheads and on-costs associated with employing workers and the statutory requirements associated with employing workers.

    Given that Australian government revenue as a proportion of GDP is quite low by developed world standard, statutory disencentives and petty but irritating taxes are aspects of government intrusion in the workplace that a political party like the ALP, which feels the need to rebuild its business credentials, might profitably address.

  19. January 30th, 2006 at 19:15 | #19

    C’mon fellas! Please no more blogicides!

    Let’s start a campaign to “Bring Back EP at LP…and David Ricardo – the not dead yet one…oh, and Dogz” et all!

    Then again, with all this lame talk of taxcuts and re-shuffle crap…mmm.

  20. January 30th, 2006 at 19:26 | #20

    Anyway, a little dose of reality (for some of those among us who really need it!), from that socialist mouthpiece… The Tele! …and Harvey Norman’s own NeoChavista: Gerry Harvey:

    [warning! a bit long... Also my (obvious) bolded edits included]

    Payday for the bosses
    http://www.dailytelegraph.news.com.au/story/0,20281,17956174-5001021,00.html

    CHIEF executives are now earning more in a week than most workers make in a year, staggering new research shows.

    Bosses’ pay has blown out by more than 560 per cent !!!!!! since 1990 from $514,000 to $3.4 million – or 63 times !!!!!! average weekly earnings.

    The research is based on salaries at the top 50 sharemarket-listed companies whose CEOs are current members of the lobby group, the Business Council of Australia.

    The BCA is typically one of the first bodies to argue against large increases in the legislated minimum wage when it is considered by the Australian Industrial Relations Commission each year.

    This mantra was at odds with how its own members were paid, the research’s author told The Saturday Daily Telegraph last night.

    What’s more, it wasn’t even consistent with the performance of their companies.

    “These fellas can’t lose,” University of Sydney academic John Shields. “It’s heads I win, tails you lose – almost all the time.”

    There were calls last night for company boards to change their pay practices so they were fairer to workers.

    Meanwhile, some big company bosses were turning on one another.

    “It gives corporate Australia a bad name,” Harvey Norman’s Gerry Harvey said.

    “Boards of companies just pay people too much,” he said. “There’s no need to pay them this sort of money. They’ll do as good a job for $1 million as they will for four.”

    Mr Harvey earned $855,000 last financial year – less than a third of the average among the bosses of the 50 largest companies, the group on which the research was based.

    Labor’s corporate governance spokeswoman Penny Wong said the CEOs’ wage growth was excessive.

    “Company boards need to ensure they’re getting value for money from their executives,” Senator Wong said.

    “They also need to ensure their other staff are being fairly rewarded.”

    Australian Shareholders’ Association chairman Stephen Matthews said company chairmen were still reluctant to curb CEOs’ greed.

    However, the Business Council of Australia defended CEOs’ pay, saying it was unfair to draw a comparison with workers’ wages.

    “The people who occupy those positions are responsible for generating the biggest share of wealth in Australia,” BCA communications director Mark Triffitt said.

    Still, Dr Shields’ research shows CEO pay has grown at a much faster rate than shareholder earnings.

    In 2005, the average CEO earned $65,700 a week , Dr Shields’ research found. That is about $12,000 more than average annual earnings , according to Australian Bureau of Statistics data.

    CEOs’ cash earnings have grown at three times the rate of typical workers.

    In 1990 bosses took home 18 times as much as their average employee. In 2005 the ratio was 63 to 1. !!!!!!! (continues…)

  21. January 30th, 2006 at 20:16 | #21

    I know what Dave Ricardo needs – a blog.

    It’s not the swearing that irritates me, its the gratuitous insults. which our good host keeps remarkably under control.

    Emphasis on the word gratuitous.

  22. SJ
    January 30th, 2006 at 22:07 | #22

    Jane Hamsher has an interesting post about wingnut trolls:

    From the comments:

    My theory is that a lot of the creepy freepers who post on lefty sites are just low-level right-out-of-college cubicle jockeys at right wing think-tanks. They’re getting paid to skulk around and regurgitate winger talking points. Just a theory of course.

    Have you ever noticed that a lot of them tend to post a lot during business hours and then disappear on the weekends? I guess that’s when their busy date-raping one another …

    I’ve noticed this a lot over at the HuffPo. There seem to be a couple of people whose job it is to just jump in and leave right-wing talking points at the top of every thread. It doesn’t happen if you post at night, and then they won’t show up until business hours the next day.

    No point, really, just nice to know the tactics of the enemy.

    Update: William N. provides this link for the skeptics.

    Jane’s second link is to this comment in The Washington Monthly:


    Hey guys,

    I interviewed for a guerilla marketing business that targeted web forums.

