Tag Archives: Director’s Law

Why libertarianism is a marginal idea and not a universal value | Steven Pinker

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Why tertiary education is ‘out of reach for many’

The majority of New Zealanders do not qualify for university. Perhaps Labour and the Greens should spend more time worrying about those who do not achieve university entrance standard.

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Source: School leavers with NCEA level 3 or above | Education Counts.

Anyone who achieve university entrance standard is among the intellectual elite. They have a head start in life. Labour and the Greens are preoccupied with giving those with a head start in life more freebies.

Just exactly how big is @grantrobertson1’s great big new tax?

Gareth Morgan’s universal basic income, by his own calculations, make well-to-do people better off and the poor and old age pensioners worse off at the cost of $12 billion tax rise. The Labour Party has now adopted this policy as worth considering.

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Source: Gareth Morgan Presentation Slide 20 of 27 | Big Kahuna Book.

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Source: Gareth Morgan Presentation Slide 20 of 27 | Big Kahuna Book.

@GarethMorgannz the universal basic income is inferior to the minimum family tax credit

Gareth Morgan’s universal basic income appears to make everybody better off except those for whom the modern welfare state was established to protect. Examples of these from his online calculator are single mothers and retirees.

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Source: The Big Kahuna – Tax and Welfare.

To stay even just with single mothers blows a good $10 billion hole in the budget deficit according to the online calculator provided by Gareth Morgan. Retirees are still worse off.

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Source: The Big Kahuna – Tax and Welfare.

Central to the package is a comprehensive capital gains tax despite evidence growing with each day that the optimal tax rates on income from capital and on capital gains are zero.

A universal basic income for New Zealand is a long  trip to where we are now. There is already a guaranteed minimum family income in New Zealand.

The minimum family tax credit makes sure that a family’s annual income (net income after tax has been deducted) doesn’t fall below $23,036 a year ($443 per week). To qualify, you must  work for a salary or wage for at least 30 hours each week as a couple, or 20 hours each week as a single parent, and receive a family tax credit.

The Treasury modelled a Guaranteed Minimum income at the request of the Welfare Working Group in 2010. A  guaranteed minimum income  of $300 per week – the mean benefit income among those on benefits – would cost $44.5 billion or $52.6 billion if we extended it to super annuitants as a replacement for NZ Superannuation or old age pension. The former could be covered by a flat personal income tax rate of 45.4%; the latter, 48.6%. Full fiscal neutrality would require tax rates of 50.6% and 54.4%.

The universal basic income seems to be a big day out for Director’s Law of Public Expenditure. Director’s Law is public expenditure is used primary for the benefit of the middle class, and is financed with taxes which are borne in considerable part by the poor and the rich.

The universal basic income and a comprehensive capital gains tax seems to cause a lot of economic upheaval but still struggles to make the worse off groups in society even break-even on this throwing of all the cards in the air. Brian Easton put it well the other day when he said:

Many advocates put the UMI forward without doing the sums. Those who do, find that the required tax rates are horrendous or the minimum income is so low that it is not a viable means of eliminating poverty. Among the latter are New Zealanders Douglas, Gareth Morgan and Keith Rankin.

Director’s Law in New Zealand?

One group with negative net tax liability is low- to middle-income households with dependent children. For example, single-earner families with two children can earn up to around $60,000 pa before they pay any net tax.

Around half of all households with children receive more in welfare benefits and tax credits than they pay in income tax.

Bryan Perry (2015, p. 41)

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Liberal voting cities markets have higher income inequality and worse affordability

All homeowners have an incentive to stop new housing because if developers build too many homes, prices fall, and housing is many families’ main asset. But in cities with many Democrats and Green Party members, environmental concerns might also be a factor. The movement might be too eager to preserve the past.

Matthew Kahn

via Why Middle-Class Americans Can’t Afford to Live in Liberal Cities – The Atlantic.

The living wage as an application of Director’s Law

Has NZ child poverty doubled as @MaxRashbrooke said?

Lindsay Mitchell put me onto a quote by veteran grumbler Max Rashbrooke that the child poverty rate doubled in New Zealand:

In a system where income goes disproportionately to the already well-off, ordinary workers are missing out on the rewards of their efforts, to the tune of billions of dollars a year. Welfare benefits, cut by a quarter in 1991 and increased just 8 per cent in the last budget, are far too low to meet people’s basic needs.

The result is a doubling of child poverty and the return of childhood diseases unknown in most developed countries – a national embarrassment, as one researcher described it.

Poverty, income and inequality data is collected in loving detail by Brian Perry every year for the Ministry of Social Development.

Figure 1: % child poverty in New Zealand (before and after housing costs), 60% 1998 median constant value, 1982 – 2013

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Source: Bryan Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013. Ministry of Social Development (July 2014), Tables F.6 and F.7.

