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Solving Some Tax Inequities

National’s proposed tax cuts highlighted the unfairness of our system. Moving the 10.5% rate from $14,000/yr to $22,000 gave no benefit to those below $14,000 and $560/yr to those above $22,000 while the move of the 17.5% rate from $48,000 to $52,000 gave those above $52,000 a further $500/yr. The more you have the more you get.

Currently, above $70,000/yr the rate is 33% but such income benefits from all the lower tax rates. The benefit compared to paying 33% on all that income is $9080. But, for example, on $14,000/yr the benefit is only $3150. The reductions from 33% or higher are of no benefit to such earners.

If we paid someone earning $70,000/yr, or above, $9080 but charged them 33% on ALL their income they would be in exactly the same net position as at present. So why do we not do this for everyone? This would be a tax-free Universal Basic Income (UBI). It would depend only on age - like superannuation. There would be no surveillance, stigma or substantial administration.. Someone with no income would be better off by $9080/yr. The net improvement would diminish to zero at $70,000.

The simple-minded case against UBIs is the cost. Superannuation is a wonderful example of a UBI and is already covered by taxes. Working for Families is not universal and has a mess of restrictions. So let us ignore these two age groups for the moment and use compatible data from 2015 to consider paying all adult citizens, aged 18 to 65, $9080 per year and taxing them at 33% on all their income.

The cost would be $9,080x2,816,960 = $25,577,996,800 Say 26 billion. Ouch! Impossible say some.

But, hang on, the Income Tax take from Adults only (excluding the Income Tax from Superannuitants) will increase with a uniform 33% rate by roughly $18billion. Remember that, apart from recovery from those on less than $70,000/yr, all those on or over $70,000 per year will be paying an additional tax of $9080/yr on their salary up to $70,000, negating their UBI.

There could be recovery of some billions by reducing some benefits and allowances but most of the stigma, administration, oppression and surveillance of the victim beneficiaries would remain. Consider going further and making the adult UBI, say, $11,000 per year so that unemployment, with its stand-downs and administration, and other benefits could be abolished altogether with some changes to hardship allowances .

The cost becomes nearly 31billion but there will be something like 6 billion in savings from discontinued benefits and administration. We are left needing some 7 billion to recover by additional taxes.

Consider, separately or in combination; Financial Transaction Tax, what is known as Positive Money, Capital Gains Tax, GST, Carbon Tax, Asset Tax, increased Company Tax, Stamp Duty, and others. The problem with some, such as GST, is that they bear more heavily on the poorest. And new taxes must cost some of the population more than they receive so that the reverse can be true for others. A good target would, possibly, be to have 70% of the population with a net benefit from the combination of tax and UBI.

We could increase Income Tax to nearly 38% but then those above about $60,000/yr will be worse off. A better choice could be an Asset Tax of about 0.5% collected together with local-body rates on the improved value of properties. This discourages the use of resources in elaborate housing and, with the UBI, reduces inequality.

With a flat tax rate of 33% and an income of $70,000 or above an individual with a UBI of $11,000/yr will be better off by $1920/yr than they are at present. This will pay an Asset Tax of 0.5% on property with an improved rateable value of $384,000. Overseas owners would not get the UBI at all and those with multiple properties would only have their one UBI but multiple Asset Taxes.

There are many ways of financing a UBI. A lot of thought is required before finalising the UBI amounts, taxes and transition arrangements. It is not something to be undertaken lightly. But the time for UBIs has come. They are a natural outcome of the search for better personal tax systems which are fair, reduce inequality and offer some protection for technological change.

UBIs may be necessary for the survival of democracy and the market economy. They combine aspects of capitalism and socialism. Instead of a “nanny state” UBIs give everyone some financial freedom.

Lets do this.


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