KiwiRail commercial valuation since 2007 @JordNZ @dpfdpf

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Source: New Zealand Treasury – data released under the Official Information Act.

Does @nztreasury understand company tax incidence?

The New Zealand Treasury understands neither who pays company taxes when capital is internationally mobile nor why Ireland was relentlessly bullied over its 12.5% company tax rate.

Source: New Zealand Treasury Official Information Act response – Advice on new capital or wealth taxes, 9 February 2016.

The Treasury makes the surprising claim that the benefits of company tax cuts will leak overseas to non-residents because of the high level of foreign capital ownership.

Now if New Zealand were to substantially cut its company tax rate, hell will freeze over before the Australian Treasurer rings up and say thanks mate. The Australian worry will be the loss of investment and corporate headquarters to New Zealand.

Who pays company tax when capital is internationally mobile is one of the easiest questions you can get in an economics quiz. Just trace out how investors will react to a lower company tax in New Zealand.

If company taxes are lower in New Zealand, more investment will flow into New Zealand, increasing the size of the capital stock in New Zealand and with it wages in New Zealand because New Zealand workers have more capital to work with.

When will these international capital inflows stop? It is obvious! When risk-adjusted after-tax returns equalise for internationally mobile investors. They will adjust their portfolios so that after-tax returns equalise across tax jurisdictions.

The after-tax returns are equalised by the competing tax jurisdictions having different before-tax rates of return on capital and therefore costs of capital.

Jurisdictions with high company taxes have to offer larger before-tax returns so that internationally mobile investors receive the same risk-adjusted after-tax return everywhere. High tax jurisdictions boost before tax return by wages being lower in the high tax jurisdiction.

High company taxes are paid for by the workers of the jurisdiction concerned through having to accept lower wages to work with the same amount of capital. They must compensate foreign investors by boosting before-tax returns so that their after-tax rates of return equalise across competing tax jurisdictions.

The New Zealand Treasury missed this most basic point about who pays a company tax in a globalised world. The Australian Treasury is right on top of this basic piece of economics:

The mobility of capital refers to how easily financial capital (debt and equity) flows into and out of a country. Greater capital mobility will shift more of the burden of taxation from capital to labour through larger changes in the domestic capital stock, and hence in domestic labour productivity and wages (Grubert and Mutti 1985; Gravelle 2010).

In this situation, a reduction in the company tax rate will result in large inflows of foreign capital to ensure that there is no material difference between the after tax (risk adjusted) rate of return on investment in Australia and the rate available abroad.

The many attempts at company tax harmonisation by the European Union and G20 are motivated by the fear of large capital flows into the lower tax jurisdictions.

No high-tax country views the low company taxes in Ireland, Singapore and Hong Kong as a windfall where they can raise more tax revenue on the additional dividends repatriated from lower tax jurisdictions.

Very large economies such the USA can get away with a slightly above average rates of company tax because the number of other places to go are fewer.

A small open economy such as New Zealand should safely assume that most to all of burden of the company tax is on New Zealand workers through lower wages.

Capital migrates from high-tax to low-tax locations, reducing capital-to-labour ratios in high-tax countries. The low-tax countries experience higher capital-to-labour ratios, a higher marginal product of labour, and higher wages.

I will be putting in an Official Information Act request seeking to find out whether the work of Arnold Harberger influences their company tax briefings to ministers. I will also add any work they are done on corporate inversions and the company tax rate in Ireland.

@BernieSanders Campaign Has Crossed Into Neverland | Kevin Drum

Source: The Sanders Campaign Has Crossed Into Neverland | Mother Jones.

@EconomicPolicy’s strangest yet case for the #livingwage @Mark_J_Perry

In a bizarre twist, the Economic Policy Institute is spinning one of the strongest arguments against minimum wage increases into an argument for them.

The Economic Policy Institute pointed out this week that raising the minimum wage saves billions because public assistance to low-paid workers is wound back as their wages rise.

Source: Balancing paychecks and public assistance: How higher wages would strengthen what government can do | Economic Policy Institute.

A bog standard argument against minimum wage rises is the take-home pay of low paid workers will rise by much less than the rise in labour costs to their employers.

The reason for that discrepancy between before and after-tax pay is cash and non-cash assistance from government reduces as their wages rise with the minimum wage increase.

It is pretty standard for effective marginal tax rates and low-paid workers to be high because of the many forms of assistance in cash and in-kind which they receive winds back as their wages rise.

There is a large literature on the labour supply effects of this winding back of family tax credits and other assistance to low-paid as their earnings increase.

The poverty trap facing welfare beneficiaries and the low-paid because of this winding back of family tax credits and other social assistance is so widely accepted that is the only time that the Left believes in supply-side economics. It is one of the reasons for their enthusiasm for a universal basic income.

