Monday, February 15, 2010

Households and tax cuts

DPF criticises my post on the realities of income distribution in New Zealand (and how few will benefit from National's latest promise of tax cuts for the rich) as "all theory, no reality". Rather than talking about individuals, he'd prefer to shift the goalposts to talking about households:

So ignore the stupid stats and graphs about individual incomes. They are relevant to academic theory, rather than the real world. Household Family income is what affects most people.
So, what are the facts about household income? Information on income distribution within households is hard to come by. The tax system focuses on individuals, and so does not collect it, while studies on household income itself focus on the aggregate rather than who earns what (and usually use equivalised figures in order to draw conclusions about actual living standards to boot). But we can get some rough ballpark figures. According to IRD's 2008 income data [XLS], there were 296,640 paying the top tax rate, and a further 447,130 paying the middle rate (for a total of 743,770 paying the middle rate or above). This sets an upper bound on the number of households affected by National's proposed tax cuts, but in practice the actual number will be lower as some households will have more than one high-income earner.

According to the most recent Household Labour Force Survey, there were 1,426,000 households in New Zealand. So, at most, 20% of households will benefit from cuts to the top tax rate, and slightly over half - 52% - from cuts to the upper middle rate. Which sounds a lot better than the individual figures, but the fundamental reality is unchanged: cuts to the top rate are irrelevant to fully 80% of households. Cuts to the middle rate go further, but still leave around half the population out in the cold. Which is a long, long way from National's rhetoric of "everyone will be better off". For many of us, National's tax cuts are tax cuts for someone else.

But no doubt tomorrow DPF will be dismissing these unpleasant facts as "stupid stats... relevant to academic theory, rather than the real world" as well.