This is obviously "tongue in cheek". But I would just make two comments.
First, the issue about the wealthy is that they are often able to order their affairs in such a way as to ensure that the effective rate of tax they pay is low. I think it is Warren Buffett who said he was amazed to see that he paid a rate of tax less than his secretary. The fact that NZ's wealthy families pay so much tax (at least according to a well-known contrarian columnist) is that they are, well, very wealthy and this tells you less about the duress they are under than the state of inequality - and maybe also our over-reliance on income tax as a source of revenue. And they help fund elections (at least for one side of politics!).
Second, I know this is all in humour, but I think the use of the term "sin" tax is pejorative. Surely, from an economist's point of view, wouldn't it be better to regard them as externalities that inflict costs on the tax payer, and this is a way of recouping those costs - be it lung cancer, alcohol-induced trauma and other outcomes, accidents (hence, ACC)? You could add environmental despoilation and pollution to the list of "sins"!
Also, as I see it, a capital gains tax is not necessarily about raising revenue (although it may do some of that) but also, or even more, about modifying behaviour (a "sin" tax?). One of the reasons we have such an outsize property debt burden and housing prices that are (relatively speaking) internationally leading is that our lack of a CGT (and other supportive policy settings) favour investment in property over the productive economy. So, with any luck, and the appropriate policy settings, we might start to get more investment in the productive economy than in the property market.
"Sin tax" is a pretty standard term, even outside economics. According to Wikipedia (https://en.wikipedia.org/wiki/Sin_tax) "sin taxes are used to increase the price in an effort to lower demand, or failing that, to increase and find new sources of revenue".
Economists prefer the related but not identical concept -- a Pigovian tax -- that is focused on externalities, aiming to pay for the damage to society caused by particular good. But it's tricky to calculate the amount of damage, and the right level of tax to ameliorate it. It's also tricky to get political support for such taxes when framed that way. It's much easier, I fear, to fall back on presumed sins, e.g. "Polluter Pays".
There is much to be said about taxing capital gains in NZ. Although we have nothing called a CGT, some types of capital gains are treated as income, and are thus taxed at the taxpayer's marginal income tax rate. Others are exempt. It's a mess, and one that extends beyond the (very important) issue of residential property. It deserves deeper consideration than I can give it here.
Hi Dave, I like your analogy with fish. You note that behavioural changes in fish that avoid being caught may be passed on to other fish. Similarly, as tax rates rise and some of the rich change their behaviour to 'avoid being caught' such as by engaging in tax evasion or avoidance, they will pass on this acquired knowledge to their heirs and friends. This transmitted knowledge might then continue to be acted upon even if tax rates revert to the earlier lower level at which these behavioural changes had not yet been triggered. So, raising tax rates (even if temporarily) exerts a ratchet effect upon the behavioural changes. Thus, the amount of tax collected depends not just upon the current tax rates but earlier rates as well.
Hi Andrew. Economists usually think of progressive income taxes as a revenue tax. They raise a substantial proportion of total government revenue. In combination with substantial welfare transfers, they act as an income redistribution mechanism. That said, an argument could be put along the lines you outline for them to be sin taxes.
The status of specific taxes is a complex social and political question.
My more general point is that a tax can be either a sin tax or a revenue tax, but not both at the same time. A progressive income tax, designed as a sin tax, would aim to minimise the sin of having a high income. This would be incompatible with maximising the revenue raised by that tax. Or to take another example, a tobacco sin tax should lead to relatively few smokers and little revenue, whereas a tobacco revenue tax needs lots of smokers to fill the government coffers.
Given that the two principal components to adverse environmental effects of any species are 1) their number and 2) their behaviour, it’s important, in my opinion, that we behave consistently and authentically with our recommendations. In my case, I have had a vasectomy at the firm suggest of my feminist pals (shared for purely social system science reasons), I commute on a recycled push bike or public transit, and I pick up rubbish on the beach most days. The current trend to blaming others tends to let us off the hook, i.e., the Hollywood supervillain scenario.
This is obviously "tongue in cheek". But I would just make two comments.