    I was told that if I accepted the job, I was to have at LEAST 50 identities on as many forums as I could muster (they wanted 100 eventually), with a goal of 5 posts an hour. The posts had to be well thought out, and the idea was that I was to establish multiple identities with a history on the forums, so that when the timing was right a well written but subtly placed marketing post could be finessed in. And regular visitors would recognize the post as coming from a long time poster.

    They had 12 people working there full time, and were hiring 10 more. You do the math. No wait, I’ll do it for you: that’s 880 posts a day (if minimum was met). However he said the better ones could do around 8 or 10 an hour. And they had different “verticals” so there was the sports guy, and the politics guy, the hentai, excuse me I mean anime guy, etc.

    But the most critical point was this: develop and integrate the identity. No random “HEY SONY IS AWESOME BUY THIS” stuff.

    Kinda spooky.

    P.S. Five posts AN HOUR? Sound like anyone you know…

  23. Andrew Reynolds
    January 30th, 2006 at 22:26 | #23

    Katz,

    I think we can largely agree on that one. A good start would be to drop the ITAA in the nearest bin and start again. One of the most staggering things I heard was when Costello said that he would be cutting about 2000 redundant pages from the ITAA and then calling that tax reform.

  24. January 31st, 2006 at 01:13 | #24

    David: I believe a key point of the 30/30 proposal was that it taxes business income and personal income at the same level, thereby getting rid of any incentive to funnel personal income through companies to achieve lower tax rates.

    The tax free threshold can be played around with if the concern is for those on lower incomes. The only issue there is the affordability of the proposal, which is difficult to estimate.

  25. Steve Munn
    January 31st, 2006 at 01:40 | #25

    I would like to see the tax-free threshold raised and at least 3 or 4 new rungs added for high income earners. I would fully support a marginal tax rate in the order of 70%-80% for incomes over $250,000.

    As far as I am concerned, no one’s labour is worth such vast sums of money. This of course one of the problems with a market economy- the value of labour and income do not match.

    p.s. Sorry if the above sounds like blasphemy to the disciples of Right Libertarianism on this forum :)

  26. Terje Petersen
    January 31st, 2006 at 05:47 | #26

    Steve,

    Such high tax rates would stop the very well off from putting their capital at risk through investment. While it may not create an investment drought it certainly would not help.

    In pre-Thatcher Britian they had a tax on investment income (they called it “unearned income”) that approached 90%. It should not surprise that in pre-Thatcher Britian there was very little entrenpreneurial activity. Who would risk their capital on a risky venture when any future returns were mostly confiscated.

    ~~~

    It seems to me that we can classify welfare into two groups:-

    1. Welfare that you receive due to your limitations.
    2. Welfare that you receive due to your situation.

    On top of this we means test welfare according to a persons other income sources.

    An example of the first form of welfare might be payments made to a man who has lost his right arm in an accident. An example of the second might be a women who is without a job.

    Notionally the aged pension is due to peoples limitations (type 1 welfare). Although in practice it is these days mostly due to peoples situation (ie they are over 65). Although it’s a situation they can do nothing about.

    Unemployment benefit is clearly a type 2 welfare payment.

    You can remove the means testing of type 1 welfare and still be objective in who gets it. A man with no arm is a man with no arm. However if you remove the means testing of type 2 welfare it becomes pretty unobjective.

    So I propose that all welfare be subject to income tax. If you are otherwise on a low income you will lose next to none of it. If you are otherwise on a high income you will lose half of the welfare payment through income tax. However type 2 welfare would need to be replaced by a general social wage with the objective measure of eligibility being your status as a citizen.

    If the progressive income tax system is supposed to equal us up a little then why not let it do the job across the board.

    Regards,
    Terje.

  27. January 31st, 2006 at 07:26 | #27

    David Ricardo
    you’re one of the best commenters around, even when you’re putting a skewer into Catallaxy posts. Are you joking or really leaving?

    Perhaps Dave’s moved to some high profile job and will start posting via a pseudonym from now on?

  28. wilful
    January 31st, 2006 at 09:21 | #28

    (The removal of disincentives to work).

    Has this claimed impact of a high top rate ever been proved empirically? And why do I hear so much more about it than the disincentives to work at the bottom of the tax scales?

  29. David Michie
    January 31st, 2006 at 09:44 | #29

    Yobbo:
    “I believe a key point of the 30/30 proposal was that it taxes business income and personal income at the same level, thereby getting rid of any incentive to funnel personal income through companies to achieve lower tax rates. ”
    Understood. What I’m proposing is that everything gets taxed at 35c in the dollar … companies, capital gains, personal income. At the same time abolish negative gearing, depreciation of work-related expenses, depreciation on investment properties, and all the other rorts high income users use to minimise tax.

