“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 describe 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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