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On ACT’s Flat Tax Fever

Party on, dudes. Repeatedly, the policy adventures of Christopher Luxon and David Seymour are taking New Zealand back in time to the most excellent year of 2017. According to Chris and Dave, that’s when government spending was being restrained most righteously and public services were in totally non-heinous condition. No way! we all say. Yes way! say Chris and Dave. (Here’s the trailer for the original film.)

This week though, Chris and Dave’s Bogus Journey took us back as far as 1996. In North America that year, the idea of flattening the tax rates was all the rage among right wing US think tanks, free market theologians and eccentric American billionaires. Billionaires such as Fortune magazine founder Steve Forbes. His plan to flatten the rates of income tax became his main policy idea – heck, it was his only policy idea - in his disastrous attempt to win the 1996 Republican presidential nomination. Guess which American politician became the next champion of flat tax rates? Ted Cruz.

A neo-liberal fringe idea well past his use-by date? No wonder David Seymour is smitten by it. ACT aims to flatten New Zealand’s five current tax scales to three, by 2026/27. As explained here:

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ACT would immediately axe the lowest tax threshold of 10.5 percent, meaning the government would collect more revenue from all income earners. Some of that extra revenue would then be returned to low-and-middle income earners through a targeted tax credit to ensure they were not worse off.

You read that right. This is a trickle-up theory of wealth redistribution. Beneficiaries, and all those on low incomes will be taxed at the new rate – which will almost certainly be higher than the current 10.5 % bottom rate. Supposedly, the balance will be handed back via a system of targeted tax credits. In sum, the poor and low to middle income earners will get tax credits – if they can meet the targeting criteria – while the rich will get massive tax cuts.

Yet as we know from past experience with targeted income support schemes, the take-up rates for those credits will be dire. Universal entitlements are far more efficient. Targeted schemes are (a) costly to set up and administer and (b) they have a notoriously low take-up rate. That’s because many of those eligible either do not know the credits exist, or they find it very difficult to navigate the qualifying criteria. Oh, and in this case the entire apparatus is being constructed to finance huge tax giveaways to those on high incomes. Their tax burden will be significantly reduced. As in:

The money left over would allow the government to reduce the higher tax rates at the top of the income scale - dropping the 33 percent rate to 30, and the 39 percent rate to 33."Suddenly, you're closer to a world where everyone pays the same rate of tax," Seymour said. "That's a world which is a bit fairer. We're all in the same boat, we're all in this together."

That is Seymour spin of the very worst kind. The attempt to tax everyone – rich and poor alike – at, or near, the same rate would not be “fair” at all. It would throw overboard the whole basis of a progressive tax system. A progressive tax system holds it to be fair, just and desirable for wealthier people to pay significantly more tax as their wealth rises, in order that society can fund the services on which all of us are reliant – and on which poor to low and middle income households depend more than anyone.

Under the guise of “fairness” Seymour is aiming to eliminate as much progressivity from the tax system as he can get away with, politically. If his plans are adopted – and the Treasury is currently working out the economic implications – income inequality in this country will rise, bringing a lot of negative social impacts in its wake.

So… Why go down this road? Back in 1998, the Canadian academic and tax law expert Neil Brooks summarised the arguments that flat tax advocates commonly put forward:

Those propounding the idea argue that flattening the rate structure will simplify the tax system and reduce tax avoidance and evasion. They also argue that it would usher in an era of increased economic prosperity by encouraging talented Canadians to work harder, save and invest more, and remain in [this country]

Brooks then proceeded to demolish every one of those arguments, in this article called Flattening The Claims Of The Flat Taxers. Chances are, Treasury will find that its flat tax modelling does theoretically generate higher rates of economic growth regardless of the social impacts. That is when it will be necessary to challenge all of the claims being put forward by the flat taxers to justify moving in that direction.

Suffice to say that yes, one can always “ implify” the tax system by making poorer people pay more tax and richer people pay less. We have been conditioned to accept negative social outcomes from the tax system. After all, we already have a regressive tax in place – GST – via which poor to middle income earners pay a disproportionately higher proportion of their income on the essentials of life than wealthier people do.

In all likelihood, the Treasury cannot model the negative effects of rising social inequality – or the extent to which our existing differences in access to wealth and opportunity are fuelling the incidence of crime, mental illness and drug use. To expand the gaps of wealth and opportunity by cutting the tax rates on wealthy people is unjust and harmful. Almost all the benefits from flattening the tax rates would accrue to the donor class that ACT exists to serve, As for the point about reducing tax evasion… Yes, flatter tax rates would eliminate a range of small loopholes, but only by creating one giant officially sanctioned loophole.

