A Labor tax policy I can get behind …

… Just joking, this is the Greens

A reduction in the inequities in the current tax and transfer system, including but not limited to:

  1. reform of the taxation of trusts, in order to reduce complexity and minimise tax avoidance;
  2. removing subsidies for the extraction and consumption of fossil fuels;
  3. redirecting funding from subsidising private health insurance towards direct public provision;
  4. reforms to the taxation of superannuation to benefit lower income earners;
  5. strengthening the progressivity of the income tax and transfer system across all income levels including by reducing effective marginal tax rates for low-income workers, and increasing the marginal tax rates on high-income earners; 
  6. the implementation of a tax on dynastic wealth, targeted at those bequeathing or gifting large amounts;
  7. the removal of tax exemptions for religious organisations that are not enjoyed by other charities and not-for-profit organisations;
  8. securing the tax and transfer system against manipulation and evasion, to ensure that everyone pays their fair share;
  9. a preference for taxation of income derived from capital instead of income derived from labour;
  10. the implementation of a progressive wealth tax on large concentrations of wealth, including anti-avoidance measures; and
  11. the implementation of a tax on company super-profits.

I’m not endorsing this point by point. Just saying that this looks like the kind of tax policy a serious social democratic party would come up with, and very unlike anything we can expect from the current Labor party

36 thoughts on “A Labor tax policy I can get behind …

  1. It would be nice to see specifics, such as what the proposed marginal rates are going to be, but it is a good overall plan.

  2. I will vote for Greens or Socialists if I can in my electorate. Won’t make any difference. Neoliberal capitalists will win. They will keep destroying Australia. Major nations will keep destroying the world. Climate change will continue. Civilization will collapse. Whatever. We all know how this story ends now.

  3. The problem with such tax proposals politically is that they ways seemed aimed at increasing taxes for others but not for the authors or their supporters.
    Any proponent of tax changes should show how they themselves would be affected.
    We also seem to forget the proper lessons of public choice economics.

  4. The problem with such tax proposals politically is that they ways seemed aimed at increasing taxes for others but not for the authors or their supporters.

    On what do you base that conclusion? I support that kind of proposal although it would be likely to increase my taxes; how can you have any idea how many people there are like me? I bet you know nothing at all about the tax affairs of the people making these particular proposals.

    Any proponent of tax changes should show how they themselves would be affected.

    I don’t remember John Howard or Peter Costello doing that for the GST.

  5. @Andrew, Without knowing the exact details of his financial arrangements I think it’s pretty reasonable to assume that John would be left personally worse off financially by the changes proposed here.

  6. Most of these policy suggestions reflect ideology not careful thinking about taxes.

    on 2. Most of the claimed (the Australia Institute ideology) subsidies on “fossil fuels” relate to exemptions from taxes for productive use of fuels as an intermediate input. But these are not subsidies but just standard Diamond-Mirrlees results on optimal commodity taxation. Tax end uses not productive users of energy. R&D typically gets subsidies.

    on 3. Direct provision rather than subsidising health insurance would increase the cost burden on poor users of the health system. Keeping wealthy users in the system by offering less than 100% subsidies gets the wealthy to pay part of their health costs. Your suggestion means all draw on the public purse. (Ditto for private schools).

    on 8. Pure motherhood statement. Everyone wants this. The question: How?

    on 9. Most economists favour the reverse. As income is already taxed the savings that is left over after taxes should be subject to lower not higher taxes as income. There is a case for exempting savings from taxes. Tax consumption.

    on 10. Taxing wealth is dumb. Mankiw gets it right by comparing Mr Frugal (who saves almost everything) and Mr Spendthrift (who consumes his wealth with an extravagant lifestyle). Mr. Frugal invests most of what he earns and raises the wages of workers through capital investments. Mr Spendthrift invests little because he consumes his wealth. Under your proposal Mr Spendthrift will be let off lightly while Mr Thrifty cops it in the neck hard. Better to tax consumption rather than wealth. Having big wealth holdings is innocuous if you are not a big spender.

    on 11. Taxing super profits. Won’t yield much. Better to ban sales of miners and key assets to foreigners. They will pay more (and get them in a bidding contest) because they know they can transfer price the profits away.

    No they are not Labor policies and certainly not LNP policies. Take a bow Greens! The Greens make the major parties look good.

  7. “Any proponent of tax changes should show how they themselves would be affected.”

    There’s only one item on the list that would have any effect on me, namely increasing the progressivity of the tax system. I would pay more tax as a result.

  8. Mr. Frugal invests most of what he earns and raises the wages of workers …

    No, Mr Frugal invests most of what he earns and then lays off workers to impress the financial markets. He doesn’t raise wages. That never impresses the financial markets.

  9. Harry Clarke says:at 5:29 pm
    “Most of these policy suggestions reflect ideology not careful thinking about taxes.”

    That is probably the most adhom adhom on this site. Ever. Care to detail that statement Harry.

    Harry Clarke you made some points (ideological or “careful thinking”) on 2, 3, 8, 9, 10, 11.

    We would live to hear you on 1, 4, 5, 6, 7 please. Seems fair as you left out 5 of the 11 points. Perhaps one is to your liking?

    What does The Economist, FT & FinRev have to say about all these points please?

    And Harry, how much will these proposals effect your tax & trusts positions please.

  10. KT, On 1. and 4. I don’t know the constraints on reform. There are a host of reasons for trusts. I am unclear that if taxes on income are progressive you would then want to tax superannuation progressively. I agree on 5. – the professivity of the income tax system can be increased without significant adverse incentive effects. On 6. I can nearly agree – there are problems with farming properties etc and with 7. i agree.