    Presumably the govt would raise significantly more revenue by taxing companies at 35% and abolishing deductions which would allow for a higher tax free theshold. Yes I know this means raising the corporate rate (gasp!) but 35% is the same as the US corporate rate and is pretty competitive.

  30. Katz
    January 31st, 2006 at 10:13 | #30

    “In 1990 bosses took home 18 times as much as their average employee. In 2005 the ratio was 63 to 1. !!!!!!! ”

    So what’s the beef? Is 18x ok but 63x not ok? If so what multiplication represents the margin of ok/not ok?

    For public companies it’s up to shareholders to decide whether they’re getting value for money.

    One drag factor in “right-sizing” executive remuneration is the fact that majority share representation is bound up in superannuation and in insurance company holdings whose representatives on boards of directors are executives whose compensation packages are influenced by the going rate for execs. Thus there is a bit of a conspiracy of compliance. But so long as shareholders reckon they’re getting value for money, this doesn’t loom as a big issue.

    The social and cultural consequences of stratospheric executive emoluments is the creation of “golden ghettoes” where execs tend to lose touch with the market that sustains their companies. Enron was an example of this on the macro scale. And on the comical, micro scale, the pathetic Brian Quinn of Coles/Myer, whose career crashed and burned as a result of the demands of his fearsome wife, serves as a reminder of the perils associated with an excess of money and a severe deficit of dignity and self-discipline. (HIH is another example of this syndrome.)

    The best thing about such “golden ghettoes” is that these vulgarians are forced into each other’s company. Gaol looks to be a better option.

  31. David Michie
    January 31st, 2006 at 10:16 | #31

    Jason Soon:
    “Has this claimed impact of a high top rate ever been proved empirically?”

    A high top rate may or may not be a disincentive to work, but its certainly an incentive to minimise tax. If the top rate was raised to 80% over $250K I can guarantee you that virtually no-one would pay that rate while the loopholes remain in the tax system. Anyone earning over $250K would find a way to turn themselves into a company (and pay 30%) and/or borrow massive amounts to invest and negative gear.

    “And why do I hear so much more about it than the disincentives to work at the bottom of the tax scales?”
    Because the effective marginal tax rates (EMTRs) for people coming off welfare into work are very high, in some cases >100% I believe. The nice thing about a negative income tax (such as the Reform 30/30 proposal) is that its both progessive (high incomes pay a higher average tax rate) but everyone pays the same marginal rate no matter what thier income level. This means people moving from welfare to work pay 30c tax for every dollar earned.

    I can’t believe the boffins in Treasury can’t come up with a NIT plan that eliminates high EMTRs at the bottom end, reduces rates at the top end while maintaining equity and progressivity. Perhaps they have but there is no political will.

  32. wilful
    January 31st, 2006 at 11:14 | #32

    (It was me not jason). A high top rate may or may not be a disincentive to work, but its certainly an incentive to minimise tax.

    I totally agree, but that’s not the question, or the claim made by many against a relatively progressive tax system. I would like to see a far simpler and more transparent tax system with few if any deductions available and one that didn’t skew investment (hello negative gearing). But that’s not the same argument as to what level of progressivity is built into the system.

    Because the effective marginal tax rates (EMTRs) for people coming off welfare into work are very high, in some cases >100% I believe.

    Again we’re in furious agreement, I was making a social point about the relative noisiness and political pull of a small class of top tax rate whingers (3% of taxpayers as of 1 July I believe) versus the great unwashed who are characterised as lazy, uneducable and unempoyable.

    Of course the boffins in Treasury can come up with a decent scheme – but how could special interest groups be bought every election without handouts?

  33. Terje Petersen
    January 31st, 2006 at 14:48 | #33

    “In 1990 bosses took home 18 times as much as their average employee. In 2005 the ratio was 63 to 1. !!!!!!! �

    The Australian average wage is about $50000 pa. From July the top tax rate will cut in at 2.5 times the average. 2.5 is nowhere near 63 times.

    63 times average wages equates to $3.5 million and I don’t know of many employers who earn that much. In fact I don’t personally know any. 50% of Australians work for a small business (

  34. David Michie
    January 31st, 2006 at 16:06 | #34

    Sorry wilful it was you.
    I’m not making the claim that a progressive tax system is a disincentive to work. Frankly, I don’t think it is. My point is that if you tax personal income at 48.5%, companies at 30%, and capital gains at half the personal income rate, high income earners are always going to find a way to avoid paying the 48.5% rate. So if most high income earners aren’t paying the top rate, what is the point in having it?
    The personal, corporate and CGT rates should be the same. I don’t really care whether its 30%, 40% or 45% but for Christ’s sake make them the same!
    I was making a social point about the relative noisiness and political pull of a small class of top tax rate whingers (3% of taxpayers as of 1 July I believe) versus the great unwashed who are characterised as lazy, uneducable and unempoyable.

