@arindube Paul Krugman on the minimum/living wage in 1998

Jim Rose's avatarUtopia, you are standing in it!

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The great divergence in average and marginal tax rates in New Zealand since 2000

21% would have been a good guess of the average and marginal tax rates of the New Zealand single earner or couple including with children and even a second earner in 2001. New Zealand average and marginal tax rates have been on a wild ride since the year 2000.

Sources: OECD StatExtract and OECD Taxing Wages.

As the above chart shows, while the average tax rate of a single earner with no children is pretty much unchanged at about 20%, he now faces a marginal tax rate of 30% or more rather than 21% in 2001.

For a married couple with one income, as the above chart shows, their average tax rate has been about zero for a good 10 years now but their net marginal tax rate is a good 50% or more because of abatement rates on family tax credits, which is a skewed incentive situation. A large income effect from the family tax credit encourages the consumption of leisure but a high marginal tax rate discourages working more.

Sources: OECD StatExtract and OECD Taxing Wages.

For two earner couples, their average tax rates have fallen because of family tax credits but their marginal tax rates have gone through the roof as the above chart shows. A tax system that discourages quite severely any further work or investment in human capital by average earners may have adverse effects on the long-term trend growth rate of New Zealand.

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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@metiria @NZGreens 20,000 drop in children in hardship in 2014

The material hardship measure shows a falling child material hardship rate using a threshold equivalent to the ‘standard’ EU level, down from a peak of 21% immediately after the GFC to 14% in 2014.

Using the more severe threshold, there was a slight rise through the GFC to 10% and a small fall to 8%, the level it was at before the GFC.

Bryan Perry (2015, p. 7, Key Findings)

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Source: Bryan Perry, Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2014 – Ministry of Social Development, Wellington (August 2015), p. 133.

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Source: Bryan Perry, Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2014 – Ministry of Social Development, Wellington (August 2015), p. 133.

The minimum wage and escaping poverty across the OECD area

Taxes on minimum wage earners across the OECD area

Poverty traps: would a minimum wage increase take-home pay?

How many hours to work your way out of poverty across the OECD?

If government “programmes have been doing very little to help children out of poverty”, what halved child poverty in the last 20 years? Economic growth?

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Figure 1: child poverty (%) in New Zealand (before and after housing costs), 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.

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.

All in less cash transfers average income tax rates at average wage, USA, UK, Australia and New Zealand

Figure 1: All in less cash transfers average income tax rates at average wage, 2014

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Source: OECD tax database

Many American families face negative affected income taxes rates

US income taxes are highly progressive

The futility of minimum wage increases as a poverty reduction strategy

https://www.facebook.com/UnbiasedAmerica/photos/pb.123061011213236.-2207520000.1432381630./322074057978596/?type=3&src=https%3A%2F%2Fscontent.xx.fbcdn.net%2Fhphotos-xpf1%2Ft31.0-8%2F10862470_322074057978596_2044306788384325585_o.jpg&smallsrc=https%3A%2F%2Fscontent.xx.fbcdn.net%2Fhphotos-xpf1%2Fv%2Ft1.0-9%2F10888570_322074057978596_2044306788384325585_n.jpg%3Foh%3D667d35fcbda7821b4363763a54df46ba%26oe%3D55F6EB0F&size=1000%2C600&fbid=322074057978596

 

EITC is better than the Minimum Wage

via Greg Mankiw’s Blog: EITC is better than the Minimum Wage.

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