I’ve been working through the Budget and trying to look at developments since the present government came to office. As shown in previous posts, the income tax scale has become significantly less progressive over this period, so, for single taxpayers we can safely conclude that the poor are paying more and the rich are paying less.
The picture is much more complex for families. It’s clear that the value of Family Tax Benefits has increased significantly in real terms, and the rate of clawback has been lowered from 50 cents in the dollar to 20 cents in most cases. This reduces effective marginal rates of taxation in the relevant ranges, and is definitely a good thing.
But it’s obviously a huge job to work out the aggregate impact, and there are so many variations of family size and income structure that it’s easy to pick and choose (consciously or otherwise) a misleading example. Can anyone point me to some good work on this topic?
John Quiggin 
John, NATSEM does good work on this. The problem, as you say, is that there are so many variations on payments for families, depending on whether they are single income or dual income, what the family income is, what the individual inomes are, and how many children there are in the family, that it is really hard to get any sort of representative picture.
Then there is rent assistance and other non-family based welfare payments. It’s all very complicated.
The NATSEM data is being used to support the claim that some household types pay no net tax.
My summer Policy paper – you posted on it in February/March – contains references to NATSEM and ABS research. Probably dated for what you want to do.
Or, alternatively, you could actually do what you’re paid to do and go and conduct some research!
“its all soo complicated, can anyone help me?”
Is that what the taxpayer gets for the considerable sum spent on your salary?
“so, for single taxpayers we can safely conclude that the poor are paying more and the rich are paying less”
Only in the very narrow sense that tax paid as a percentage of earnings has gone up marginally (1.5% from your table) for someone on 0.6 times AWOTE. Tax paid for those on 1 times AWOTE has actually gone down – are they rich?
And those on 2 x AWOTE still pay nearly twice the percentage of their salary in tax as those on 0.6 times.
And at the top end we’re still hit with confiscation of 48.5%. But as an academic who has spent his whole life feeding from the public tit, I don’t imagine you can even comprehend what a negative effect high tax has on incentive.
In fact, you really should declare a vested interest here: after all, if all us poor suckers stop paying our huge tax bills there’ll be less money for the government to waste on mediocre academics.
“you could actually do what you’re paid to do and go and conduct some research!”
Thanks for this helpful suggestion, anon. I’ve decided to follow it, as you can see here and here
Here a a couple for you:
A NATSEM report on low income families (my blurb here)
A paper by Peter Saunders (my blurb here)
And another one from Patricia Apps, she has bucket loads of papers on tax distribution.
“But as an academic who has spent his whole life feeding from the public tit, I don’t imagine you can even comprehend what a negative effect high tax has on incentive.”
Sinclair, did you see what anon has said about you? It’s a disgrace ! Come on, respond!
“Thanks for this helpful suggestion, anon. I’ve decided to follow it, as you can see here and here”
Good point, let’s take this one: ‘Jointly radial and translation homothetic preferences: generalized constant risk aversion’
Sounds _very_ impressive. But if you pierce the terminological fog, it is really very simple stuff that any talented undergrad math major could do. Of course, it takes a lot more than an undergrad degree to learn how to disguise simple mathematics as something much more important.
That’s why I have to pay a 48.5c marginal tax rate: so we can train more mediocre mathematicians as economists.
Attacking someone’s credibility without having any yourself is not very credible.
I’m impressed, anon, perhaps you could whip up a demonstration of how easy it is to replicate this stuff.
I agree anon, John should take everything back to first principles and prove everything from scratch. He should go door knocking around Australia doing surveys. In fact children should be taught everything that way, that’ll keep them off the unemployment figures till their 85, starting with proving there is no integer between 0 and 1 and moving to learning calculus the hard Newtonian way instead of this poncy nxn-1 poop. All existing research should be burned as it fosters laziness.
Did you build your computer yourself anon or did someone else. Bludger. To think my taxpayers money goes to defending people like you. I want a refund.
Although these catty outbursts are entertaining, personal attacks do not help us to have constructive debate.
Society needs educators and academics and John needs to be commended for his contribution. I would also like to thank him for the excellent job he does running and maintaining his blog. I might not agree with the general philosophy here but I find it educational and informative.
Anon you have raised some valid points that might of been lost in the rhetoric so I will regurgitate them.
those on 1 times AWOTE – are they rich?
at the top end we’re still hit with confiscation of 48.5%.
if all us poor suckers stop paying our huge tax bills there’ll be less money for the government to waste.
To respond to the substantive point, Econowit, as I noted in the post, you can’t look at income tax in isolation. Most other taxes are regressive in the technical sense that low-income earners pay a higher proportion of their income in tax than high income earners. Except for the bottom quintile and those in the top quintile with no access to tax minimisation techniques, the system as a whole is roughly proportional.