First, the issue about the wealthy is that they are often able to order their affairs in such a way as to ensure that the effective rate of tax they pay is low. I think it is Warren Buffett who said he was amazed to see that he paid a rate of tax less than his secretary. The fact that NZ's wealthy families pay so much tax (at least according to a well-known contrarian columnist) is that they are, well, very wealthy and this tells you less about the duress they are under than the state of inequality - and maybe also our over-reliance on income tax as a source of revenue. And they help fund elections (at least for one side of politics!).
Second, I know this is all in humour, but I think the use of the term "sin" tax is pejorative. Surely, from an economist's point of view, wouldn't it be better to regard them as externalities that inflict costs on the tax payer, and this is a way of recouping those costs - be it lung cancer, alcohol-induced trauma and other outcomes, accidents (hence, ACC)? You could add environmental despoilation and pollution to the list of "sins"!
Also, as I see it, a capital gains tax is not necessarily about raising revenue (although it may do some of that) but also, or even more, about modifying behaviour (a "sin" tax?). One of the reasons we have such an outsize property debt burden and housing prices that are (relatively speaking) internationally leading is that our lack of a CGT (and other supportive policy settings) favour investment in property over the productive economy. So, with any luck, and the appropriate policy settings, we might start to get more investment in the productive economy than in the property market.
Hi Peter. Thank you for your thoughtful comments.
"Sin tax" is a pretty standard term, even outside economics. According to Wikipedia (https://en.wikipedia.org/wiki/Sin_tax) "sin taxes are used to increase the price in an effort to lower demand, or failing that, to increase and find new sources of revenue".
Economists prefer the related but not identical concept -- a Pigovian tax -- that is focused on externalities, aiming to pay for the damage to society caused by particular good. But it's tricky to calculate the amount of damage, and the right level of tax to ameliorate it. It's also tricky to get political support for such taxes when framed that way. It's much easier, I fear, to fall back on presumed sins, e.g. "Polluter Pays".
There is much to be said about taxing capital gains in NZ. Although we have nothing called a CGT, some types of capital gains are treated as income, and are thus taxed at the taxpayer's marginal income tax rate. Others are exempt. It's a mess, and one that extends beyond the (very important) issue of residential property. It deserves deeper consideration than I can give it here.
Hi Dave, I like your analogy with fish. You note that behavioural changes in fish that avoid being caught may be passed on to other fish. Similarly, as tax rates rise and some of the rich change their behaviour to 'avoid being caught' such as by engaging in tax evasion or avoidance, they will pass on this acquired knowledge to their heirs and friends. This transmitted knowledge might then continue to be acted upon even if tax rates revert to the earlier lower level at which these behavioural changes had not yet been triggered. So, raising tax rates (even if temporarily) exerts a ratchet effect upon the behavioural changes. Thus, the amount of tax collected depends not just upon the current tax rates but earlier rates as well.
Is a progressive income tax intended to redistribute income a sin tax or a revenue tax?
I suppose the case for it being a sin tax would have to do with the relationship between wealth and political power.
Hi Andrew. Economists usually think of progressive income taxes as a revenue tax. They raise a substantial proportion of total government revenue. In combination with substantial welfare transfers, they act as an income redistribution mechanism. That said, an argument could be put along the lines you outline for them to be sin taxes.
The status of specific taxes is a complex social and political question.
My more general point is that a tax can be either a sin tax or a revenue tax, but not both at the same time. A progressive income tax, designed as a sin tax, would aim to minimise the sin of having a high income. This would be incompatible with maximising the revenue raised by that tax. Or to take another example, a tobacco sin tax should lead to relatively few smokers and little revenue, whereas a tobacco revenue tax needs lots of smokers to fill the government coffers.
https://populationconnection.org/resources/population-and-climate/ And fish …..
Given that the two principal components to adverse environmental effects of any species are 1) their number and 2) their behaviour, it’s important, in my opinion, that we behave consistently and authentically with our recommendations. In my case, I have had a vasectomy at the firm suggest of my feminist pals (shared for purely social system science reasons), I commute on a recycled push bike or public transit, and I pick up rubbish on the beach most days. The current trend to blaming others tends to let us off the hook, i.e., the Hollywood supervillain scenario.