Footnote: In the original Bill and Ted movie, one of the historical figures they meet in the course of their time travel does a good job of articulating ACT’s approach to tax policy:

Billy the Kid: "Here's the deal. What I win, I keep. What you win, I keep."
Bill and Ted: "Sounds good, Mr. The Kid!"

Gaza, and Inertia

For a party that makes a song and dance about competence and the high standards it expects of everyone else, National takes a remarkably warm and compassionate approach to its own failings. Within 24 hours yesterday, Police Minister Mark Mitchell misled the House about the time-frame for meeting his Police recruitment targets, and then PM Christopher Luxon misled the House about the findings of the International Court of Justice, with regard to South Africa’s genocide claim against Israel.

Now that Luxon has been forced to correct himself, it would be nice if he answered the original question put to him by the out-going Greens co-leader, James Shaw. Namely, what is the government’s response to the ICJ findings that a “plausible risk” exists that Israel’s actions in Gaza may be in breach of the Genocide Convention?

For guidance, Luxon might care to consider what New Zealand did in response at the same stage of ICJ findings on the genocide complaint laid against Russia over its actions in Ukrarne. On that occasion, New Zealand chose to formally intervene and throw its legal weight behind Ukraine. As the previous government said only 18 months ago: “As a party to the Genocide Convention and a strong defender of the international rules-based system, New Zealand has a real interest in ensuring the Genocide Convention is properly interpreted and applied.”

Instead of doing likewise, Luxon is blustering that no final case has been proven against Israel. We all know that, Mr Luxon. Yes, the ICJ hasn’t yet issued its final decision. Got that. But the ICJ has said that a “plausible risk” exists that in Gaza, genocide may be occurring. The Luxon government is choosing to ignore this development. It can’t even bring itself to call for a ceasefire in Gaza, to halt the carnage.

Meanwhile, 27,000 Palestinians are dead; 1.8 million Palestinians have been displaced, and are being systematically denied access to food, water and shelter at the height of winter. Disease is spreading. Medical capacity has been crippled. Reportedly 60% of the buildings in Gaza have been destroyed, Palestinian cemeteries are being bulldozed, and the arable land in Gaza is at risk of being deliberately and permanently poisoned with sea-water.

Yet because America’s key ally in the Middle East is the perpetrator of these crimes, New Zealand is happy to punch below its weight on this issue. As an obedient team player, New Zealand is leaving the Palestinians, the Genocide Convention and the norms of international human rights law to fend for themselves. We will all look back in shame at this page in our history.

Best Tiny Desk, Ever

Juvenile’s 1998 video for “Ha” still looks extra-ordinary. Set in the now demolished Magnolia Projects in New Orleans, it showcases a key location in the city’s social history. In particular, it offers a time-fractured account of a drug bust. These events are punctuated by any number of strikingly beautiful images of families, children, dogs, ambulance crews, Police, kids on bicycles, and older women in their church finery. These visuals provide the perfect backdrop for the song’s off -kilter rhythms and quizzical, bantering lyrics.

Also, ”Ha” and Juvenile’s 400 Degreez album launched the Cash Money label. If you look closely when the “Ha” video reaches about the 3.30 mark, there’s a fleeting shot of a very young Lil Wayne, who became the label’s biggest star. He’s the kid in the red shirt.

Flash forward 25 years to mid 2023, and NPR invited Juvenile, his former producer Mannie Fresh and a small band to perform one of NPR’s fabled Tiny Desk concerts. Juvenile is now 48, and he hasn’t been a significant force in hip hop for over 20 years.

Yet as the comments thread suggests, this is arguably the greatest Tiny Desk concert ever... Without trying, this 27 minute concert connects Louisiana hip hop (e.g. Juvenile, Lil Wayne, Kevin Gates) to the rich musical styles that preceded them: The Meters, Allen Toussaint, Professor Longhair, Huey Piano Smith and all of the rest. Stick around after the fade to black and the credits begin to roll. Because the encore rendition of “Back That Azz Up” that comes afterwards is pure joy and celebration.

And from 1998, here’s that much-loved video of “Ha.” BTW, the video’s director was Marc Klasfeld, whose video roster includes everyone from Jay Z to Slipknot, Destiny’s Child, Britney Spears, the Red Hot Chili Peppers, Clipse, Katy Perry, the Foo Fighters, Aerosmith, Bring Me The Horizon, Charli XCX, and scores of others.

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