Col Rouge, I think you've completely missed the point - read the Gruen piece: effective marginal tax rates are highest on those moving off welfare - higher than the 46.5% top rate. So you think that reducing the top rate will help into a single band? By your method - EMTR's will be even higher on those moving off welfare. You have peddled a false prospectus in my view.

Also Gruen makes an even more powerful point that economic growth would be higher if tax-transfers were directed to the low end of the income spectrum. Also your point that income tax is blunt - is the reason that tax credits are superior to your method of a single tax band.

I too would prefer more wage equality - but the actions I outline in the piece - will be far more effective than legislative measures that force companies to reduce top executive pay.

However this was not my premise anyway - I was simply outlining measures to improve employment prospects and equality at the same time using innovative means.

Corin,

The problem of EMTRs could be eliminated in Col Rouge's proposal by taxing on a family rather than an individual basis and setting the tax threshold at what the family would be entitled to from the welfare system. No one receiving a welfare payment would pay any income tax. Since presumably money earned above the threshold is more than is needed for subsistence there is nothing unjust about taxing it at the same rate for everyone. Of course the politicians would never go for it, because they would no longer be able to impose confiscatory effective marginal rates on the working poor to make up for their "preferential option for the rich". They would also be unable to give favourable treatment to families with children, who are producing the next generation of peons, at the expense of, say, couples where one partner is disabled or of pensionable age.

Shonga, the current corporate rate of income tax is 30% flat (on each and every dollar), compared to a “marginal” tax rate of 30% for anyone with an assessable income of between $21,601 and $63,000 (given that every individual benefits from free and reduced rate of tax for incomes below $21,601 (2005/06). Since Keating introduced franked income offsets in the 1980’s, Australia has become one of the few places in the world which does not effectively double tax company dividends.

Eliminating the marginal higher rates will effect only a minority of the population and only a minority of the totality of tax assessable income.

A flat 30% sounds like a good round number in my book.

Corin, I see nothing “false” in what I am “peddling”. Some folk might find their “marginal income” disadvantaged when they move from “handouts” of welfare dollars to the dignity of dollars they actually earn.

The most important point I would make of your “claim” is the amount of “Welfare” is means-tested and strictly limited, whereas the amount of earned income is “unlimited” and a function of an individual’s personal will and sense of determination to do better than just replace the marginal welfare income which they lose.

To recognise the opportunity to benefit from a significantly greater amount of earned income, is of course, up to the individual.

Being one of those whose taxes from my 3 job roles have had to support welfare claimants, whilst foregoing personal benefit through tax, I recognise that, those who seek to enmesh themselves in poverty traps have only themselves to blame.

Faustino, how governments spend our taxes is a whole different debate and I am working on the assumption that this debate is how they get their hands on our taxes.

From a personal view, I do not believe governments can pick “winners” any better than private investors and thus, would suggest all forms of subsidy for commerce verge on the fraudulent and at best mange to institutionalise the interests of vested and special groups at the expense of the wider community.

Col,
Thanks for your explanation, this must be a first for you and I two consecutive relatively agreeable posts. I am medically unfit to work, but have in the past worked 3 jobs myself for a period of 7 years, so I can empthise with your feelings on that plane. When I refered to Government subsidies for business I meant along the lines of business supposedly private, free enterprise being able to claim the cost of petrol, depreciation etc, which to me more or less appears to be a subsidy, as ordinary individuals are anable to have the same benefits, I am sure that there are arguements for and against, however in the tax theme it represents an inequality to me, what do you think about this?

In my mind tax should be simple, transparent and fair, if that is idealistic, I am an idealist.

Divergence - I agree that well constructed negative income tax schemes could work well: see paper by Bartlett, Davies and Hoy: http://www.economics.unimelb.edu.au/workshops/Hoypaper.pdf

However I think it being family based is simply a form of income splitting. For poorer families in particular - 2 tax free thresholds - is superior. We should promote workforce participation in my view as far as it is still family friendly and parents can be parents - tough balance.

When you factor in the betterment of a family financially for not having to spend on childcare if a parent stays home - I think the 2 tax free thresholds off-sets this somewhat in the balance.

Col, what part of employment did you miss in my article (up to 7% growth and 2% reduction in the u/e rate) - to then follow up with this - people move from "“handouts” of welfare dollars to the dignity of dollars they actually earn." Am I not addressing this with a set of policies that could see 2 or 3% u/e in the medium term based on far higher participation rates than would occur if this rate was achieved under the current economic model. It seems to me that we are seeking the same outcome. Also what part of the article drew you to the conclusion that it was not in the national interest to have lower EMTR's at the low end - as far as the economic opinion is concerned economic growth would accelerate rather than decelerate under a wage-tax trade off, thereby improving all our opportunities in the medium term. As far as general opinion in concerned the economic benefits of reducing and pushing out the two top rates has largely been maximised, the real task is to get more partricipation in the labour-market - where is your policy for this. I could ask the same question or Howard and Beazley too - they are both missing the mark at the moment!

Shonga, this may come as a surprise but the rules for companies versus individuals for the right to charge “allowable” expenses against generated revenue are pretty much the same.

("wholly and necessarily" applies to the individual, where as "wholly" only applies to businesses).

Depreciation is allowable for a private person provided the asset is revenue earning and not for own consumption (eg. Investment housing, tools of trade, articles for resale etc.). Businesses are not allowed to claim for “non-cash costs” such as employee leave, doubtful debts or stock deficiency provisions. You suggestion to allowable depreciation being a “subsidy” is clearly, wrong.

Businesses pay taxes which individuals do not, most notably, fringe benefits tax and payroll tax. I am, however, not suggesting that individuals not paying these taxes are “subsidised”.

Corin “the real task is to get more participation in the labour-market”
Then the real issue is to free up the employment market. No sensible employer is going to underpay employees, who help generate wealth. I would suggest the issue of “employment” is for individuals to recognise, the contract of employment is a matter of negotiation and possibly a matter of putting oneself to some discomfort to make oneself “competitively employable”.

Attention to gaining qualification, a sense of appropriate dress, acknowledging that someone else who has had longer with an organisation might know more (humility) helps.

Obviously, someone who turns up on a Monday and wants to be top-dog by Friday is not going to “participate” for very long, particularly if they take Wednesday out as a “sickie”.

Opportunity to “participate” is not an issue, in the current economic environment, “WILLINGNESS” to participate is!

If an individual is not “willing” to participate, nothing you or I can do or say will make their lot any different.
At the risk of repeating myself, Work choices, like all other choices, are best left up to the individual and are, thus, also a responsibility of the individual.
Fluffing around with notions of “wage-tax trade off” is a emotional diversion and a smokescreen used by those with an liking to meddle in paternalistic social engineering