‘the system as a whole is roughly proportional.’
This is the equivalent to creation science – great comment, but no evidence. You keep saying this John, but not even NATSEM can provide evidence to sustain this claim. Econowit could read these for some clarification:
Click to access pm63.pdf
http://www.cis.org.au/policy/summer04-05/polsumm0405-5.htm
BTW, I think you weaseled out of the bracket creep question.
I don’t know what you mean by “not even NATSEM” – are you suggesting that their analysis is rigged in some way?
My analysis of proportionality is here. As I recall, you’ve never answered the points made there, Sinclair, particularly as regards tax avoidance.
On bracket creep, I think that you’re in the wrong thread, and that another commenter answered the question that was raised.
No, not rigged. But I’m sure they’ve tried very hard to find otherwise.
Tax avoidance is a furphy – you say it’s big, I say small. Looking at ATO data, the ratio of taxable to total income for high income earners is about 95% so avoidance makes up 5% of high earners income. for low income earners that ratio falls to about 86% (the difference is welfare). Fine, so the % difference in avoidance is less than the % boost from welfare. I think its a bit hard to say avoidance is a big issue. In any event, if the government wanted they could easily change the law to reduce avoidance.
I’ve seen your argument for proportionality – ultimately you quote NATSEM. In my policy piece I closely evaluate that study and find no such thing – the only regressive component of the Australian tax system are the sin taxes (alcohol and tobacco).
Sinclair, can you give a source for your ATO data? In particular, how do you get a total income measure when income is channelled through trusts and companies so that the actual income earner never declares it?
The web page doesn’t show me the graph you are relying on for your claim that “based on an analysis such as this one could almost claim that the only regressive component of the Australian tax system is the ‘sin’ taxes.”
I notice you’ve dropped the “almost” in the comment above – have you revised
Tables 9 and 12 (mostly 12) from the 2003 ATO tax data. The sin tax stuff is from the NATSEM study (the one you first quoted in the Fed, fun II post.) Unfortunately that is the last full study that I can find. Later studies are based on a sample of taxes, excluding sin taxes.
No, I’m not revising – I’m typing from memory.
It’s not mediocre mathematicians who become economists, it’s mathematicians who have “died” by losing a taste for the abstract as one mathematician once described us (Erdos? one of the Hungarians, anyway). As mathematicians, they (we) were often very good, like Ramsay (seminal in graph theory before his early death). And don’t forget, some of the best economists came from yet other disciplines like moral philosophy (Smith) or poetry (Pigou).
When you put out comments like these JQ:
“you can’t look at income tax in isolation” and
” But it’s obviously a huge job to work out the aggregate impact, and there are so many variations”
You make it hard for me to disregard Sinclair’s assertion that effective marginal rates are a smoke screen created to hide what is really going on.
His quote:
“Geoffrey de Q. Walker argues that the ‘revenue lobby’ (comprising the ATO, the Treasury and their allies in politics, academia, the media and the welfare industry) have hijacked public debate by creating false impressions and perpetuating a campaign of vilification and obfuscation”.
is given a fair bit of validation by your comments.
JQ you are either a part of the revenue lobby or a victim of it.
The use of tax scales is regressive (because of inflation).
Allan Moss’s $ 18 million is only taxed at 49% now as opposed to the rate a few years ago of 67%.
The effective tax rate of average earnings has gone from 17% to 22% over the last 15 years.
The tax free threshold has not been adjusted properly for decades so people on really low incomes are being taxed when before they were not.
These are facts, poor people are being taxed more and rich people less, regardless of proportions this is regressive. So all taxes are “technically” regressive.
You further endorse the argument against (progressive?) tax scales with your comment (posted in The Budget):
“The tax cut required to compensate for bracket creep is not large (maybe $500 per year at $40 000 per year). It’s just that the government has chosen to give a cut that’s too small to do the job”.
It impossible to properly adjust for bracket creep and it is so easy for the revenue lobby to increase taxation by stealth using them. The government always chooses “to give a cut that’s too small to do the job”.
JQ. You should be endorsing the abolition of these regressive tax scales.
Please don’t tell me it is made up on the welfare side of the equation. (As Sinclair say’s) It is economic lunacy to have the government take a dollar off anyone let alone someone living below the poverty line, then chew up 50c of it and hand back what’s left.
You as a political scientist should know that transparency and consistency are prerequisites for good government.
Transparency and consistency is non existent in the “Tax Act”. To obtain them most of the Act should be re written- ASAP.
By any measure regressive tax scales are ambiguous and should be abolished- ASAP.