    I don’t think tax policy is something that only reflects political judgements. Most of these issues have been argued about in the economics literature for eternity. There are good and bad ways of realizing redistributional objectives. The Greens are an unthinking “soak the rich” grouping.

  11. The last time the rich were soaked was the Keynesian Golden Era. The title of the era gives you a reminder of how successful it was. Soaking the rich, so long as they exist, is a necessary (though not sufficient) condition for a more just, equitable and sustainable society. Capital is power. While capital is concentrated in the hands of a few, those few have almost all the power. The super rich currently have the power. They buy the politicians and the outcomes. Are they governing well? Are they helping the poor and saving the planet? No! They are increasing poverty and destroying the climate and planet. The evidence is clear. This kind of system (capitalism) destroys societies and destroys the planet. Persist with this system at your peril.

  12. what would happen if the liquidity locked up in all the tax havens was used for amelioration and remediation of the ravaged natural ecological systems that sustain us all?

    would everything grind to a screeching halt?

    or given that the funds are stationary, that is not actually flowing through the system, would there be a boost of economic activity the like of which has never been seen?

  13. Harry said “The Greens are an unthinking “soak the rich” grouping.”

    Harry can you tell us which specific points are to soak the rich? Like Denmark? Or Matians – they’re green aren’t they?

    I dont mind a soaking in the shower. But as May points out there seems to be a lot of (il)liiquid somewhere.

    If that is all you see in those points above “The Greens are an unthinking “soak the rich” grouping.”, you aren’t doing your grandkids a favour. Thanks.

  14. I favour redistributions from wealthy to poor with a specific targeting of poverty. The argument is simply that I believe the marginal utility of income declines with higher incomes. To realise that objective it is not enough to say, as Robin Hood might, take money from the rich and give it to the poor. First there is the way you go about this. You do not wish to inhibit the entrepreneurship that has given us a prosperous society where we can sit around and pontificate on the welfare of the poor. You don’t want to employ indiscriminate wealth taxes that are likely to be ineffective and misdirected – you don’t want to tax the Mr Frugal’s (e.g. Warren Buffett) who spends little but whose investments support thousands of jobs.

    Envy is a powerful motivating force but it’s a lousy guide to policy. Particularly when used by self-interested politicians to advance their power objectives.

    You don’t want to provide free education, healthcare and childcare to people who can contribute to these costs themselves. You do want to levy commodity taxes (e.g. the fuel excise) properly without creating distortions.

    It is true that the disincentive effects of higher income taxes have been exaggerated and we can live well with a much more progressive income tax system. Taxing consumption captures the Mr Spendthrifts such as James Packer.

    It’s not enough to don your Superhero mask and say you want to help the poor to validate your social worthiness credentials. Generally you do want to use economic theory to tell you how to realise your explicit redistributional taxes so as to be effective.

    I am interested in how ideological the responses to my claims are.

  15. Harry,

    1. “I favor redistribution from wealthy to poor with a specific targeting of poverty.” I agree, and we can kill two birds with one stone. All wealth taken from those who are super rich can be used to re-assign real resources to target poverty. One does not have to be pure in motive to do good work in reality. Indeed, stripping the rich of undeserved wealth is the spice on the dish of giving to and helping the poor, since the rest of that project is hard work for everyone.

    2. “You do not wish to inhibit the entrepreneurship that has given us a prosperous society.” It is a fallacy that entrepreneurship has given us a prosperous society. Actually, human inventiveness, hard work and cooperation have given us a prosperous society. “Entrepreneurship”, so-called, is really about using wealth-power, copyright, patents, lobbying, business privileges, monopolies, rents and so on to strip money off other people. Capitalist business is theft.

    3. “I believe the marginal utility of income declines with higher incomes.” This places in plain sight that this is just a belief of yours. You provide no evidence or reasoning. It is is simply an assumption plucked from conventional economics. You believe in conventional economics which is largely a prescriptive system backed by its own origin stories and self-justifying myths. But I will get back to that in another post maybe.

    Billionaires do not believe as you believe. Billionaires do not believe that “marginal utility of income declines with higher incomes”. Why would billionaires keep amassing further billions if they did not believe, from their own experience, that the marginal utility of income increases in an endless and open-ended fashions with higher incomes? They clearly do believe this and this underlies their pursuit of endlessly greater wealth.

    The value of wealth does not end with the purchase of consumer objects where it might be thought that the marginal utility of income declines. It continues in to the ever greater acquisition of power. And even in the purchase of consumer objects marginal utility covers a huge span. I could purchase a “tinnie” with a small outboard motor if I wished. A multi-billionaire can purchase a $5 billion super yacht, though most still come in at $0.5 billion to $1 billion. Clearly, the billionaires still feel they are gaining marginal utility from these purchases. Billionaires also run vanity projects from donating to the New York Met to creating space travel vehicles for themselves, all to obtain nothing more than social cachet, in their own minds at least. Satisfaction of vanity has no upper marginal limit, apparently.

    But the true issue lies with the acquisition of power. There is no theoretical upper limit to relative power differentials and possession of financial capital is a direct measure and instantiation of power differences between humans in this system. See “Capital as Power”. Power allows one to perform useful work against resistance. This is true in physics and it is true in political economy. The coin of power in our political economy (capitalism) is financial capital itself. Permitting large wealth differences permits large power differences.

  16. Hmm, not for profit don’t pay tax and tax avoidance is the raison d’etre of trusts.

    But the removal of subsidies for the ‘extraction and consumption of fossil fuel’ is a beauty, all those deals to defer royalties can be torn up, plus a shipload of other sweeteners.

    I wish.

  17. … First there is the way you go about this.

    Agreed so far …

    You do not wish to inhibit the entrepreneurship that has given us a prosperous society where we can sit around and pontificate on the welfare of the poor.