    The Murdoch Press has been running a campaign for “tax reform” (meaning lowering the top rate to 30%) for several years now. That has certainly helped amplify the noisiness of the top tax rate whingers.

  35. derrida derider
    January 31st, 2006 at 21:59 | #35

    Terje, a couple of points on your posts:

    (1) Most welfare payments have been taxable since 1978. The major exception is Disabiliy Support Pension. It’s not taxable because the then treasurer buckled after having to force his way through a picket of people in wheelchairs. I’m told he remembers that to this day and DSP will therefore not be made taxable while he’s PM.

    The reason they’re taxable is to claw them back from people who are on benefits for part of the year but have good earnings the rest; WA crayfishermen are the canonical example. Of course, doing this greatly increases churn – but that just shows churning can be useful in achieving the system’s goals.

    (2) the sort of Basic Income you propose is the ultimate in “middle class welfare” (“MCW”). But that just shows MCW can be useful in achieving the system’s goals.

    (3) NIT/BI type proposals are indeed very attractive in theory. But, having studied them for 20 years, I am absolutely confident that they will never be introduced in any democracy. The winners are those at the very top and those near (but not at) the bottom. Which means the median voters will be the losers – and big losers too.

  36. Terje Petersen
    January 31st, 2006 at 22:17 | #36

    Derrida,

    You misunderstood my point. This is probably partly due to the fact that I got truncated.

    You are right that welfare payments get “means tested”. And for all intense purposes we may as well call this a tax. My point was that we should remove this “means testing” and let the existing progressive income tax scales do it for us.

    Basically the idea is:-

    1. Abolish means testing.
    2. Tax welfare payments as if it was like any other form of income.

    Of course there are details to be fiddled with.

    With the existing system of “means testing” and “progressive income tax scales” both mixing it together in a compounding manner the actual rate of tax (EMTR) is overly complex and full of perverse and non-obvious scenerios.

    Regards,
    Terje.

  37. January 31st, 2006 at 22:24 | #37

    Terje: welfare is already taxable income. If you receive nothing except welfare for an entire year, you will be under the tax-free threshold. If you are on the dole for 6 months and earn 20,000 for the other 6 months, you have to pay tax on your entire income for that year, including whatever Centrelink gave you.

    “I can’t believe the boffins in Treasury can’t come up with a NIT plan that eliminates high EMTRs at the bottom end, reduces rates at the top end while maintaining equity and progressivity. Perhaps they have but there is no political will.”

    Why is it necessary to maintain progressivity? Higher income earners still pay more tax than lower income earners even if the tax rate is constant. Why do you insist on the need for higher income earners to pay a larger share?

    As long as the budget is not compromised, shouldn’t the goal be to have people pay as little tax as is necessary, or do you see taxation as some kind of punishment for success?

  38. Terje Petersen
    January 31st, 2006 at 23:39 | #38

    Yobbo,

    So if you get unemployment benefits for the first six months of the year, ie 26 x $405 = $10530, and then earn $10000 in wages over the next six months your total taxable income for the year will be $20530.

    Your income tax bill for the year will be 0.15 x $20530 – $6000 = $2179.50.

    If we increased the tax free threshold to $21000 per annum and reduced unemployment benefits by $42 per week we would leave the long term unemployed no worse off but the incentives would be tilted further towards working. ie workers would get an increase in take home pay but the unemployed wouldn’t.

    Of course this might create a cash flow problem for the short term unemployed who won’t do a tax return until the end of the year, so you might keep the old rate of unemployment benefits for the first two months of unemployment. ie $405 pw.

    Perhaps it would be politically tolerable, once the unemployment rate is low enough, to put an end to the indexing of unemployment benefits and to compensate by increasing the tax free threshold.

    Regards,
    Terje.

    P.S. Thanks go to Yobbo and Derrida for correcting my understanding of the system.

  39. February 1st, 2006 at 05:38 | #39

    “So if you get unemployment benefits for the first six months of the year, ie 26 x $405 = $10530, and then earn $10000 in wages over the next six months your total taxable income for the year will be $20530.”

    Correct, except that $405 is the payment for a fortnight of dole, not a week, so you’d actually only get $5265 in half a year of being on the dole.

  40. February 1st, 2006 at 05:39 | #40

    When you apply for benefits at Centrelink, they ask you if you’d like to have tax taken out before you are paid.

  41. Steve Munn
    February 1st, 2006 at 06:16 | #41

    Yobbo says: “Why is it necessary to maintain progressivity? Higher income earners still pay more tax than lower income earners even if the tax rate is constant. Why do you insist on the need for higher income earners to pay a larger share?

    As long as the budget is not compromised, shouldn’t the goal be to have people pay as little tax as is necessary, or do you see taxation as some kind of punishment for success?”

