Tax and redistribution

Two recent items from NCPA have particular relevance to New Zealand.

Capital Gains Taxes Should Go Down, Not Up

January 21, 2015
The president wants to raise the top tax rate on capital gains and dividends to 28 percent. What's wrong with the proposal? It will hurt investment and hurt the economy, says Diana Furchtgott-Roth, director of Economics21 at the Manhattan Institute.
What happens when the capital gains tax is raised? The capital gains tax is a tax on the sale of an investment. With high rates, people will retain assets rather than sell them, limiting government revenue. Moreover, firms will limit their investments in order to limit their tax liability, and small firms will struggle to get financing.
The president should be lowering, not increasing, the capital gains tax, says Furchtgott-Roth, as such a move would boost the economy as well as federal revenues. She notes that rate reductions in 1997 as well as 2003 resulted in more asset sales -- and higher tax revenues.
Source: Diana Furchtgott-Roth, "Raising Taxes on Capital Hurts the Middle Class," Economics21, January 20, 2015.

The arguments against raising the tax are the very same as those for not introducing it in the first place. No doubt that battle will replay in 2017. But this piece serves as a reminder that if a capital gains tax was introduced it's just another tax the government can increase arbitrarily; another method by which the government can redistribute more....if there is any more to redistribute!

And why the constant need to increase taxes?

Growing Numbers of Americans Are Receiving Means-Tested Benefits

January 20, 2015
There has been a huge change in the size of the American welfare state over the last three decades, and Nicholas Eberstadt of the American Enterprise Institute says America's anti-poverty programs have become more about redistributing wealth than combating actual poverty. Eberstadt offers a staggering look at the growth of entitlement spending:

• From 1963 to 2013, government transfers from entitlements were the fastest growing source of personal income. Entitlement transfers were just one of every 15 personal income dollars in 1963, but in 2013, they were responsible for one out of every six personal income dollars.
• As of 2012, more than 49 percent of the American public lived in households receiving at least one government entitlement.

From 1983 to 2012, the number of Americans participating in entitlement programs increased by 20 percentage points. According to Eberstadt, the jump had nothing to do with more Medicare and Social Security beneficiaries due to an aging population -- those two programs were responsible for less than one-fifth of the increase during that time period. Instead, the growth came from means-tested programs aimed at combating poverty. According to Eberstadt's research:

• From 1983 to 2012, the American population grew by 83 million. During that same period, the number of Americans receiving means-tested benefits grew by 67 million.
• In 2012, one out of every six Americans were living in a home receiving food stamps.
• One out of every four Americans today receive Medicaid. From 1983 to 2012, the program grew by 65 million.
• As of 2012, over 35 percent of Americans were receiving a means-tested welfare benefit.

Does this mean more people today are in poverty than they were in 1983? No, says Eberstadt: 15.2 percent of Americans were below the poverty line in 1983, while 15 percent were below the line in 2012. In fact, he says aid has increasingly gone to people not classified as poor: in 2012, there were twice as many people receiving means-tested benefits as there were people living below the poverty line.
Source: Nicholas Eberstadt, "American Exceptionalism and the Entitlement State," National Affairs, Winter 2015.

Ditto NZ. Growing numbers on New Zealanders receive means-tested benefits. In 1980 fewer than 100,000 people received means-tested benefit. Today it's just over 300,000. Yet the population has only grown by 40 percent (if Working for Families was included the number would more than double.)