The Letter
12 May 2014
24 cent TOP tax rate

“When I hear an idea like we have heard from the ACT Party…you can forget health, you can forget public education, police…” -Winston Peters, The Nation TV3 Leaders debate. Jamie Whyte “won” the debate with his proposal for a top rate of tax of just 24 cents. (Not just our view – ACT jumped in the iPredict forecast poll following the debate to 3.8%). The other party leaders couldn’t grasp that it is possible today to have a top rate of 24 cents without touching health, education or welfare spending. Jamie Whyte has written an alternative budget using Treasury figures and having his assumptions tested by economists. http://www.act.org.nz/files/AlternativeACTBudget_v3.pdf We told you he was good with figures.

Benefits understated

Jamie Whyte has estimated that 24 cent tax rate would result in 5% growth. At 5 percent growth the economy would double in just 15 years. Jamie Whyte quotes Harvard University economists N. Gregory Mankiw and Matthew Weinzierl that tax cuts, to a substantial extent, pay for themselves but then adopts a much more conservative assumption. We think Jamie has underestimated the growth effects.

At last someone has said it

We quote Dr. Whyte with approval: “what affects people’s economic decisions is the rate of tax they will pay on the next dollar they earn: the marginal tax rate, as economists put it. Incentives are affected by the tax rates that lie above what you now earn, not below.
When National cut the tax rate for incomes up to $14,000 from 12.5% to 10.5% it increased our post-tax incomes but did not change our incentives to work more or take entrepreneurial risks. Cutting the top rate of tax will not simply increase people’s post-tax incomes; it will increase economic output and pre-tax incomes.”

A flat tax is fair

“The second reason to cut the top rate is that progressive taxation is unfair. The more someone earns, the more can be extracted from them by taxation. But the fact that someone has more money to tax, does not justify extracting it from her.“

Crony spending equals low growth

With the exception of Warren Buffett, no managed fund over time has produced returns greater than a passive fund and the latest Economist magazine argues Berkshire Hathaway should call it quits. The same is true with governments. Crony spending, picking winners, is politicians saying that they can produce better returns than allowing the market to decide where to invest. Where is the evidence? Our present 3.5 percent growth is, as Jamie Whyte pointed out, low for an economy coming out of a recession and receiving the massive stimulus of the Christchurch rebuild.

The next finance minister?

If the Roy Morgan poll is correct, Russell Norman may be the next finance minister. Russell Norman told the Leaders debate “You need to pick the industries you think are worth supporting...We have to decide to invest in R&D”. The Letter recommends Dr. Norman read http://www.rationaloptimist.com/blog/technology-is-often-the-mother-of-science,-not-vice-versa.aspx :
“In 2003 the OECD published a paper on “sources of growth in OECD countries” between 1971 and 1998, finding to its explicit surprise that, whereas privately funded research and development stimulated economic growth, publicly funded research had no economic impact whatsoever. It is possible that government spending on the wrong kind of science stops people working on the right kind of science as far as economic growth is concerned — too many esoteric projects of no interest to nearby industries.”

Communists

One of Jamie Whyte’s most telling debate lines was pointing out that all the other leaders wanted government to take on the role of being our parents, telling us what to do. Russell Norman claimed if government did not tell us to, no one would have children. Apart from some “common sense” from Peter Dunne, the other minor parties have never seen a problem that government cannot cure with a bit more tax and spend. If you want to feel depressed about our country, we recommend you watch the TV3 debate on replay TV. If you want to be truly gobsmacked, then watch the replay of Sunday’s debate between Maori party leaders on Marae. It is Cargo Cult politics.

ACT is going to be crucial

ACT is going to determine the outcome of the election. The latest poll confirms this. As ACT is leading in Epsom, all party votes for ACT count. If iPredict is right and ACT receives 3.8% that is just enough to make John Key PM. There is another factor that commentators have not focused on. David Cunliffe won the Labour primary claiming the 800,000 non-voters last election are Labour voters. By going to the left Labour can win the next election by getting the non-voters to the poll. But is he correct?

What happened to the ACT vote?

Kiwiblog has a piece from a reader: "I have recently performed some statistical analyses of results from the 2008 and 2011 elections, in order to test a theory about voter behaviour in 2011”. The analysis shows the Conservatives got their vote from National, all wasted. NZ First also took votes away from National. The reader says his analyses show “contrary conclusions among the commentariat (eg that the low turnout hurt Labour)”; “it was National voters (more than Labour voters) who stayed home”. http://www.kiwiblog.co.nz/2014/05/it_seems_it_was_more_national_voters_who_stayed_home_in_2011.html What happened to ACT’s vote? The Letter knows many ACT voters who think National is just pale blue Labour. Last election they stayed at home. In Jamie Whyte these “real” ACT supporters have someone they can vote for.

Meet Jamie Whyte

We are travelling to Wellington today to speak at a function with Jamie Whyte. 5.30pm-7.00pm at Dockside Wellington this Monday 12 May. Readers are welcome to come and hear Jamie discuss his plan for less tax and less red tape and more personal responsibility.

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