Because of the interaction between wage rises and social assistance, the practical upshot is the job of the low-paid worker is put at risk by the minimum wage increase and yet their take-home pay increases by much less. Some will lose their jobs. Others will not be hired in the first place.

Almost 20 years ago, Paul Krugman pondered on why supporters of the minimum wage was so adamant that their before-tax wage must increase rather than their incomes be supplemented by family tax credits and other social assistance. He asked:

…why take this route? Why increase the cost of labour to employers so sharply, which–Card/Krueger notwithstanding–must pose a significant risk of pricing some workers out of the market, in order to give those workers so little extra income? Why not give them the money directly, say, via an increase in the tax credit?

In his book review, Krugman nailed it when he concluded that the demands for a higher minimum wages about morality:

…I suspect there is another, deeper issue here-namely, that even without political constraints, advocates of a living wage would not be satisfied with any plan that relies on after-market redistribution. They don’t want people to “have” a decent income, they want them to “earn” it, not be dependent on demeaning handouts…

In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand, the same as the price of apples or coal.

And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away.

The advocates of the living wages simply offended by the notion of people earning so little. I am less kind than Krugman to this moralising.

These do-gooders are perfectly willing to put the jobs of the low-paid at risk so that they are not offended by how little they have paid.

In the finest traditions of rational irrationality and expressive voting, they simply deny they are putting jobs at risk and going into terribly convoluted arguments about how the employment effects of be small and everyone are we better off and more productive. Arguments that Paul Krugman laughed at back in 1998.

Living wage advocates are not using the low-paid for policy experiments, which would be pretty bad, they use them to make themselves feel better about the inequalities of the world. They just want to drive the sinners out of the temple come what may.

@ChrisHipkins @jacindaardern @dbseymour student loan balances

Most students do not owe that much compared to the $1/2 million graduate premium over their life plus marrying someone who is also a graduate. 60% owe less than $20,000 and 80% owe less than $30,000. People not smart enough to go to university or Polytech can manage to save that to buy a car

Source: Student Loan Scheme Annual Report 2014 | Education Counts, table 29.

That student loan defaulter arrested at the airport owed $90,000. That is more than 99% of all student loan borrowers.

Michael Bloomberg’s path to the White House

Given the quality of the candidates, a wounded Hillary Clinton and either Ted Cruz or Marco Rubio, he has a shot. If either Sanders or Trump get on a ticket, I think he is a sure thing to run and win. I am sure he thinks that too.

@ChrisHipkins @jacindaardern @dbseymour when do graduates break even on their investment?

The poor possums: New Zealand graduates have to wait until their early 30s to break even on their educational investments.

Source: A Degree is a smart investment | Universities New Zealand – Te Pōkai Tara.

@ChrisHipkins @jacindaardern New Zealand graduate premium @dbseymour

How conceited students are to complain about a $20,000 student loan when they got $1/2 million coming down the pipe.

Source: A Degree is a smart investment | Universities New Zealand – Te Pōkai Tara.

Self-appointed social justice warriors in the New Zealand Labour Party and New Zealand Greens pander to this middle class greed. They should be ashamed of themselves.

26% of eligible students do not take out a student loan so they would really get a leg up from the abolition of tuition fees.

The median repayment time for those who left study in 2011 and remained in New Zealand was 5.8 years.

@NYTimesKrugman on the lies @BernieSanders told us about his health plan

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Food Stamp Work Requirement Cuts Non-parent Caseload by 75% @GreenCatherine

In common with New Zealand, Maine found that a number could not complete work requirements because they could not get time off work from their off the books job.

Lindsay Mitchell found through Official Information Act requests that one in 10 beneficiaries are working full-time and one in 5 have no intention of looking for a job in the next year despite a requirement to actively look for work as a condition of receipt of their benefit.

NZ tariffs eliminated immediately for #TPPA countries

Source: Trade and Investment Policy Watch | PIIE Chart: Australia and New Zealand Don’t Delay Liberalization in TPP.

@BernieSanders lies about the cost of single-payer health care

Milton Friedman on racism and sexism in Hollywood, today and yesterday

David Henderson reminded me of the superb discussion by Milton Friedman in Capitalism and Freedom of the way in which the marketplace erodes prejudice.

Source: Milton Friedman on Trumbo, David Henderson | EconLog | Library of Economics and Liberty.

Scalia on who should decide vexing social issues @PeterDunneMP

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Source: Antonin Scalia was a truly great Supreme Court justice.

Why @NZGreens @GreenpeaceNZ are enemies of workers & poor

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Source: An Environmentalism for the Left | Dissent Magazine.

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