Halve Income Tax Rates by 2020

Lets see how hard it would be to halve personal income tax rates across the board (ie the top rate would become just 22.5%).

The Australian Federal Government is projected to haul in around $290 billion in tax revenue next year. Personal Income Tax contributes around $123 billion or 42% of the total. Typically revenue would be expected to grow in line with general economic growth. Assuming the economy manages to grow  at an average of 3%p.a. over the next decade then if all else remained the same revenue from personal income tax would be at $165 billion in 2020. To cut income tax rates in half by 2020 we would need to cut income tax revenue down to just $82.5 billion. How hard is that?

Lets try this scenario. Lets assume that each year we take half of the 3.0% of total tax revenue growth and allocate it to new government spending. And we take the other 1.5% and allocate it to reducing personal income tax rates. Where are we in 2020? The table below shows that we comfortably hit our objective of cutting personal income tax rates in half.

Halving Income Tax

29 thoughts on “Halve Income Tax Rates by 2020

  1. According to Wikipedia the growth rate in Australia is 1.7% per annum. So if you wanted to maintain spending per capita then we would need to modify the above scenario so that only 1.3 of the 3.0% growth is allocated to tax cuts. Under that modified scenario we still reach our goal of halving personal income tax rates by 2020.

    For some nice per capita revenue figures check out the table at the bottom of the following webpage.

    http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/5506.0Main%20Features62007-08?opendocument&tabname=Summary&prodno=5506.0&issue=2007-08&num=&view=

  2. With all that new revenue coming in from selling gas to China, now is the ideal time to lobby for tax cuts for all! I doubt the government will do it, but their excuses will sound very hollow.

  3. Their excuse will as usual entail claims that all our ailing public systems (education, health etc) needs more money.

  4. LOL, taxes go up, not down:-)

    The goverment grows by about 6% per year, and inflation is about 3%, so what you are saying could be done. The goverment could increase spending by 4.5% and use 1.5% to reduce taxes.

  5. Washington – in the long run yes. However there are political and social transition issues.

  6. TerjeP – Can you imagine the slavery abolitionists of the 19th century saying “Let’s get rid of slavery in the long run, but for now let’s just promote less beatings by the masters. In the long run we want to get rid of slavery, but there are economic and social transition issues”?

    If taxation is theft it is wrong and should be abolished immediately.

    We discussed this post on the current episode of Free Oz Radio… http://ep9.freeozradio.com

  7. I don’t necessarily think taxation is theft. I rarely agree with Randroids on silly moralistic points like that anyway. Anarchy isn’t going to happen (and I wouldn’t really want it to), but we should certainly try to reduce the size and scope of government.

    If you want to try and completely abolish all taxes, go right ahead. Good luck.

  8. I don’t necessarily think taxation is theft. I rarely agree with Randroids on silly moralistic points like that anyway.

    Objectivism doesn’t mandate a zero tax position although I’m sure you’ll find objectivists who want this. Rand never demanded a zero tax position, she simply proposed that voluntary tax would work, much like charities work, if government was cut back enough.

    I find most people who critcise objectivism don’t understand it, but usually they’ve made the effort to at least have most of the facts correct.

  9. I like Ayn Rand, but I’m no Randroid. Rand was anti-anarchy.

    What I’ve never understood is this: Why would anyone want a small government? If government is good and works, make it as big as possible so we can solve as many problems as possible. If it is bad and doesn’t work, what do you want it to handle? No point having it handle unimportant things, and certainly you wouldn’t want a bad, inefficient organisation to handle the most important things?

    “Anarchy isn’t going to happen”. There we go again with the kind of argument slavery abolitionists faced everyday.

  10. If government is good and works, make it as big as possible so we can solve as many problems as possible. If it is bad and doesn’t work, what do you want it to handle? No point having it handle unimportant things, and certainly you wouldn’t want a bad, inefficient organisation to handle the most important things?

