In another neoliberal victory, income taxes became more progressive in recent decades

In another neo-liberal victory, health and welfare spending shares have doubled in the last 50 years

The impact of the top tax rate in the depth and severity of the great depression

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Source: Ellen McGrattan.

There were large differences in increases in the 1930s in the top marginal income tax rate between Sweden, the UK, France with Australia and New Zealand and between the USA and Canada and the rest as McGrattan explains:

These data show that there is a strong negative correlation, roughly −94%, between the change in the top income tax rates and the deviation in per capita real GDP relative to trend in 1933.

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Company tax rates around the world

The UK Greens tax and spending plans

via Manifesto Check: Greens go big on environment but what’s the political end game?.

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What are the revenue effects of capital gains tax cuts?

Average tax rates on consumption, investment, labour and capital in USA, UK and Canada, 1950-2013

Income taxes in the USA and UK didn’t change all that much after the mid-70s. Prior to that, income tax rose quite steadily in the UK in the 1950s and 1960s and not surprisingly, Britain was the sick man of Europe in the 1970s. Income taxes rose quite steadily in Canada for most of the post-war period up until 1990 and then levelled out for most of that decade before a small tapered downwards.

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Source: Cara McDaniel.

Taxes on consumption expenditure were very different stories across the Atlantic. There has been a tapering down in the  average tax rate on American consumption expenditure since 1970 after modest increases before that. Canadian taxes on consumption expenditure rose steadily until the 1970s, then drop steadily  in the 1970s  and than rose  in the 1980s and dropped again after 1992. British taxes on consumption expenditure rose sharply in the late 1960s,  dropped sharply and then rose again in the 1970s and was pretty steady after that.

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Cara McDaniel.

The sleeper tax in all three countries was payroll taxes to fund social security and the welfare state. These rose steadily in the USA, UK and Canada up until the 1990s.

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Source: Cara McDaniel.

Despite all that nonsense about neoliberalism from the  Left over Left, the average rate of tax on capital income did  not appear to change much at all over the last 50 years. There was a modest taper in US capital income taxation from the mid-30s to the mid-20s over the entire post-war period. The average Canadian tax rate on income from capital rose steadily in the 60s, fell steadily in the 70s before  rising again in the  mid-1980s and fell again after 2000. The average British tax rate on capital income rose steadily in the 60s and 70s, coinciding with the emergence of Britain as a sick man of Europe, and then stabilised in the the 1980s onwards but with a dip in the late 80s before a rise in the early 1990s.. Despite the large cuts in the statutory corporate tax rate in the UK, there was only a mild taper in the average tax rate on capital income in the UK. 

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Source: Cara McDaniel.

The average tax rate on investment expenditures is pretty stable in the USA  for the entire post-war period. The only significant increase in the average tax rate on investment expenditures in the UK  coincided with the emergence of the sick man in Europe after a drop in the early 70s. The average tax rate on investment expenditures do not change at all in the UK after the 1970s. The Canadian average tax rate on investment expenditures is higher than elsewhere. It rose steadily in the 50s and 60s, dropped in the 70s and rose again in the 80s before tapering  from 1992 onwards.

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Source: Cara McDaniel.

These higher on rising taxes and the UK and Canada did nothing for either country in catching up  with the USA. The figure 1 below shows real GDP per working age per American, Canadian and British.

Figure 1: Real GDP per Canadian, British and American aged 15-64, converted to 2013 price level, updated 2005 EKS purchasing power parities, 1950-2013

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Source: Computed from OECD StatExtract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics

The USA is pulling away from Canada and the UK in GDP per working age person. The exception is British economy from about 1990 onwards which caught up with Canada.

Figure 2, which is detrended GDP data, illustrates the British economic boom in the 1990s. Each country’s annual economic growth rate is detrended by 1.9%, the detrending value currently used  by Ed Prescott. A flat line is growth at 1.9%, a rising line is above trend growth, a falling line  is below trend growth.

Figure 2: Real GDP per Canadian, British and American aged 15-64, converted to 2013 price level, updated 2005 EKS purchasing power parities, detrended 1.9%, 1950-2013

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Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics

Figure 2 shows that Canada has been in a long-term decline since the mid-1980s  with much of this decline coinciding with periods of rising taxes on income from labour.

The British economy boomed in the 1990s, after the tax hikes of the 1970s and early 80s were reversed. This growth dividend was squandered by the Blair government in the 2000.

Figure 2 also shows that US growth was rather stable with some ups and downs up until 2007, expect during the productivity slowdown in the 1970s. The first major departure from trend growth of 1.9% was with the onset of the great recession.

