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Friday, October 14, 2005

Comments

gandalf

Australia nearly adopted a flat tax this year - until common sense prevailed

I guess you mean the zero-sum "common sense" so beloved of socialists!

(1) was not revenue neutral - it would have costs billions in lost tax revenue - and (2) most of the winners would be the rich

This is your opinion, which may be correct, but it's possible that reducing taxes on "the rich" would have increased tax revenues, per Art Laffer.

With a more objective commentary, this would be a great blog.

Lord

This is hardly a politically savvy nor fiscally responsible strategy.

Really? Just who runs Australia anyway? Not the wealthy like everywhere else? And why is a surplus favorable unless you are expecting a recession?

sauron

Who said anything about socialism? Any tax that favours the rich won't get votes. That's the common-sense here. This whole flat-tax thing has already sunk Angela Merkel in Germany, and I think the British Conservatives would do well to drop it like a hot red brick. It looks great on paper, but doesn't seem to help anyone except the rich. I'd prefer a system that eliminated millions of working-class people from paying any income tax whatsoever by radically raising the personal allowance. The Flat Tax is Euclidean geometry for accountants--a thing of great beauty, but physically inappropriate.

Andrew Leigh

It's great to see commenters with such faith in Laffernomics. After all, given that his napkin-theory has only been shown to work in one instance (Sweden in the 1960s), you need a lot of faith to keep believing in it...

New Economist

One of the reasons for being a bit wary of the flat tax debate is that ideologues soon try to take over the debate, using rather dubious arguments. Let's go through some of the above comments:

1) Gandalf thinks that the Australian Treasurer's rejection of a flat tax was: "...the zero-sum "common sense" so beloved of socialists!"

I don't think Peter Costello is a socialist, and neither am I. Let's run through why the proposal was rejected again. In an Australian electoral system, where voting is compulsory, the median voter is typically a middle income earner living in the outer suburbs of the major cities. This is known in Australia as "the mortgage belt', and is where most of the marginal seats are. You are unlikely to win them if you propose a tax system that largely benefits the rich. I would have thought this point is obvious? Sauron (above) makes the same point, only more succinctly.

2) Gandalf: "it's possible that reducing taxes on "the rich" would have increased tax revenues, per Art Laffer."

Possible - yes. Likely - no, as Andrew Leigh explains. That is not to deny that there would be economic gains from simplification, including greater compliance. But I doubt it would fully offset the loss in revenue.

3) Lord: "Just who runs Australia anyway? Not the wealthy like everywhere else?"

Of course the wealthy have a lot of power and influence. But last time I checked the place was still a liberal democracy. Also see my answer to point 1 above.

4) Lord: "And why is a surplus favorable unless you are expecting a recession?"

A good point. Surpluses are not necessarily good things. However at times of strong economic growth it is prudent for governments to run a surplus, to provide them with the capacity to respond when the next economic downturn occurs. That said, such surpluses should not be excessive - if they are, then either tax rates should be lowered or the money should be used to boost national productivity and growth (such as by improving education or infrastructure). My objection is not to tax cuts per se, it is to tax cuts that advantage the rich over low and middle income earners.

Sinclair Davidson

What does "tax cuts at the expense of low and middle income earners" actually mean?

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