    Good to see that you’re thinking about things from first principles. The question, as you’ve identified, is does government do anything well? If we start from a state of nature, then start to organise ourselves along individual lines i.e. some form of anarchism, is there any area that a form of government could be a more efficient way of doing business?

    It would appear to me that government is a form of universal rules or values. We are saying certain values need to apply universally if we are to function as a society. What are those values? Life, liberty, property. We can determine by the use of reason that any society/group/commune/tribe/nation will not be able to afford all its members a chance of happiness, will not be able to have the highest standard of living they’re capable of, and will not be able to achieve peace within itself, unless these rights are respected and afforded equally under some value system to everyone. Hence, while anarcho-capilitalistic societies will do this to some degree, due to fact that the requirement for these things is universal and beyond question, we enshrine these principles through a higher vehicle called government.

    Of course, once this is done stupid people start looking to government to fix all their problems, and claim its the government’s fault because their microwave is too hard to program, but we all know those people are both stupid and parasitic.

  11. Wow… interesting discussion.

    Taxation is theft, there’s no two ways about it… you can’t logically come to any other conclusion if you believe in property rights. Although it would tickle me to see you try.

  12. Sutcliffe, almost as soon as I pressed submit I knew I would get a response like yours. I’m basically referring to the “no aggression” principle which is often touted by Randroids, and is also used as a justification of the supposed evil in any tax of any kind. I don’t mean to slime Objectivists as a whole, but I do hear this kind of thing from them often. As you said, Rand was not a “no tax” person and I apologise if I made it seem otherwise.

    Free Oz Radio raises interesting but logically dubious points. You create in your argument a false dichotomy between something which is good in total (therefore we should have as much as possible) or something which is bad (therefore we need 0).

    This leaves out the third possibility which is that government is suited to some tasks and not others. Libertarians would argue that government isn’t good at much and as a result should stick to things like keeping us safe and enforcing contracts, social democrats would argue that government is good at many more things.

    Could you find private solutions to the things most libertarians think government is suited to? Probably? Do most libertarians think a zero tax, zero government society is necessary or even preferable? I doubt it.

  13. How about tax is at best a necessary evil that has an only slightly better than precarious justification in a few limited areas, and at worse outright theft under threat of the gun?

  14. I believe in property rights, but no one is forcing you to pay tax to the Australian government. You’re free to leave at any time.

  15. I don’t mean to slime Objectivists as a whole, but I do hear this kind of thing from them often. As you said, Rand was not a “no tax” person and I apologise if I made it seem otherwise.

    It’s the term ‘Randroids’ – it seems to suggest that Rand, and those that subscribe to her philosophy, don’t think for themselves. If you’re going to use this term you should be prepared to defend that position, because that’s what it’s saying. If you don’t want to defend that position, don’t use that term.

  16. Sutcliffe, one of my good mates is an Objectivist and calls himself a Randroid all the time which is where I picked it up. I attach absolutely no negativity to the word at all.

  17. I believe in property rights, but no one is forcing you to pay tax to the Australian government. You’re free to leave at any time.

    That’s not really a solid argument. It doesn’t justify the use of tax as right or wrong in any objective sense. It doesn’t account for the fact that the majority of citizens didn’t choose Australian citizenship, but rather got it by default. And it doesn’t justify the fact that leaving is not easy or enabled by the government – for example, if I try to take my investments with me, I have to pay capital gains tax on them to leave the country even if I don’t sell them.

  18. As for anarchy versus government, this is a multi-layered issue. Unlike my FreeOzRadio colleagues, I lean towards being a minarchist (i.e. very small government). I agree that it’s not a consistent conclusion, considering that I consider taxation to be theft, but I come to this conclusion as I haven’t heard a satisfactory explanation on how an anarcho-capitalist society would solve the ‘Conan Dilemma’.