    I return to my previous point. The wages people receive in a mixed economy like ours do not necessarily reflect the value of an individual’s labour. I personally find it repugnant that drugged up musicians, ill-educated sports stars, businessman with shady ethics and corporate executives earn much more than the actual value of their labour.

    I find it equally loathsome that people who do low status but nevertheless socially necessary jobs like sweeping streets and cleaning toilets earn crap, if you’ll pardon the pun.

    I would like to see the extra taxes raised used to provision social welfare, infrastructure, health, education, environment protection and so on as per the Nordic Model.

    (Did I here Terje groan?)

    I put social equity before private greed, Mr Yobbo. It is an unfashionable social-democratic sentiment but I was born with it and will probably take it to my grave!

  42. Terje Petersen
    February 1st, 2006 at 06:35 | #42

    Steve,

    Are you saying that you think we don’t spend enough on social welfare?

    For what it’s worth I think your social-democratic sentiment is quite fashionable in Australia and most other places. I would characterise Australia as a social democracy not a liberal democracy.

    Regards,
    Terje.

  43. February 1st, 2006 at 07:23 | #43

    John,

    Just wondering what your thoughts – as an economist – are on the Iranian Bourse issue – would you consider a blog post on this issue?

    I’ve heard the Iranians are planning (threatening?) to set up a bourse based on Euros rather than US dollars, and that this was a major reason why Saddam was removed. I’ve also heard alarmist talk about how this could triggger a US melt-down and/or global recession.

    There was a lengthy article on this at Information Clearing House by Krassimir Petrov.

    And the latest Market Watch discussion from Paul Farrel is not very reassuring.

  44. avaroo
    February 1st, 2006 at 07:56 | #44

    “I’ve heard the Iranians are planning (threatening?) to set up a bourse based on Euros rather than US dollars, and that this was a major reason why Saddam was removed”

    oh, that is funny

  45. February 1st, 2006 at 09:39 | #45

    “I personally find it repugnant that drugged up musicians, ill-educated sports stars, businessman with shady ethics and corporate executives earn much more than the actual value of their labour”

    Is it only Drugged-up musicians you have a problem with? Or do you think Johnny Farnham is as much to blame as say, Keith Richards? What about educated sports stars like Peter Bell? What about businessmen with impeccable ethics? There’s plenty of them around.

    Basically you have nothing to offer except a bunch of outdated stereotypes that you use to justify your own class envy.

    The value of someone’s labour is equal to whatever someone else is willing to pay for it. Marx was wrong, and the rest of the world has known it for 50 years. It’s about time you realised it too.

  46. February 1st, 2006 at 09:45 | #46

    David: The 30/30 reform proposal does indeed abolish many of the deductions you are talking about. The full proposal can be found here. (pdf)

  47. Steve Munn
    February 1st, 2006 at 09:56 | #47

    Yobbo says: “Basically you have nothing to offer except a bunch of outdated stereotypes that you use to justify your own class envy.”

    Your conservative forebears used to lecture the peasants that the feudal hierachy was God ordained and it was immoral and devilish to question this natural order.

    Now conservatives say that those who dare question the natural order of capitalism are guilty of the sin of envy.

    The argument has changed but the substance remains the same.

  48. February 1st, 2006 at 10:38 | #48

    Whatever dude. Have fun in your Marxist wonderland.

  49. wilful
    February 1st, 2006 at 10:59 | #49

    Why is it necessary to maintain progressivity? Higher income earners still pay more tax than lower income earners even if the tax rate is constant. Why do you insist on the need for higher income earners to pay a larger share?

    As long as the budget is not compromised, shouldn’t the goal be to have people pay as little tax as is necessary, or do you see taxation as some kind of punishment for success?

    I hesitate to use an economics term on this blog, with no claim to any schooling in economics, but there is a useful term that can provide a non-ideological answer to your question, it’s marginal utility. Quite simply, taking 48% of everything over $120,000 means much much less to an individual than taking 30% out of $21,000. The relative ‘hardship’ is well recognised to be much less.

    Extending the argument a little further, there are strong correlations between a society’s geberal happiness/satisfaction levels and it’s degree of equality. The promotion of equality is a public good that is (or should be) one of the central roles of any government, if the only role of government is to promote the welfare/happiness of all of its citizens.

    Australia, would you believe, has had a declining gini coefficient over the past decade.

  50. Steve Munn
    February 1st, 2006 at 11:00 | #50

    Oh dear. It seems that poor old Mr Yobbo has decided to cut and run:

    “Whatever dude. Have fun in your Marxist wonderland. ”

    Oh well, I think I’ll go back to reading my Das Kapital ;)

  51. wilful
    February 1st, 2006 at 11:02 | #51

    Oh and didn’t Marx advocate the collectivisation of all workplaces and the total equality of all workers? Not somehting that I’ve heard Steve Munn advocate. Unless you’re just using overblown hyperbole, you fascist running-dog.

