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Envy Tax

Entry 1966, on 2019-02-20 at 09:56:09 (Rating 3, Politics)

Tax has become a big issue recently here in New Zealand. Actually, it has always been an issue here and in most other places too, but there are a few recent proposals which make it a bit more prominent at this exact time, specifically a proposed capital gains tax, trying to tax corporations more "fairly", and other changes which the tax working group might suggest.

During the previous election, the Labour Party (now the main party in the NZ government) said they wanted to make major changes to taxation, but said they wouldn't do it in their first term of government. At the time, the idea that they might even get a first term was doubtful, and a second seemed wildly optimistic, but now that is beginning to look quite likely. So those tax changes might happen in the next few years, and predictably there are significant objections to these ideas.

Unsurprisingly, one of the strongest condemnations comes from our libertarian party, Act. They said: "The Government's plan for a capital gains tax, coming this week, is a proposal to idolise envy and celebrate mediocrity. ACT will be fighting Labour's envy tax vigorously. Our goal is to awaken opposition based on our country's true values of meritocracy and achievement."

This is pretty standard libertarian rhetoric, but how reasonable is it? As I have said in the past, I don't automatically reject any political party's views, but prefer to look at what they are saying and see how reasonable it is. So is this reasonable?

Well, not really. There is an unstated prior assumption in the statement above which I disagree with. Act are basically saying that the people who have achieved advancement by acquiring assets that are not currently taxed (such as property) are to be admired for their skill and commitment.

But are they? Wouldn't we rather admire people who set up new export businesses, or who look for cures for cancer, or who create great new art? People who buy up properties then rent them out to the poor and disadvantaged and make a lot of untaxed money as a result are hardly worthy of admiration. Are they intelligent, or innovative, or dedicated, or hard-working? Well, some of them might be, but they certainly don't need to be. All that we do know is that they are likely to be cunning and self-centered.

So sure, there might be an element of envy going on there, because it's well known that people do compare themselves with others rather than base the assessment of their position using absolute measures. But there is also an element of contempt, both for the greedy, egocentric, lazy people who live off other people's hard work, and for a system which encourages that behaviour.

By introducing a capital gains tax we might discourage people from investing in property (and, as I have said in previous posts, I see very little difference between the terms "investing" and "exploiting"). And with the money they don't spend on that they might make more useful investments which genuinely do change society in positive ways. Note that I would prefer a system where resources were allocated according to more reasoned, rational principles, instead of relying on the whims of the rich, but I understand that capitalism works OK most of the time, and it's unrealistic to think that we will adopt a new system in any reasonable time period.

So a CGT might discourage a certain type of person from acting the way they do now, but it might encourage a new type to arise in their place, and that new type might represent the "true values of meritocracy and achievement" a lot more than the current ones do.

Tax should achieve two things: first, it should be a way to gather money for use in areas where the free market doesn't work (some would say that is almost everywhere); and second, it should be used as a tool to guide people into making financial decisions which the government (and preferably the majority of the population) deem to be positive.

If people are going to act based on pure greed by minimising the tax they need to pay (by the way, what sort of person really thinks that way - not anyone I would admire much) then that anti-social behaviour could at least be harnessed in the most positive way practical. Targeted taxes, like a CGT (which would not apply to the family home) seem like a very practical and fair way to do this.

So Act should look at the deeper question here. It's time to move past the tired old circular logic which has always been applied to the rich: that they are rich because they are hard-working or intelligent or innovative. How do we know that? Because how else would they get rich? Instead, let's state what we want to achieve and use the economic system, including tax reform, to get there.

I think Act got it wrong: it's not an envy tax, at least not primarily. It's a contempt tax.

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Comment 1 (4993) by Jim on 2019-03-11 at 10:13:48:

But it is an envy tax. The only fair tax is where everyone pays the same. We all get the same benefits so paying the same for those results just makes sense. Or is that against your leftist ideology!

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Comment 2 (4995) by OJB on 2019-03-12 at 10:18:27:

One function of tax is that it is a way to redistribute wealth in a system which favours some people ahead of others. If the system was fair and everyone got paid a sensible amount (instead of the massive differences from least to most we have now) then a single tax rate, or even a fixed amount, would be possible. But until that system exists it makes sense to tax those who can afford it at a higher rate. After all, you can't get blood form a stone.

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