    The prosperity of our society cannot be explained solely by entrepreneurship; it results from many things; but in any case, what is it that you think would inhibit entrepreneurship, and what makes you think it would have that effect?

    You don’t want to employ indiscriminate wealth taxes that are likely to be ineffective and misdirected – you don’t want to tax the Mr Frugal’s (e.g. Warren Buffett) who spends little but whose investments support thousands of jobs.

    Why not? Warren Buffett is taxed now; what’s the basis for estimating the results that would follow from taxing him somewhat more?

    Envy is a powerful motivating force but it’s a lousy guide to policy.

    This observation is of no relevance unless it be established that the policies you are criticising are motivated by envy. So far it hasn’t been.

    You don’t want to provide free education, healthcare and childcare to people who can contribute to these costs themselves.

    Whatever the merits of this position, it’s irrelevant to the present discussion because these things you mention now are no part of the proposals under discussion.

    It is true that the disincentive effects of higher income taxes have been exaggerated and we can live well with a much more progressive income tax system.

    On this, again, I won’t argue with you.

    Generally you do want to use economic theory to tell you how to realise your explicit redistributional taxes so as to be effective.

    Then why don’t you do so?

    I am interested in how ideological the responses to my claims are.

    I don’t think you are. I think that statement is a rhetorical signal that you are prepared in advance for an automatic rejection of any failure to agree with your claims as ideologically motivated.

  18. Setting aside finer points regarding details, the Greens’ proposal is, IMHO, consistent with addressing the crucial issues in contemporary economies in ‘ the West’:
    1. The policy is directed at reducing the income and wealth concentration
    2. Reducing environmental degradation (income and wealth concentration is a major impediment to implementing say ghg emission reduction policies)
    3. Reducing financial system risk (income and wealth concentration poses a risk to the financial system in the housing market in Australia; reducing this risk facilitates increases in the RBA discount rate, which is called for).

    [Harry, the theoretical result you mentioned about intermediate inputs is, like many if not most theoretical results is conditional.)

  19. “ Mr. Frugal invests most of what he earns and raises the wages of workers through capital investments”

    Ha ha

    All the evidence points to Mr Frugal offshoring the labour component thereby reducing or eliminating wages of workers. Hasn’t this been the critical political issue in the US?

    Economies thrive on participation, they need Mr Spenthrift to be an active consumer.

  20. Harry, I appreciate your redistribitive & progressive positions. I assume you wouldn’t be here otherwise. I am glad JQ’s blog isn’t an echo chamber. Most of my close circle have similar  positions – redistribute but let humans be free to be entrepreneurs etc. My father for instance.

    Harry said; “you don’t want to tax the Mr Frugal’s (e.g. Warren Buffett) who spends little but whose investments support thousands of jobs.”
    And; “Taxing consumption captures the Mr Spendthrifts such as James Packer.”

    Harry, both statements above are true when the speakers’ idealogical blinders are set to “relative to [insert ideology here].
    *

    It is a category error. Die rich and those enentitled to dynastic wealth transfer are nwaiting “gaping as wide as young swallows that scream for their mother’s return”  – the greedy will be waiting, yet die poor and the cats fight over eating your corpse.

    “In Lucian of Samosata’s satirical dialogue Timon, Ploutus, the very embodiment of worldly goods written up in a parchment will, says to Hermes:
         “it is not Zeus who sends me, but Hades, who has his own ways of conferring wealth and making presents; Hades and Plutus are not unconnected, you see. When I am to flit from one house to another, they lay me on parchment, seal me up carefully, make a parcel of me and take me round. The dead man lies in some dark corner, shrouded from the knees upward in an old sheet, with the cats fighting for possession of him, while those who have expectations wait for me in the public place, gaping as wide as young swallows that scream for their mother’s return.

    “In Canto VII of Dante’s Inferno, Plutus is a demon of wealth who guards the fourth circle of Hell, “The Hoarders and the Wasters”. Dante likely included Plutus to symbolize the evil of hoarding wealth. ….”
    https://en.wikipedia.org/wiki/Plutus
    *

    Warren & Jeff & Elon & James (before fall ) all are in a different category to just about everyone else.

    But they spend dollars. Me too. The founder of Citibank likened money to Pb lead – it may be made into waterproofing, or if you have enough you may make it into a ballistic projectile and destroy any target.

    A category error. 

    All my assets still not be able to borrow or invest billion. But it is money isn’t it? Billionaires use ‘money’ and so do I, yet there is a material difference between their capital potential and mine.

    So what ‘we’ see is YOUR ideological lens, not ours.

    Harry said “you don’t want to tax the Mr Frugal’s (e.g. Warren Buffett) who spends little but whose investments support thousands of jobs.”

    That statement is about YOUR view of INCENTIVES Harry, imo.

    Warren Buffet asked why don’t you tax me more. And states;
    “I have worked with investors for 60 years and I have yet to see anyone – not even when capital gains rates were 39.9 percent in 1976-77 – shy away from a sensible investment because of the tax rate on the potential gain.”
    Warren Buffett

    If tomorrow any entity – a human, government, investor – swappped “Berkshire Hathaway” name on an investment fund to “humanKT2 /GovtDeptX /InvestorY” so I had complete control of a Berkshire Hathaway fund, would those employees be better or worse off? Sacked, supported or replaced by AI & robots? Depends, doesn’t it. 

    “It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation or pays no income tax during years of 5 percent inflation. Either way, she is ‘taxed’ in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 100 percent income tax but doesn’t seem to notice that 5 percent inflation is the economic equivalent.”
    Warren Buffett

    And there is the biggest bezzle in history. 