  52. Katz
    February 2nd, 2006 at 22:18 | #52

    For all his bluster, George W. Bush’s State of the Union Address represents a giant retreat from asserted US influence in the Middle East. In many ways, this retreat is more important than Richard Nixon’s Guam Doctrine in the wreckage of the Vietnam War.

    And Bush has exposed himself as a bigger wimp than the trademark wimp and whipping boy of the Right, Jimmy Carter.

    This is what Jimmy Carter, said in his State of the Union Address, 23 January 1980:

    The Soviet Union had just invaded Afghanistan. Carter asserted that the recent Soviet invasion of Afghanistan posed “a grave threat to the free movement of Middle East oil.”

    Thus the Middle East and the US appetite for oil were welded together. Under the Carter Doctrine the US was prepared to go to war to guarantee access to Middle Eastern oil.

    Carter stated:

    “Let our position be absolutely clear: An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”

    Bush’s invasion of Iraq and indeed, until now, his entire Middle Eastern policy was within the Carter Doctrine tradition, and perhaps even an extension of the Carter Doctrine. “The American way of life is not negotiable,” Bush proclaimed in 2001.

    But look at what Bush said in February 2006:

    “Keeping America competitive requires affordable energy. Here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world … Breakthroughs on this and other new technologies will help us reach another great goal: to replace more than 75 percent of our oil imports from the Middle East by 2025.”

    Bush has dumped the Carter Doctrine. Middle East oil is too difficult to secure.

    And suddenly the American way of life is very negotiable indeed.

  53. avaroo
    February 3rd, 2006 at 07:24 | #53

    The main difference between Jimmy Carter and GWB is that while both said that any attempt to gain control of the Persian Gulf would be considered an assault and dealt with accordingly, Carter didn’t really mean that he would take any action. GWB clearly meant that he would. Interestingly, Bush, who was never all that interested in foreign policy until 9/11, actually took the action that Carter, who was ONLY interested in foreign policy, while he ignored anything domestic, steadfastly refused to take. Even after US citizens were taken hostage in Iran.

  54. avaroo
    February 3rd, 2006 at 07:28 | #54

    “Middle East oil is too difficult to secure.”

    Tha US doesn’t actually get very much of its oil from the ME. Most of it comes from Canada and Venezuela and domestic sources. I think it’s less than 10% coming from Saudi Arabia.

  55. avaroo
    February 3rd, 2006 at 07:33 | #55

    ah, here it is…

    http://www.eia.doe.gov/neic/rankings/crudebycountry.htm

    In 2004, the US imported 10,088,000 barrels per day of which 2,400,000 came from the Persian Gulf.

  56. Katz
    February 3rd, 2006 at 07:36 | #56

    “Carter didn’t really mean that he would take any action.”

    I’m amazed at your privileged knowledge of the real motivations of President Carter.

    You can’t be channelling him because he isn’t dead yet.

    So how do you do it?

    Actually, the main difference between Carter and Bush is that Carter had some insight into the military capabilities of the United States. He knew that winning the war wasn’t sufficient. And he knew that winning the war was a guarantee of losing the bigger prize, which was the peace that followed the war.

    Oh gosh, we’re talking quagmires again.

    And isn’t it fascinating that this quote from Bush’s most recent State of the Union Address:

    “America is addicted to oil, which is often imported from unstable parts of the world”

    sidles right up next to the idea of a quagmire.

    Because you see, Avaroo, there is nothing more “unstable” than a “quagmire”.

  57. avaroo
    February 3rd, 2006 at 07:46 | #57

    “I’m amazed at your privileged knowledge of the real motivations of President Carter.”

    His motivations aren’t of much interest to me. I was talking specifically about his actions (or lack thereof)

  58. Katz
    February 3rd, 2006 at 07:49 | #58

    “In 2004, the US imported 10,088,000 barrels per day of which 2,400,000 came from the Persian Gulf.”

    So using this arithmetic, the American way of life is 24.187% negotiable.

  59. avaroo
    February 3rd, 2006 at 07:52 | #59

    I’m not sure what you mean by “negotiable”.

  60. Katz
    February 3rd, 2006 at 07:54 | #60

    “His motivations aren’t of much interest to me. I was talking specifically about his actions (or lack thereof)”

    You may have thought you were talking about Carter’s actions. In fact you were referring to his motivations. That’s what the word “mean” means.

    As for his actions, I dealt with them in the earlier reply.

    Your task, Avaroo, is to disprove the contention that Carter took the correct actions in regard to Iran. (I’ll concede in advance that Carter’s reluctant consent to the abortive raid was an act of sheer idiocy.)

