World Video | Defence | Foreign Affairs | Natural Events | Trade | NZ in World News | NZ National News Video | NZ Regional News | Search

 


Tax Myths Debunked

Tax Myths Debunked

Experts and pressure groups favouring high taxes and high levels of public spending have repeatedly claimed that Australia is a relatively low tax economy.

In a new paper to be released on Wednesday 24 August, titled Are There Any Good Arguments Against Cutting Income Taxes?, Dr Sinclair Davidson addresses four key arguments used by opponents of lower taxation, and finds they are misleading or contestable.

1) The claim that tax cuts benefit the ‘rich’ at the expense of the ‘poor’

In a sharply ‘progressive’ tax system like ours, higher income earners pay much more than their fair share in taxation. This inevitably means that when taxes are cut, higher earners tend to benefit the most, for they pay the most. Many voters do not even realise that higher earners are paying vastly more than their ‘fair share’ of income tax.

2) The claim that tax cuts will not improve work incentives, and may even encourage people to work less

Critics of tax cuts claim they have little impact on work incentives, but Davidson shows that ‘cuts in marginal tax rates induce people to work harder in situations where they have an effective choice between work and leisure hours.’ Self-employed physicians, for example, tend to work more hours if taxes are cut. There is also evidence that people work longer in countries with lower taxes and take more leisure in countries with high taxes, and that entrepreneurial activity, such as new business start-ups, is stronger when taxes are lower.

3) The claim that tax cuts reduce government revenue and lead to damaging cuts in necessary areas of public expenditure

The Laffer curve suggests that at certain tax levels, a decline in tax rates could lead to an increase in tax revenue, but critics deny this. Davidson reviews the evidence and looks at occasions when big tax cuts have resulted in increased rather than decreased government revenues. Whilst there are also contrary examples, he suggests current Australian tax rates may be higher than the Laffer optimal point. If true, this would mean tax rates could be cut without dramatic loss of government revenues.

4) The claim that tax cuts are immoral because they pander to human selfishness

Davidson shows that the highest earners in Australia already pay much more than their ‘share’ of charitable donations, and that ‘high levels of taxation – especially high rates of taxation – crowd out philanthropy.’

‘High levels of taxation have adverse economic effects. It is important to notice, however, that it is high tax rates that do the damage. The 2005 budget brought in tax relief – there will be more money in people’s pockets. The budget, however, did not bring down the top marginal tax rate. In other words, the government has incurred the political costs of tax relief, but few of the benefits of tax reform will be realised.’

Dr Sinclair Davidson is an Associate Professor in the School of Economics, Finance and Marketing at RMIT University.

He is available for comment.

Are There Any Good Arguments Against Cutting Income Taxes? is the ninth in a series of CIS monographs, Perspectives on Tax Reform, discussing tax reform in Australia.
Embargoed copies are available on request or from the CIS website.

Read it here: http://www.cis.org.au/publications/policymonographs/pm69.pdf

ENDS

© Scoop Media

 
 
 
 
 
World Headlines

 

At The UN: Paris Climate Agreement Moves Closer To Entry Into Force

The Paris Agreement on climate change moved closer toward entering into force in 2016 as 31 more countries joined the agreement today at a special event hosted by United Nations Secretary-General Ban Ki-moon. More>>

ALSO:

ALSO:

Gordon Campbell: On The End Game In Spain (And Other World News)

The coverage of international news seems almost entirely dependent on a random selection of whatever some overseas news agency happens to be carrying overnight... Here are a few interesting international stories that have largely flown beneath the radar this past week. More>>

Amnesty/Human Rights Watch: Appalling Abuse, Neglect Of Refugees On Nauru

Refugees and asylum seekers on Nauru, most of whom have been held there for three years, routinely face neglect by health workers and other service providers who have been hired by the Australian government, as well as frequent unpunished assaults by local Nauruans. More>>

ALSO:

Other Australian Detention

Gordon Campbell: On The Censorship Havoc In South Africa’s State Broadcaster

Demands have included an order to staff that there should be no further negative news about the country’s President Jacob Zuma, and SABC camera operators responsible for choosing camera angles that have allegedly made the President ‘look shorter’ were to be retrained... More>>

ALSO:

Gordon Campbell: On A Bad Week For Malcolm Turnbull, And The Queen

Malcolm Turnbull’s immediate goal – mere survival – is still within his grasp... In every other respect though, this election has been a total disaster for the Liberals. More>>

ALSO:

Gordon Campbell: On Bidding Bye Bye To Boris

Boris Johnson’s exit from the contest for Conservative Party leadership supports the conspiracy theory that he never really expected the “Leave” option to win the referendum – and he has no intention now of picking up the poisoned chalice that managing the outcome will entail... More>>

ALSO:

Get More From Scoop

 
 
 
 
 
World
Search Scoop  
 
 
Powered by Vodafone
NZ independent news