    Oops, INCENTIVE if you are in a high wealth CATEGORY. 
    https://www.azquotes.com/author/2136-Warren_Buffett/tag/taxes
    *

    Harry, last but by no means least, you say “It’s not enough to don your Superhero mask and say you want to help the poor to validate your social worthiness credentials.”

    Absolute ad hom. Again Harry, it is your idealogy on display. Smelt it, dealt it as the kids say.

    I sincerely appreciate yours and others comments as I learn as much about myself as I do about – what is the topic again? Oh, some “tax policy”

    And +1 Harry for your statement “Generally you do want to use economic theory to tell you how to realise your explicit redistributional taxes so as to be effective.”, yet by my reading that statement undermines most of the rest of your comment.
    *

    J-D says at 7:50 pm
    HC: “I am interested in how ideological the responses to my claims are.”

    J-D: “I don’t think you are. I think that statement is a rhetorical signal that you are prepared in advance for an automatic rejection of any failure to agree with your claims as ideologically motivated.”
    +1
    *

    Ikonoclast at 9:52 am
    “Satisfaction of vanity has no upper marginal limit, apparently.

    “But the true issue lies with the acquisition of power. There is no theoretical upper limit to relative power differentials and possession of financial capital is a direct measure and instantiation of power differences between humans in this system.”

    +1. See Citibank founder example.
    *

    akarog at 2:25 am
    HC: “ Mr. Frugal invests most of what he earns and raises the wages of workers through capital investments”
    akarog: “Ha ha”
    +1

    Again indicating ideology or at best Economics in One Lesson.

    Thanks.

  21. KT2, OK this was a bit flippant and unfair:

    “It’s not enough to don your Superhero mask and say you want to help the poor to validate your social worthiness credentials.”

    I was trying to emphasise the “means” of achieving redistributions rather than the “ends” on which there is widespread agreement. I remember reading the Blum and Kalven book on progressive taxation. They spent a lot of time discussing value judgements about progressivity but ended up looking at tax policy in an entirely value free way. They looked at how effectively tax policy reached given objectives. I have always liked this approach and tried to apply it as an economist. Give me your objective and I will try to assess how well the policies you propose will achieve it.

    Of course while raising this idea I had a confusing side dig at the leftie Superheroes who spend their lives identifying injustices and provide government-based solutions to these injustices. Spending your life mainly worrying about injustices tends to make you blind to the enormous advantages in living in a decent Western democracy. High living standards, considerable freedoms and particularly the freedom to do well if you work hard. Targeting only the minority who lose out by relying on well-intentioned politicians and social reformers means you lose perspective on the benefits all of us get from not having oppressive government-cum-bureaucrat restrictions on economic freedom. It can also mean that trying to reach the nirvana where no-one loses out probably want work and, worse still might make most of us worse off. Government failure as real a problem as market failure.

    So I do support redistribution but wealth taxes seem a poor way of achieving this as does a health policy that provides health care to all for free. (Contrary to what J-D says this was one of John’s arguments). You do want savings because savings can be channelled into investments which employs people and provides wages. Hence I am opposed to punitive taxes on savings and prefer to tax consumption.

  22. Harry Clarke,

    No theory or facts from you, just opinions. “Wealth taxes seem a poor way of achieving this as does a health policy that provides health care to all for free.”

    I can offer a contrary opinion. “Wealth taxes seem a good initial way of achieving equality as does free health care for all.”

    No theory or facts from either of us so far on this point, just opinions. I would back my opinion by facts now. In the developed world, the USA is what your prescriptions lead to. Highest death rate in the world from COVID-19. Life expectancy going backwards. Rampant inequality, racism and oppression at home and abroad. This is the mess your prescriptions of “let the inequality increase” lead to. Scandinavia is what more equal policies lead to; a generally higher quality of life from a more socialist and equalitarian stance.

    Capitalism is destroying the planet, its natural life and humans. Why do you think everything is now collapsing and getting worse? Rampant market fundamentalist capitalism which is behind it all. You don’t believe it’s collapsing? Wait and see. This is the rapid terminal decline of capitalism and probably civilization itself since capitalism has destroyed every free gift of nature. Not shared, not nurtured, just destroyed. Oh but I guess you deny climate change is real.

  23. Harry. Thanks.

    “I had a confusing side dig” … as did I toward you for such a dig in such a way. It seemed the only way to draw out a detailed and worthy comment. As you have delivered. Ikonoclast may disagree and need not say “Oh but I guess you deny climate change is real.” yet the angst Ikon shows is real and increasing. So I view economics as a tool for humans to use. Not to be ‘the’ fix for everything. As you will see below I see injustice everywhere and find economics a crucial part of solutions.

    Harry as you and I know, you are able to detail economics an order of magnitude higher than me, so any flippancy shown to a specific group who, even though they to you are “Spending your life mainly worrying about injustices tends to make you blind to the enormous advantages in living in a decent Western democracy”, is what they are able to do and flippancy toward them seems unfair to me. And provides ammo for those who would seek to sideline them. That to me is why we end up with groups such as Extinction Rebellion.

    I was going to ask you to you justify “blind to the enormous advantages in living in a decent Western democracy” but I think we will leave that unless you want to go to the sandpit.

    Do you know of every injustice instantly on the planet? No. Are you able to fix it?

    Judging by the OP, you, me and all those injustice finders are not having much of an injustice busting effect, as Ikonoclast decries. I seek out economic fixes AND those who “try to assess how well the policies you propose will achieve it.” AND thise who may drive implementation. Greta Thunburg may not know of vertical equity, but sure as the sun rises,  she will galvinise more change than all of us here. Economists or not.

    I don’t see many injustices being fixed directly by economists. Please tell me I am wrong.

