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Tax The Poor Because The Rich Aren’t Like Us

“The reason why I am cautious is because it’s their money. I’m always cautious about taking people’s money off them”

Joe Hockey

Serendipity.

This morning I stumbled upon a quote which helped explain the thing that troubled me about the Liberal Party’s position going into the 2013 election. They were arguing that they were going to cut that “massive tax on everything”, not introduce any new taxes and still return the Budget to surplus. The obvious question was how?

Simple, said Tony and Joe, we’ll do this by having a STRONGER economy. (The initial subtext being that Tony is stronger than Julia, because she’s a girl, and later, when Labor replaced her with Kevin, well, he’s a bit nerdy and not at all strong!)

Now part of me thought that there is some logic to this. If you do increase people’s spending power, then that may lead to an increase in demand, and combined with a reduction in all that “red tape”, you stimulate the economy to such an extent that, while you reduce your rate of tax, you actually increase your overall tax revenues. This is more or less the thinking behind the so-called “trickle down” effect where people argue that if you give tax cuts to the rich then their increased spending will eventually end up in the pockets of the poor. Strangely, nobody talks up the “trickle up” effect where if you give more money to the poor that will eventually end up in the hands of the wealthy. Although one bright spark did define the “trickle down” effect as giving more money to the rich so they could piss on everyone.

So, I could see an argument where one could believe that removing the Carbon and Mining Taxes could lead to a STRONGER economy, even though it’s counterintuitive and there’s no guarantee that it’ll work. But the thing that puzzled me was I couldn’t imagine anyone in the Liberal Party working out a plan that involved anything more than a three word slogan.

As I said at the start, serendipity.

This morning I happened to chance on this bit “Zombie Economics”, John Quiggin’s excellent 2010 book where he was discussing Wanniski’s idea that in contest between the “high spending” Democrats and the “low spending” Republicans, the Democrats would always have more appeal. Jude Wanniski was at one point an economic adviser to Ronald Reagan. Quiggin goes on:

“So the current political stategy for conservatives was to campaign for tax cuts, without worrying much about budget deficits. Any problems with budget deficits would be resolved by the higher growth unleashed by improved incentives and reduced regulation.”

Now that last bit sounds familiar. Could it be, I pondered, that the Liberals strategy was straight out of the Ronald Reagan playbook? That would mean that, not only did nobody actually have someone in their own ranks devise it, but they didn’t even need to consider whether or not Reagan ever succeeded in reducing budget deficits because the idea came from America and like their positions on Higher Education and Health, anything America does must be good.

Quiggin went on to described the famous meeting between Wanniski, Cheney, Rumsfeld and Art Laffer where Laffer drew on a napkin and talked about there being a point at which the rate of tax yields maximum revenue.

But strangely when I was doing a Google search for Joe Hockey’s quote about tax (see the top of the page), the second link was to “Art Laffer tells Hockey not to tax the rich” afr.com.

As I read the article, I remembered what Quiggin had written about Laffer’s ideas. They had a mixture of correctness and originality. “The Laffer curve was correct but unoriginal. The Laffer hypothesis was original but incorrect.”

In the Australian Financial Review article, Laffer argues that “rich people aren’t like us” because they “can hire lawyers, accountants, deferred income specialists, senators. They can change the location of their income, the timing of their income, the composition of their income, the volume of the income. We can’t.”

(So in the US, rich people can hire senators and here we can’t even buy a treasurer?)

Mm, but I can’t help thinking that all that economic activity what with rich people buying lawyers, etc must be just as good as anything for a “trickle down” effect.

But Laffer has some other interesting concepts about incentives arguing that he thinks that congressmen should have some “skin in the game” and their pay should be determined by stock market index where they’d be be paid for any capital gains it made and be liable for any losses.

It’s a rather intriguing thought that the only way to value what lawmakers do is the rise and fall of the stockmarket. “Yes, we removed those laws that made companies financially liable for polluting the river because they were affecting the bottom line of their stock price. And we’re making it compulsory for everyone to buy and upgrade their iPhone at least twice a year to give Apple a bit of a boost.”

But I particularly loved his idea on unemployment. “If you tax people that work, and you pay people that don’t, don’t be surprised to see a lot of people not working”.

I can just see those lawyers and accountants giving up their jobs so they can go on the dole.

And Gina, she’ll close down her mines, because, well, what those exorbitant rates of tax that companies are forced to pay, she has no incentive to make money.

 

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11 comments

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  1. Francis

    If you think “the Liberals strategy was straight out of the Ronald Reagan playbook”, have a read of ‘Lawful Abuse’ by Robert Flynn (just the references to the Reagan era) and you will have no doubt whatsoever…..

