I'm for flat tax before I'd support income splitting, but I thought I'd muster a few simple words of defence of the proposed bill for income splitting, because in essence, it is a very family friendly bill, and worth consideration on that basis alone.
I'll likely do a few posts on this topic over the next few weeks or months if the bill gets feet because lefties will crawl out of the swamp and start worrying about the government not gaining their rightful amount of tax from single income families. Oh, the horror of government not maximising its tax take!
Why is income splitting as a concept being put forward?
Well, the progressive tax system is designed to tax rich bastards a lot more than poor bastards because this is "fair".
With a progressive tax system, as individuals earn more, not only do they pay more, but the percentage they pay increases at various thresholds. In NZ, the top tax rate of 39% kicks in around 70K, and 39 cents in the dollar is remitted to the government as income tax (GST, rates, ETS taxes all kick in later).
So if the reasoning behind the progressive tax system is to set a "fair" rate of tax according to the capacity to pay, then it would seem fair to consider the income of a family as akin to the income of an individual.
Indeed, an individual only has one mouth to feed on their pay, and a family may have four mouths to feed on EXACTLY the same pay, and therefore effectively pay much higher taxes. How is that fair? It violates the so called principles of a progressive tax system by its own standards.
Even comparing families paying tax with other families paying tax creates unfair anomalies: A husband and wife earning $60,000 each will PAY LESS TAX than a husband on $90,000 and a wife earning $30,000 and looking after the kids. So, is that fair that one couple pays much less tax than another? The progressive tax system advocates say its very fair.
Let's try a thought experiment then.
Let's say a couple divorces. Say the husband was earning $120,000 per year and the wife stayed at home and looked after the kids. Why do divorce laws consider that the wife is entitled to half of the assets, when she earned "nothing"?
Or to put it another way - why shouldn't the wife be entitled to half of the income assets when they are together? So why should the government take more than what they would take from each individual in this example, after the assets have been fairly divided?
The husband and wife should be able to split their income and tax burden in marriage as the law demands they split their assets in divorce. That's what progressive tax would support in principle, but does the opposite in practice.
I'll likely do a few posts on this topic over the next few weeks or months if the bill gets feet because lefties will crawl out of the swamp and start worrying about the government not gaining their rightful amount of tax from single income families. Oh, the horror of government not maximising its tax take!
Why is income splitting as a concept being put forward?
Well, the progressive tax system is designed to tax rich bastards a lot more than poor bastards because this is "fair".
With a progressive tax system, as individuals earn more, not only do they pay more, but the percentage they pay increases at various thresholds. In NZ, the top tax rate of 39% kicks in around 70K, and 39 cents in the dollar is remitted to the government as income tax (GST, rates, ETS taxes all kick in later).
So if the reasoning behind the progressive tax system is to set a "fair" rate of tax according to the capacity to pay, then it would seem fair to consider the income of a family as akin to the income of an individual.
Indeed, an individual only has one mouth to feed on their pay, and a family may have four mouths to feed on EXACTLY the same pay, and therefore effectively pay much higher taxes. How is that fair? It violates the so called principles of a progressive tax system by its own standards.
Even comparing families paying tax with other families paying tax creates unfair anomalies: A husband and wife earning $60,000 each will PAY LESS TAX than a husband on $90,000 and a wife earning $30,000 and looking after the kids. So, is that fair that one couple pays much less tax than another? The progressive tax system advocates say its very fair.
Let's try a thought experiment then.
Let's say a couple divorces. Say the husband was earning $120,000 per year and the wife stayed at home and looked after the kids. Why do divorce laws consider that the wife is entitled to half of the assets, when she earned "nothing"?
Or to put it another way - why shouldn't the wife be entitled to half of the income assets when they are together? So why should the government take more than what they would take from each individual in this example, after the assets have been fairly divided?
The husband and wife should be able to split their income and tax burden in marriage as the law demands they split their assets in divorce. That's what progressive tax would support in principle, but does the opposite in practice.