    I thought there would be more than “degree-holders worldwide will reach 300 million by 2030” (fn1). I couldn’t find a count for economists, maybe 10% are economists. So 1 economist per 233 humans. If economists are to have the effects you detail, 232 humans are not thinking about nor able, as you may be able to do, detail an economic fix for say AGW. what about implementation? 

    How many economists do you believe have the knowledge, intelligence and worldview to work on such a problem? How many groups, governments and legal eagles will block economic solutions?

    I have seen and been involved with some of the biggest poly brains  [degrees – math, engineering, economic, warfare, policy, weaponery etc] struggle with the F1-11 fleet. And toll roads. After economists, process engineers, DoD here and in the US failed, they cracked the back of a scheduling problem using system dynamics methods. And won a Prime Ministers Prize for it. Economists 0,  preparedness for war 1. Even I was able to realise that economics was entirely removed from the equation. ‘We need x to be prepared for war / protection y, so allocate this much $’s.’ No keynesians or laissez-faire (fn2) in sight. Just fear, power and a pot of fiat money.

    So to me, your aptitude and attitude “Give me your objective and I will try to assess how well the policies you propose will achieve it” is an after the fact fix. Great. But if no economist is able to install a policy before instead of after [ insert fancy latin instead of before and after] and if no injustce identified by said economists, we are in for bezzles forever and many yelling injustice without the power or knowledge to provide solutions and implement . We play whack a mole forever.

    You and I need those other 232 humans to get onboard wiith your proposals ahead of the injustices and objectives.
    *

    Any chance you might respond to Ernestine’s note? “[Harry, the theoretical result you mentioned about intermediate inputs is, like many if not most theoretical results is conditional.)”
    *

    fn1.
    “OECD: Number of degree-holders worldwide will reach 300 million by 2030”
    https://monitor.icef.com/2019/07/oecd-number-of-degree-holders-worldwide-will-reach-300-million-by-2030/

    fn2
    Anything laissez-faire or friedman-esque. Blind capital supporting power.
    *

    fn3. – I suffer from type 1 and type 2 Tsundoku – “Tsundoku (Japanese: 積ん読) is acquiring reading materials but letting them pile up in one’s home without reading them.[1][2][3][4] It is also used to refer to books ready for reading later when they are on a bookshelf.”. Wikipedia. This blog has subsumed itself into my tsundoku.

    I am reminded everyday how niave and ignorant I am. So I appreciate your reference Harry. The paper below which JQ has referenced,  as I have no access to Journals, I have to read as a screen shot. My brain is not slow but my research is.

    After reading up on “Blum and Kalven book on progressive taxation” I see the concept of “vertical equity” which I am unable to describe instantly to myself. It takes me sometimes an hour just to be able to understand jargon and references here. And most of the concepts and jargon need a JQ to turn them into, for me, a readily accessible reading. 

    “The terms “horizontal equity” and “vertical equity” are used in the context of social policy rather than finance.  Horizontal equity refers to the idea that people in the same circumstances should be treated in the same way. Vertical equity refers to the idea that people on higher incomes should take on a greater share of the responsibility for paying for public services.” 
    https://gocardless.com/en-au/guides/posts/horizontal-equity-vs-vertical-equity/

    “The Uneasy Case for Progressive Taxation

    “In 1953, Walter J. Blum and Harry Kalven Jr. published The Uneasy Case for Progressive Taxation, a short but influential essay on the politics and theory of vertical equity. Their work contributed to a vigorous debate over federal taxation that had been growing in the wake of World War II. A new Republican president was making the case for broad tax cuts, and a proposal to constitutionally cap income tax rates at 25 percent had attracted considerable support among both voters and elected officials.

    “Despite the clamor for tax cuts, a broad though somewhat vague political consensus supported progressivity. As Blum and Kalven acknowledged, “Progressive taxation is now regarded as one of the central ideas of modern democratic capitalism and is widely accepted as a secure policy commitment which does not require serious examination.” They attributed this security to the idea’s intrinsic—albeit nebulous—appeal: “Like most people today,” they confessed, “we found the notion of progression immediately congenial” (2).

    “Blum and Kalven, however, were bent upon exploring the theoretical case for progressive taxation. After a rigorous examination, they acknowledged its weakness: “It is hard to gain much comfort,” they concluded, “from the special arguments, however intricate their formulations, constructed on notions of benefit, sacrifice, ability to pay, or economic stability” (102). Ultimately, they suggested, the “stubborn but uneasy” case for progressivity hinged on notions of equality and distributive justice.”
    https://www.goodreads.com/book/show/720360.The_Uneasy_Case_For_Progressive_Taxation#

    “The bogus conflict between efficiency and vertical equity”
    by AJ Culyer · 2006 · Cited by 51 — Bleichrodt H, Diecedue E, Quiggin J. “Equity weights in the allocation of health care: the rank- dependent QALY”.. 
    *

    JQ’s blog is a form of tsunduko for me. Love it. Thanks.

  24. @Harry Clarke

    Mr Frugal should absolutely get it in the neck at tax time. Mr Frugal neither creates something by working and earning a salary, not does he invent something by taking a risk and earning a profit. He simply owns. If tax is designed to benefit Mr Frugal, fewer people will create things by working or by profiting. This won’t mean more people will own, either – fewer people will probably own, because pro-capital tax arrangements will simply drive up the price of owning so that only those who already do can own anything at all. Unfortunately, this is the sclerotic, unproductive, unfair, boring country we live in today.

  25. To move out of the world of theory, Australia should eliminate many policies aimed to create capital shortages – notably planning rules for new housing – and then heavily tax those who will not develop underdeveloped land through a land tax on unimproved land set at the maximum possible rate. The income earned can be spent on new rail and bus projects, and on slashing stamp duty and other state levies.

  26. “Unfortunately, this is the sclerotic, unproductive, unfair, boring country we live in today.” – Lt.Fred.