  61. avaroo
    February 3rd, 2006 at 07:58 | #61

    “Interestingly, Bush, who was never all that interested in foreign policy until 9/11, actually took the action that Carter, who was ONLY interested in foreign policy, while he ignored anything domestic, steadfastly refused to take.”

    This is action, not motivation.Y

    “our task, Avaroo, is to disprove the contention that Carter took the correct actions in regard to Iran.”

    Even Carter no longer thinks he took the correct actions in regard to Iran.

  62. Katz
    February 3rd, 2006 at 08:56 | #62

    “This is action, not motivation.Y”

    No Avaroo, “bait and switch” doesn’t work.

    You have quoted yourself out of context. I’ll admit this is a novel tactic, but all the more egregious for that reason.”

    Please either try to justify your use of the word “means” as you used it, or acknowledge that you shouldn’t have used it.

    And again, to quote myself, not out of context, I believe:

    “Your task, Avaroo, is to disprove the contention that Carter took the correct actions in regard to Iran.”

    And finally, to return to the subject of my original post, isn’t the essential difference between Carter and Bush in regard to the Middle East the fact that Carter wasn’t a complete idiot, whereas Bush is?

    And on to substantive issues:

    “Even Carter no longer thinks he took the correct actions in regard to Iran.”

    Evidence?

    Which actions?

    What does he say he should have done?

    How does he explain his failure to take a more successful course of action?

    How do you test the sincerity of his later statements?

  63. Katz
    February 3rd, 2006 at 08:59 | #63

    “This is action, not motivation.Y”

    No Avaroo, “bait and switch” doesn’t work.

    You have quoted yourself out of context. I’ll admit this is a novel tactic, but all the more egregious for that reason.”

    Please either try to justify your use of the word “means” as you used it, or acknowledge that you shouldn’t have used it.

    And on to substantive issues:

    “Even Carter no longer thinks he took the correct actions in regard to Iran.”

    Evidence?

    Which actions?

    What does he say he should have done?

    How does he explain his failure to take a more successful course of action?

    How do you test the sincerity of his later statements?

    And again, to quote myself, not out of context, I believe:

    “Your task, Avaroo, is to disprove the contention that Carter took the correct actions in regard to Iran.”

    And finally, to return to the subject of my original post, isn’t the essential difference between Carter and Bush in regard to the Middle East the fact that Carter wasn’t a complete idiot, whereas Bush is?

  64. Katz
    February 3rd, 2006 at 09:15 | #64

    [Sorry about the partial double post above. I can't explain what happened.]

    Avaroo,

    “I’m not sure what you mean by “negotiableâ€?.

    I mean it in precisely the same way as it was understood by President George H. W. Bush in 1992 when he rejected the sentiments of the Earth Summit of that year. He asserted that Americans were entitled to as much oil and other non-renewables as they could consume. Let me assure you Avaroo that I have no personal moral qualms about that ambition. The secret is to construct policies that would enable the sustained achievement of that ambition.

    Bush Senior and Clinton did achieve that ambition.

    Bush Junior has failed miserably.

    You can look up Bush Senior’s quotation by Googling

    “American way of life is not negotiable”

    Interestingly, in 2001 Dick Cheney almost repeated the sentiment in his expression of Cheney/Bush administration policy on the issue.

    You can look up Cheney’s quotation by Googling

    “American way of life is non negotiable”

  65. avaroo
    February 3rd, 2006 at 09:24 | #65

    “No Avaroo, “bait and switchâ€? doesn’t work.”

    No bait and switch. This refers to action, not motivation.

    “Interestingly, Bush, who was never all that interested in foreign policy until 9/11, actually took the action that Carter, who was ONLY interested in foreign policy, while he ignored anything domestic, steadfastly refused to take.�

    “Which actions?”

    No actions, that’s the problem, Carter didn’t take any.

    “How does he explain his failure to take a more successful course of action?”

    He doesn’t.

    “And finally, to return to the subject of my original post, isn’t the essential difference between Carter and Bush in regard to the Middle East the fact that Carter wasn’t a complete idiot, whereas Bush is?”

    Not in my view. I’v already given you my view of the issue.
    The main difference between Jimmy Carter and GWB is that while both said that any attempt to gain control of the Persian Gulf would be considered an assault and dealt with accordingly, Carter didn’t really mean that he would take any action. GWB clearly meant that he would. Interestingly, Bush, who was never all that interested in foreign policy until 9/11, actually took the action that Carter, who was ONLY interested in foreign policy, while he ignored anything domestic, steadfastly refused to take. Even after US citizens were taken hostage in Iran. ”

    “He asserted that Americans were entitled to as much oil and other non-renewables as they could consume. ”

    I missed that. Could you please link to his actual quote?

    “Bush Senior and Clinton did achieve that ambition.”

    achieve what ambition?