The only thing noticeable in the downward trend in child poverty in New Zealand since its doubling with the sharp recession in 1990 with double-digit unemployment rates is child poverty stop falling shortly after in-work family tax credits were introduced in the form of Working for Families in 2005.

There was a break in trend in the long decline in child poverty as soon as in-work family tax credits were introduced in New Zealand. I’m sure this is a coincidence because, as Brian Perry said when discussing the introduction of Working for Families in 2005:

The 2004 to 2007 period was the only one in the 25 years to 2007 in which the incomes of low- to middle-income households grew more quickly than those of households above the median.

The real killer in New Zealand in terms of poverty and inequality are housing costs. Housing costs are wholly under the control of government through its control of the supply of land, which is restricted at the behest of the parties of the left.

Figure 2: real equivalised household incomes (before and after housing costs): changes at the top of lowest income decile, New Zealand, 1982 to 2013

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Source: Bryan Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013. Ministry of Social Development (July 2014), tables D.2 and D.4.

Figure 2 shows that real equivalised household income after housing costs has not grown and in fact has fallen for the bottom 10% of the income distribution in New Zealand.

It is the left-wing parties who oppose measures to reduce housing costs and and increase the supply of land through reforms to the Resource Management Act and the relaxation of the Auckland metropolitan urban limit.

Labour and the Greens are in effect keeping the poor poor to win middle-class votes.

Figure 3: real equivalised household incomes (before and after housing costs): changes at the top of the top, middle and lowest lowest income deciles, New Zealand, 1982 to 2013

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Source: Bryan Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013. Ministry of Social Development (July 2014), tables D.2 in D.4.

Figure 3 shows that those in the middle and higher deciles, a political territory rich in swinging voters, are still doing well after housing costs. The parties of the left are collaborating with a middle-class home owning voter while betraying the working class and its aspirations from home ownership and quite simply affordable housing costs when they rent.

The increases for all groups may be understated by the inability of living standards measures to adequately account for new goods, product upgrades and rising life expectancies.

A blow to Director’s Law?

…the poorest 30 percent of households receive significantly more in cash benefits than they pay in tax. The next 10 percent receive on average £596 pounds a year more in cash benefits than they pay in tax, and the top 60 percent all pay more in tax than they get back in cash benefits.

The working class is missing from US political discourse

One of the things I noticed in the 2008 US presidential campaign was everyone was appealing for the middle class vote. Presidential primary and general election debates were about how things were getting harder for the middle-class and the Republican or Democratic candidate who happen to be pitching for votes would stand up for the middle-class better than their competition in the presidential primary or general election at hand.

Another big feature in the 2008 presidential campaign was Joe the plumber. This was the small businessman who asked then candidate Obama at a rope line three days before the final presidential debate about his plans to put up taxes. Obama replied he wanted to spread the wealth around. Obama’s response was

It’s not that I want to punish your success. I just want to make sure that everybody who is behind you, that they’ve got a chance at success, too… My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody.

If you’ve got a plumbing business, you’re gonna be better off… if you’ve got a whole bunch of customers who can afford to hire you, and right now everybody’s so pinched that business is bad for everybody and I think when you spread the wealth around, it’s good for everybody

Andrew Cherlin did the service counting up references to the working class in State of the Union addresses since President Obama was elected.

In his State of the Union addresses, Obama has used the term middle class 28 times. But he has never said “working class” except in 2011, when he described Vice President Biden, who was seated behind him, as “a working-class kid from Scranton.

This dearth of references to the working class is no surprise in light of Director’s Law and the median voter theorem. Politicians who do not pitch to the American middle class will not win elections unless there is a lot of expressive voting by the educated middle class. In general social surveys of Americans, 44% identify as working class and 44%  identify as middle class.

Republicans consistently win voters making $50,000 or more – the U.S. median income. The margin doesn’t vary much: In 2012, Mitt Romney got 53% of this group’s vote; in 2010, Republican House candidates got 55%.

The margin by which the Republicans win income brackets above 50,000 doesn’t vary much if you just look at those earning above $100,000 or those earning between $50,000 and $75,000. These margins only matter in a close election, a very close election.

Democrats consistently win voters making less than the median but the margin varies.  Whether the Democrats win these voters earning less than $50,000 by a 10-point or a 20-point margin tells you who won every national election for the past decade.

The Democrats would also do well among the college educated vote. Obama won this over Romney and 2012 by 10 percentage points. This may explain why the Democrats are slightly conflicting: they must win the working class vote as well as the college educated vote to win.

Andrew Cherlin didn’t give many reasons for the disappearance of working class from modern American political discourse, but he showed some insight into expressive politics when he observed that:

Politicians may prefer to call working-class families by the class position they aspire to rather than the one they hold.