    Hear! Hear! Absolutely right, Lt. Fred!

  27. Nothing in the OP or comments about a reduction in the inequities inherent in the current regressive migration tax and transfer system. So fake labour is, if credible, more credible than the Big Australia useful idiot Greens monumentally flawed tax policy due to current fake labour mumblings about more equitable and progressive predistributive economic policy addressing the ponzi migration tax and transfer system.

  28. At the risk of stating the obvious, it seems to me a discussion of the merits or otherwise of a progressive income tax schedule without reference to the income (and wealth) distribution, is an exercise without a purpose. For surely, the issue of a progressive tax schedule becomes only relevant when the income (and wealth) distribution is so unequal that the minimum wealth condition is strongly violated (eg a full time working person cannot afford to live in a modest accommodation, be properly fed and dressed, practice sport, buy a few books, participate in public life and have a bit left over to save for the proverbial rainy day and some little luxury every so often while others suffer from the stresses of conspicuous consumption and rushing from a meeting with the tax accountant to a meeting with a lawyer to get the best advice on how to grow their wealth – to paint a picture)

    A useful theoretical result is one that states the conditions under which it holds. These conditions can then be compared to the empirical conditions such that people can form an educated opinion.

    I do not know what to do with a discussion among learned people in the USA in 1953 when being confronted with a taxation policy proposal in Australia in 2021.

  29. Ernestine,

    “I do not know what to do with a discussion among learned people in the USA in 1953 when being confronted with a taxation policy proposal in Australia in 2021.”

    Well the incentive and ethical issues are the same. They are not relevant here though as I think there is agreement of increasing income tax progressivity. Generally would you write off the work of Hicks (Value and Capital), Samuelson (Foundations) and Walras (Elements) because they are old?

    I referred to Blum and Kalven for their methodological insight not their specific tax advice though that is interesting. Better not to worry too much about disputed ethical concerns if you are an economist. Take the objectives as given and then use positive economics to analyse whether policies advanced to realize these objectives will work. Taxing savings which reduces capital investments will be unhelpful if you wish to promote higher wages and believe there are complementarities between labour and capital. Claims on wealth by themselves are not an issue. Its what people do with the income derived from such claims (specifically, their consumptions) that matter. Hence tax consumptions rather than savings or, at least, dont as the Greens suggest, tax savings at a punitive rate.

    Providing free health care to all does not advance equity (I can pay for most of my own health care!) and, of course, inhibits efficiency because governments are then faced with delivering supplies of a free good to inevitably explosive demands. If you do want production efficiency in an economy it is better not levying commodity taxes on intermediate goods etc etc etc.

  30. Ernestine said “These conditions can then be compared to the empirical conditions such that people can form an educated opinion.”

    Conditions 2020.

    “It is as if feudalism had not ended: this is a world where land backs wealth.” says…

    Richard Murphy of the Tax Justice Network commenting on McKinsey report: 

    “The rise and rise of the global balance sheet: How productively are we using our wealth?

    …”These savings have found their way instead into real estate, which in 2020 accounted for two-thirds of net worth. Other fixed assets that can drive economic growth made up only about 20 percent the total. Moreover, asset values are now nearly 50 percent higher than the long-run average relative to income. And for every $1 in net new investment over the past 20 years, overall liabilities have grown by almost $4, of which about $2 is debt.”…
    https://www.mckinsey.com/industries/financial-services/our-insights/the-rise-and-rise-of-the-global-balance-sheet-how-productively-are-we-using-our-wealth

    Richard Murphy says;
    “The message is simple. It is that we live in a world where supposed wealth does not come from value creation any more. It does, instead come from financial engineering. … In particular, the increase in debt that does nothing more than pay returns to existing asset holders has been staggering.”

    And;
    “It is as if feudalism had not ended: this is a world where land backs wealth. And older generations are using that as the opportunity to leverage returns, whether from sale prices or rents, from younger generations.”
    *

    Article:
    “We have a supposedly wealthy world that looks to be fundamentally feudal that has been created by financial engineering and tax incentives. So now we need to change the rules.

    ” It is as if feudalism had not ended: this is a world where land backs wealth. And older generations are using that as the opportunity to leverage returns, whether from sale prices or rents, from younger generations. The evidence is that they still have ample opportunities to exploit, except for one thing.

    “The question as to how much debt can be created  has to be asked. This is also from the report:

    “From 2000 to 2020, financial assets such as equities, bonds, and derivatives grew from 8.5 to 12 times GDP. As asset prices rose, almost $2 in debt and about $4 in total liabilities including debt was created for every $1 in net new investment.

    “The country variations were wide, with the amount of debt created for each $1 in net new investment ranging from just over $1 in China to nearly $5 in the United Kingdom.

    “Leverage has gone through the roof, especially in the UK.

    “What to say to add to McKinsey’s:
    “Several scenarios are possible, with an imperative to deploy wealth more productively for critical investment needs?

    “First, we need to appreciate this.

    “Second, the case for wealth taxation is overwhelming.

    “Third, the need for land value taxation within that wealth taxation portfolio also seems high.

    “Fourth, in the face of this the need for social investment is high.

    “Fifth, instability is built into this.

    “Sixth, in a world of so much need the distortion of values that the global banking boom launched by Thatcher and Reagan is horribly apparent.

    “Seventh, subsidies for most savings are no longer needed: we very clearly have far too many conventional savings.