    The Conan Dilemma is a title I came up with which describes the scenario where Conan the Barbarian attempts to become a King by his own hand, by marshaling enough thugs to outnumber any private security forces that may protect localities. The Conan Dilemma applies to domestic threats but I think mostly to international threats.

    So I’m open to the idea of anarcho-capitalist society on a pure intellectual level, but I think the Conan Dilemma needs to be addressed in my mind.

    —-

    @Terje:

    Yeah I know buddy, just stirring the pot! Although you know I don’t like the moderate pathway.

    —-

    @FreeOzRadio:

    There is a key point that I think should be acknowledged. Everywhere in Europe during the 19th century, slavery by in large ended peacefully with the abolitionists winning the hearts and minds of the nation. In America, the War between the States used the abolitionist cause as a front to centralize the federal government’s power. As a result, the reason race relations are so bad in the States is partly due to the fact that people did not voluntarily decide to give up slavery (there are other reasons, but this is a fundamental one in my view). Now apply this principle into government, and you may have similar issue. You probably know this already… I’m just saying.

  19. I was being facetious. I think to call tax “right” would be a bit of a stretch (and difficult to justify) but sure, necessary evil might be a better way to put it.

    It’s still wrong for Free Oz to suggest that if I believe tax is justified in any case, I must agree with it in all cases.

    Free Oz’s entire argument is based in the false analogy with slavery which depends on the belief that taxation in any and all cases is as bad (indeed, analogous) with slavery. As I don’t agree with that point of view, the analogy is meaningless to me.

  20. @Daniel:

    “I believe in property rights, but no one is forcing you to pay tax to the Australian government. You’re free to leave at any time.”

    No one is forcing me to pay tax to the Australian government and I’m free to leave at any time… that’s funny.

  21. In much of the world the trade in slaves was abolished before the ownership of slaves was abolished. So in fact the end of slavery started out as an anti market initiative. The legal system admitted that humans could be property but in essence prohibited forms of trade. Slavery was abolished by installment. And having abolished slavery those that were formerly slaves were given full citizenship by installment. Perhaps this was all wrong and we should have had a single transformational moment but reality is rarely like that.

    A plan to cut income tax rates in half within a decade without any major disruption to society is a damn fine start.

  22. Washington – I don’t personally advocate zero tax. Yes tax violates property right. However tax in low levels does provide some worth while utility.

    When I was young I lived on a farm. I used to walk across my various neighbours farms without asking permission because it offered a shorter path to where I wanted to get to. I had to climb barb wire fences to do it. Property rights are very important but I’m not a puritan. Even today I’d readily climb those same fences. Mostly my neighbours did the same thing.

  23. @Terje:

    I could get pedantic on your example, but I won’t because I get your point. Like I wrote in my Aussienomics article, I’m a minarchist… which views a very very small role for the government, and thus a very very low tax rate accordingly. I think you can accomplish that without income tax, GST, capital gains or corporate taxes. There are also a lot of fees that bring in a sizeable portion of tax revenue into the government, I would look there for funding the Federal government.

  24. My idea isn’t popular, but I think we should end all taxes other than a GST, double it to 20%, and end duplication of Local, State and Federal services (which should be just about self funding given direct savings and productive efficiency gains in the economy), split the revenue equally between Federal, State and Local Govenrment, then every two years, drop the rate by 1% until we have all spending funded by a 10% GST alone.

    This is underpinned by 3% real growth and holding per capita Government spending constant.

    A leaner Government is less likely to begin programmes like a gun buy back or mandatory internet filtering or white elephant like the NBN, let alone suppress civil liberties.

  25. Mark & Washington,

    I’m sympathetic to both your approaches. Ideally I’d like to see our federal government stripped of all powers of direct taxation. It could be granted a fixed percentage of state revenues. Such an approach would keep tax competition alive.

    As an interum measure I’m still quite wedded to the idea of simply shinking income tax revenue incrementally over time until it disappears.

    Regards,
    Terje.

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