  2. Rossleigh

    However Francis, the Republicans of the Reagan era recognised that they’d need a leader with a greater grip on reality than Tony Abbott, and, therefore someone who’d been an actor was perfect. At least he knew he was only there to says what he was told and didn’t get into as much trouble by diverging from the script…
    Although, the “We start bombing in two minutes” was an unfortunate ad lib…

  3. Awabakal

    “If you tax people that work, and you pay people that don’t, don’t be surprised to see a lot of people not working”.

    Nonsense!

    I work and I don’t get paid.

  4. stephentardrew

    The funny thing is that labour productivity has increased while wages decrease , casualisation increases, hours worked increase and commuting to work takes longer so lets go for productivity gains. More corporate irrationality and double speak.

  5. Anomander

    I always marvelled the hypocrisy inherent in the formulation of the Carbon Tax, inasmuch as it was recognised the major polluters would simply “pass on the costs to consumers”.

    At no point did anyone question this assertion – it was always a given that those business, now being hit with a charge to address their decades of unrestrained and destructive pollution, should not have to carry the cost of compliance or remediation – they should be free to increase their profits unconstrained and to pass those costs onto their customers without penalty. And in order to achieve that, the government will use public funds to compensate the consumers, rather than forcing those polluting our atmosphere to conform to social standards.

    It is now far worse, no longer are these business responsible for their crimes, indeed, our government is going to pay them incentives not to pollute, with no repercussions should they fail to achieve the stated goals or to even refuse to participate in the process.

    Of course, this fully reveals the true nature of our modern society, where big business stands above and beyond the law in every sense, and there’s no longer any way to constrain their behaviour.

    Both governments and individuals are now effectively powerless. Governments seeking to pass legislation that hampers the conduct of big business will soon find itself defending lengthy and costly litigation. And once the TPP is signed, the corporations will be able to bypass our laws completely and take their case to some nameless, faceless panel whose decisions are accountable to nobody.

    As individuals we like to believe (and are often told) that the government is there to act on our behalf, to protect and shield us from the circling corporate predators, only to find the government are, in fact, in cahoots with the predators themselves – they are the scavengers, scaring and mustering the population and opening paths for the predatory corporations to swoop in and pick us off, the government smiling reassuringly, willing that if we all follow them, we will be safe under their watchful eye as we are led blindly into the predators trap.

  6. Win jeavons

    Like Awabakai, No one ever paid me to do housework , raise children, do voluntary work , and now care for an aging husband. The best work is done for love, not reward! Also, the men who make this sort of statement would never aim to live on unemployment income < Just another scam on the poorer sector,

  7. patriciawa

    Not sure if this relates is to your theme, Rossleigh, but I’ve always thought of Australia as a country where those terms ‘rich’ and ‘poor’ didn’t have much relevance. It’s what attracted me to become a citizen in what I thought was a classless society. One of the reasons I set off in my early twenties to travel the world and finally settle here without ever looking back to England was because it was never ‘home’ to me. I felt in my bones, even if I did not understand it rationally, that no matter how educated I was, or well spoken, I would never really fit in or be good enough to fit in. I would always feel ‘poor’ and ‘working class’ no matter how often and how high I was promoted, and certainly not how well how paid or how big my bank balance. I’ve tried to exorcise that other me, but she hovers still as a sort of shadow and reminds me why I’ve stayed here and raised my children to become very well grounded citizens in what is a very lucky country. Let’s keep it so. Let’s not have economic success become a measure of social value. How can we continue being a good example to our neighbors of what democracy can mean if wealth is over-valued here? That is not much better, maybe even worse, than their ‘caste’ systems we think so wrong and no longer relevant in modern times. All children deserve the opportunity to grown up grounded in that sense of self worth which begins in their earliest years.

    My poor is always with me,
    No shoes on chilblained feet.
    It’s not the cold she’s feeling
    But indifference on the street.

    My poor is always with me
    She hides from fights and noise
    With a dog eared book for company
    And a few dilapidated toys.

    My poor is always with me
    Even now in happier days
    Reminding me that babies
    Cannot “change their ways.”

    My poor is always with me
    Reminding me to give
    And do my bit to change a world
    Where still unhappy children live.

  8. abbienoiraude

    I cannot see how we are to ever recover from this trajectory we are on, where the rich continually take from the poor.
    Not without some amazing leader/leadership who will drag us kicking and screaming to a place of fairness and egalitarianism.

    Thanks for your piece Ross, but now I am so depressed.

  9. stephentardrew

    abbienoiraude April 27, 2015 at 10:15 am

    Completely agree. We are truly on a highway to hell with Labor’s left completely failing progressives.

    The Greens also need to sharpen up their act if I am going to support them.

    No more pussy footing around it’s time for radical change and promotion of Modern Money Theory as a viable alternative to neo-con supply side bullshit.

    A failure is a failure and more of the same is just straight out idiot narcissistic masochism.

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