    “Eighth, if tax and subsidised savings built this edifice so too can it build something better.
    The last is my focus. Thus report makes for grim, and deeply worrying reading given the obvious instability and inappropriate focus within financing that it reveals. And yet it shows incentives work. So, we need to change the incentives.

    https://www.taxresearch.org.uk/Blog/2021/11/15/we-have-a-supposedly-wealthy-world-that-looks-to-be-fundamentally-feudal-that-has-been-created-by-financial-engineering-and-tax-incentives-so-now-we-need-to-change-the-rules/

    I am going to make a $ contibution to Richard Murphy and the Tax Justice Network.
    *

    Follow with another depressing / reassuring article saying tax haven are no longer a major problem:
    “The Tax Justice Network’s State of Tax Justice report for 2021 claims that tax haven abuse by wealthy people costs $171 billion a year. The actual figure is more likely to be $4 billion a year.”
    https://www.taxresearch.org.uk/Blog/2021/11/17/the-tax-justice-networks-state-of-tax-justice-report-for-2021-claims-that-tax-haven-abuse-by-wealthy-people-costs-171-billion-a-year-the-actual-figure-is-more-likely-to-be-4-billion-a-year/

  31. Harry,

    “Generally would you write off the work of Hicks (Value and Capital), Samuelson (Foundations) and Walras (Elements) because they are old?”

    Of course I would not “write off” the three stated works in the context of a History of Economic Thought subject or when outlining the history of a particular subject area.

    My argument is not about publications being “old” per se but rather about the methodology of theoretical research as well as about the questions being asked. And I suggest a lot has changed in this regard since the above books have been written. To illustrate:

    Walras (Elements of Pure Economics) was published around 1900. It is an important book in the literature on General Equilibrium. At that time, equilibrium conditions were expressed in terms of first and second order conditions on aggregate (excess) demand functions; using calculus.
    About half a century later, Debreu (Theory of Value) was published in 1959. This book is also an important book in the literature on General Equilibrium Theory. As for methodological change, Debreu did not use calculus but set theory (applied Kakutanis’ 1941 fixed point theorem to address the question of under which conditions on each element of “an economy” does an equilibrium exist (in the logic of mathematics) and how is an equilibrium characterised. So, one can ask questions such as under which conditions (assumptions) on each element of “an economy” does the notion “freedom of choice” make sense? Answer: If each individual in “the economy” has (owns) an “endowment” (of commodities, described by their physical properties, time and location of availability and state of nature under which it is available) that is valued (price system) such that each individual can choose at least a little bit of everything that is on offer. Try to find this answer to this question in Walras. (I cannot find it). Now on this point alone, the empirically observable wealth distribution can be compared to the theoretical condition. It seems to me even a casual observer who reads reputable newspapers and talks to people will get the idea that the empirical wealth distribution is strongly violating the theoretical condition in question.
    Debreu is not the only important author in this literature in this time period. Arrow and Koopman have to be mentioned. Nor was Debreu’s book the last one in this body of literature. However, it may be sufficient to illustrate my point regarding methodology.

    Following the methodology of GE models written in the 1950s, Radner extended the – I call it here Arrow-Debreu (AD) model in the early 1970s from the case of the objects of choice being commodities to the case where there are commodities and financial securities (and there is an assumption about price expectations – Hicks’ contribution in this regard had not been “written off ” – which is not the same as ‘rational expectations’ found in the macro literature). So, now one could ask questions regarding the source of unequal wealth distribution within a coherent theoretical framework and specifically regarding wages vs capital. This is exactly what Thomas Piketty did (Capital in the Twenty-First Century), 2014. (I don’t know about you, Harry, but I belief I would have given up reading through this 577 page book without the assistance of Radner’s theoretical model in the back of my mind.
    The title of Piketty’s book almost invites a comparison of Carl Marx “Das Kapital” and “Capital in the Twenty-First Century”. Both are concerned with describing important empirical aspects of “the economy” as it affects the lives of people (commodities) and the role of ‘capital’ in the distribution of the quality of lives of the people.

    Taking only the 2 theoretical models I have referred to, which specify conditions, and 2 empirical works for the purpose of our discussion, I’d like to note the following (I am asking experts on Marx to be lenient with me because I have to rely on 1 relevant subject I took a very long time ago):
    a) Neither Marx nor Piketty talk about ethics (in contrast to Blum and Kalven, as referenced by you).
    b) Both are concerned with the dynamics of ‘an economy’, but they use different descriptors.
    c) Marx makes a prediction about what will happen in the future (social unrest, revolution to end ‘capitalism’)
    d) Piketty does not make a prediction. Piketty’s approach is analytical. He provids enough data for people to see where there are problems in our society and the role of the distribution of income between capital and labour. And this leads back to the taxation question.

    The book by Bliss (Capital Theory and the Distribution of Income), 1975, is IMHO, still an important one if one wishes to think about the return to ‘physical capital’ vs ‘financial capital’ and how it affects the distribution of income.

    I hope I have explained my 2 earlier comments to a sufficient extent for the purpose of a blog.

  32. Ernestine Gross,

    Interesting thoughts, thank you. I cannot do justice to them as I don’t have the breadth and depth of learning. Nevertheless, I will attempt to make some comments from my perspective. In thinking about “traditional”, “conventional” or “classical” economics (both before and after Keynes who doesn’t seem to fit that mold) I always find myself wondering if we are talking of a descriptive or a prescriptive discipline. There are other possibilities too perhaps. Are we talking of an analytical discipline by the time we get to Arrow-Debreu (AD)? Do I even properly understand what the phrase “analytical economics” means? Are we talking of what I term a “hybrid discipline”? (Which last tangent I won’t address in this post.)

    A descriptive discipline describes what is. Physics is the exemplar descriptive discipline. A prescriptive discipline describes what ought to be. Moral philosophy or ethics is the exemplar prescriptive discipline. We can note that physics proceeds by mathematics and moral philosophy by words (by and large).