The Obamas’ tax return

Average tax rates on consumption, investment, labour and capital in Australia and New Zealand, 1959-2011–updated

Cara McDaniel went to the mammoth task of constructing average tax rates for 15 OECD countries over the period 1950-2003 for consumption, investment, labour and capital:

Total tax revenue is divided into revenue generated from four different sources: consumption expenditures, investment expenditures, labour income and capital income.

To find the average tax rate, tax revenue from each source is then divided by the appropriate income or expenditure base.

She used that data to examine the role of taxes and productivity growth as forces influencing market hours. She used a calibrated growth model extended to include home production and subsistence consumption, both of which were key features influencing market hours. Her model was simulated for 15 OECD countries. She found the primary force driving changes in market hours is found to be changing labour income tax rates and productivity catch-up relative to the United States is found to be an important secondary force.

I thought I would summarise the tax rate data computed by Cara McDaniel for Australia and New Zealand.

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Source: Cara McDaniel.

McDaniel’s data on average tax rates on household incomes in Australia and New Zealand suggests that the average tax rate New Zealand household incomes fell by a third since 1986. No estimates were calculated for earlier years for New Zealand.

As for Australia, taxes steadily increased between 1959 and 1987 stabilised until 2005 and then fell a bit.

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Source: Cara McDaniel.

There is a big spike in the average tax rate on consumption expenditure in New Zealand in 1986 when a GST replaced the pre-existing sales taxes. The average tax rate on New Zealand consumption expenditures and tapered away until the end of2009 and started to increase again.

Not much happened in Australia regarding the average tax rate in consumption expenditures since about 1983 despite the introduction of a GST in 1998.

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Source: Cara McDaniel.

The average tax rate in capital income in Australia is much higher than in New Zealand. On the other hand, the average tax rate on investment expenditure is much higher New Zealand as compared to Australia.

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Source : Cara McDaniel.

Taxes on investment expenditures increased quite significantly at the same time that a GST was introduced in New Zealand.

All in all, New Zealand cut taxes on personal income but that tax cut seemed to be pretty much offset by higher taxes on personal consumption through the introduction of a 10% and then 12.5% GST.

The most interesting finding in this database is the sharp increase in the average tax on investment expenditures in the mid-1980s. This prolonged New Zealand’s lost decades – the two decades of next to no GDP growth per working age New Zealander.

Real GDP per New Zealander and Australian aged 15-64, converted to 2013 price level with updated 2005 EKS purchasing power parities, 1956-2013

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Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014.

New Zealand’s lost decades ended when the average tax rate on investment expenditures started to fall.

Who Pays Taxes in America in 2015?

State and local taxes are rather regressive.

via Think the poor don’t pay taxes? This chart proves you very wrong. – Vox and How Much Do the Top 1 Percent Pay of All Taxes?

Taxes on wages rising, but are low in New Zealand

Taxes on wages have risen by about 1 percentage point for the average worker in OECD countries between 2010 and 2014 even though the majority of governments did not increase statutory income tax rates…

The highest tax wedges for one-earner families with two children at the average wage were in Greece (43.4%), Belgium (40.6%) and France (40.5%). New Zealand had the smallest tax wedge for these families (3.8%), followed by Chile (7%), Switzerland (9.8%) and Ireland (9.9%). The average for OECD countries was 26.9%… Child related benefits and tax provisions tend to reduce the tax wedge for workers with children compared with the average single worker. In New Zealand in 2014, this reduction (13.4 percentage points) was greater than for the OECD average (9.1 percentage points).

via OECD tax burdens on wages rising without tax rate increases – OECD.

Who pays income tax in the USA?

A lot of countries have been cutting their company tax rate in recent years

Edmund Phelps tells the truth about tax reform

phelps tax reform

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Desperately seeking a neoliberal conspiracy to slash taxes to the bone in Australia and New Zealand

If our friends on the Left are to be believed, governments fell under the spell of a flying visit by Milton Friedman and his local neoliberal cronies and slashed taxes to the bone from about the mid-1980s in Australia and New Zealand.

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Source: Revenue Statistics – Comparative tables.

In Australia’s case, the only time tax revenue as a percentage of GDP fell prior to the election of a Labour government in 2007 was during a deep recession in 1991. This was a recession bought on by irresponsible monetary policy by Paul Keating– the Keating recession.

As for New Zealand, the tax take increase quite considerably under tax reforms of the Labour Government  of the 1980s. Roger Douglas, far from being a neoliberal plant, seemed to be a double secret agent of a tax maximising Leviathan. Little wonder the New Zealand economy was sluggish in the late 1980s because of this large increases in the tax take.

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