    “American way of life is not negotiable�

    I agree.

  66. avaroo
    February 3rd, 2006 at 09:31 | #66

    Back on the subject of US oil consumption.

    This fairly well sums up my views. It’s from The American Thinker:

    “The simple truth is that our modern, industrial society would not be capable of functioning without copious amounts of inexpensive energy. Unless and until Americans eschew their fear of widespread nuclear power, the only viable source of this energy is oil.

    And despite the political instability in the Middle East and elsewhere, oil is still plentiful and cheap by any reasonable historical standards. That is why we continue to import so much of it from abroad, instead of developing additional, and more expensive, domestic energy sources.

    Finally, let’s not forget that politicians and policy analysts have been issuing dire warnings about America’s “addictionâ€? to foreign oil for at least three decades, and today we’re richer and more powerful than ever. So I think less rhetoric and more sober thinking is required before we start throwing even more taxpayer money at “alternativesâ€? to oil, such as solar, wind, hydrogen, etc. etc. etc.”

  67. Katz
    February 3rd, 2006 at 09:37 | #67

    Avaroo,

    Here’s a helpful article on denial:

    http://en.wikipedia.org/wiki/Denial

  68. avaroo
    February 3rd, 2006 at 09:52 | #68

    Try to stay on topic, if you’d like to talk. I’m not really interested in extraneous links that have nothing to do with what we were talking about.

  69. Stephen L
    February 3rd, 2006 at 16:31 | #69

    Getting back to earlier discussions – I see quite a few people here and other places I regularly read arguing for getting rid of tax deductions and in turn lowering the tax rate.

    I certainly think there are some tax deductions that should go, and others that might be of doubtful usefulness, but are people really serious about getting rid of *all* deductions.

    There are only two tax deductions I make much use of. Firstly I claim for charitable donations. Secondly I claim for work expenses for those aspects of my income where I am self employed.

    Getting rid of the 2nd would make no real difference – I’d just register as a business and claim these as expenses against profit.

    Getting rid of the first would mean a lot less money flowing to charity. Now naturally some of the people advocating these positions would not be worried if my donations to Friends of the Earth, for example, dried up. Some wouldn’t even care if Oxfam had to make do with far lower incomes. However, much of what charities do is necessary to a functioning society – less money to medical research, homeless shelters etc would either lead to much heavier costs down the road, or to the government being forced to step in and make up the difference.

    Are those advocating the 30/30 proposal, or some variation of this really keen to make charitable donations non-tax deductible? If not, are there other deductions they think should remain?

  70. Katz
    February 3rd, 2006 at 16:58 | #70

    Avaroo, I’ll give you the benefit of the doubt and interpret your elisions as deliberate disingenuousness rather than involuntary incapacity to follow a line of argument.

    Whatever the cause, at present a conversation with you is a dialogue with the deaf and therefore a waste of time.

    I’ll be interested to monitor your progress in conversations you may have in future on this blog with others. I may reopen communication with you when I detect an improvement either in your sincerity or in comprehension.

  71. February 3rd, 2006 at 18:54 | #71

    Stephen: As far as I know the 30/30 system aims to remove ALL deductions, in the name of simplicity. I doubt charitable donations would be affected that much – just about everyone would have more money left over after tax to give to charity if they so wished, especially the rich (who are the biggest givers).

    And there is a strong argument that organisations like Oxfam and The WWF and the like are not only charities but also political lobby groups, and as such they shouldn’t qualify for tax-exempt status anyway.

  72. Steve Munn
    February 3rd, 2006 at 19:49 | #72

    Comrade Yobbo says: “And there is a strong argument that organisations like Oxfam and The WWF and the like are not only charities but also political lobby groups, and as such they shouldn’t qualify for tax-exempt status anyway. ”

    I would suggest that there is a far stronger argument that right wing “stink tanks” like CIS and IPA, which refuse to declare who pays the piper, should lose their tax breaks and deductability of contributions.

  73. Stephen
    February 5th, 2006 at 21:33 | #73

    Oxfam Australia spends about 6% of its income on lobbying, with the rest (other than a fairly low level on administration) goes to feeding the starving, preventing AIDS/Malaria etc. The idea that they should lose their tax exempt status over a tiny portion like that is obscene (can’t speak for the WWF).

    A lot of people would give less money if donations were not tax deductible, and this would apply particularly in the sort of cases where people buy a new wing for a hospital or fund a research lab to cure some disease.

    I’m also not sure how “just about everyone would have more money left over after tax to give to charity if they so wished, especially the rich”. There might be some boost to the economy with a more efficient system better incentives etc but ultimately there have to be some winners and losers in such a change you can’t have “just about everyone having more money” once you allow for paying for all the things that were previously rebated, subsidised etc.

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