    The “is–ought problem” was raised by David Hume. Hume noted that many thinkers often start with what “is”, or at least claim to be doing so, and then rapidly pass into a series of “oughts”, which they continue to characterize as “is-es” or else characterize as justified by the “is-es”. As a comment relevant to economics, I would say that when the “is-es” themselves are social constructions (e.g property relations) and not fundamental physical realities, then the “oughts” derived from them become of even more tenuous justification.

    Analytical economics as you describe it, or rather as I understand your description, does something else again. It takes “commodities”, described by their “physical properties, time and location of availability and state of nature”, as real physical givens. This meets the criterion for “is” as would be demanded (rightly) by the discipline of physics. We are dealing with real “stuff” (the technical term in substance philosophy!) and this matters as humans are corporeal; themselves made of real stuff, manipulating and depending on real stuff.

    Then analytical economics takes the prescriptive part of economics, as given sets of prescriptions, as given rule sets (including extant property rules), and mathematizes them (as algorithms) and applies them to the mathematized commodity model. (I think.) This appears to me to be a perfectly valid and proper procedure. (You are permitted a wry smile at this point as in “Ikonoclast finally understands the ontological validity of the process.”) After all, rules followed by agents (humans) are also real as manifested in the real actions (processes) of corporeal real stuff agents manipulating real stuff.

    Where the subtlety of the AD model resides (as I see it from afar with no detail and no maths) is in its avoidance of “ought” statements about the rules (prescriptions). Rather, it says IF commodities, as “described by their physical properties, time and location of availability and state of nature” are real (a very defensible proposition of course) and IF rule sets are real and implemented by real agents (humans and human-programmed computers these days and also a very defensible proposition) and thus direct real stuff operations, THEN we can mathematically describe the outcomes of given rule sets of modelled sets of real stuff and its allocations.

    Thus as you put it:

    “So, one can ask questions such as under which conditions (assumptions) on each element of “an economy” does the notion “freedom of choice” make sense? Answer: If each individual in “the economy” has (owns) an “endowment” (of commodities, described by their physical properties, time and location of availability and state of nature under which it is available) that is valued (price system) such that each individual can choose at least a little bit of everything that is on offer.”

    Ethics may then be re-introduced. If “freedom of choice” for all is a key value, under which wealth and purchase rules can it really exist for all? In this sense, it is “simply” the issue of a formal system directing a real system via algorithms and implementations. If one (someone or some group in charge) won’t change the algorithms and implementations, when inequality is increasing, then simply it is because they don’t care to. The appeal to Mr. Frugal “logic” (really an appeal to a moralizing myth) is quite beside the point, at least in my opinion.

    I still have grave concerns about equilibrium assumptions and the apparent case that the AD model might depend on equilibrium assumptions. After all, real economies demonstrate at least as many disequilibrium as equilibrium phenomena. But that as they say is another post. I will wait to see if you find this comment interesting or useful. I certainly found your comment so.

  33. I was trying to emphasise the “means” of achieving redistributions rather than the “ends” on which there is widespread agreement.

    if you think there is wide agreement among commenters on John Quiggin’s blog that the government should pursue the goal of economic redistribution, you are likely to be right. If you think there is wide agreement in Australia at large that the government should pursue the goal of economic redistribution, I am confident that you are mistaken.

    Give me your objective and I will try to assess how well the policies you propose will achieve it.

    if you have given any indication in this discussion of the policies which you think would contribute to the goal of economic redistribution, it has been a most unclear one.

    Of course while raising this idea I had a confusing side dig at the leftie Superheroes who spend their lives identifying injustices and provide government-based solutions to these injustices. Spending your life mainly worrying about injustices tends to make you blind to the enormous advantages in living in a decent Western democracy.

    You base that conclusion on nothing at all, as far as I can tell. To me it seems far more likely that politicians, members, and supporters of the Greens (whose tax poicy was the starting point for this discussion) are well aware of the enormous advantages of living in Australia, or a country like Australia. Like other Australian political parties, they make proposals for changes in Australia, changes which they believe would be improvements; that’s not evidence that they are unaware of how things are good in Australia. Do you dispute that there is room for improvement in Australia? I can affirm that there’s room for improvement in Australia without denying that (by comparison with other countries) it’s good to live here. It seems your line of reasoning is faulty.

    It can also mean that trying to reach the nirvana where no-one loses out probably want work and, worse still might make most of us worse off. Government failure as real a problem as market failure.

    It is true that if we try to improve things we may fail. It is also true that if we try to improve things, we may not merely fail but actually make things worse. The fact that these possibilities exist is not a sufficient basis to justify inaction. Governments do sometimes make things worse, but this is not a sufficient reason for opposing all government efforts to make things better.

    So I do support redistribution but wealth taxes seem a poor way of achieving this as does a health policy that provides health care to all for free. (Contrary to what J-D says this was one of John’s arguments).

    I’m not sure what you mean by ‘John’s arguments’; this discussion began with John Quiggin’s approving citation of the tax policy of the Greens, and the quoted policy makes no reference to health policy or health care.

    You do want savings because savings can be channelled into investments which employs people and provides wages. Hence I am opposed to punitive taxes on savings and prefer to tax consumption.

    Australia does tax consumption. Has the effect been redistributive? Do you have any basis for concluding that increased taxation of consumption would have a redistributive effect? If not, what are you proposing, and why?

  34. J-D, On health. Might I suggest SpecSavers? See John’s point 3.

    No consumption taxes are not progressive but they have good efficiency characteristics. Progressivity should be achieved through income taxes. This also relates to your narky second point and maybe your other narky comments but after experiencing your tone I gave up.

  35. J-D and Harry, please tone it down. J-D, while you have useful things to say, I do find a lot of your comments snarky. I request that from now on, you should focus on responding to the OP, and avoid critical analysis of other commenters, here and on Crooked Timber.

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