Secondary trickles - vanishing rich people (aka "Y'all are doing capitalism wrong" part 2)

Hokay, first things first. On the offchance that people really really like me reviewing stuff and are worried that Cinemania's gone, it's been reborn phoenix-like as Love & Pop and I'm still writing stuff for them pretty regularly. Most recently I reviewed the Australian River Cottage spinoff (pretty good, very white), Hugh's 3 Good Things (moar comfort-food cooking TV), The Life After Death Project (a horrible doco about ghosts, centred on a pretty interesting-sounding dead guy), a Korean disaster movie (actually pretty amazing), and an Adventure Time special (it's Adventure Time, whaddaya want?*).

Right. Where was I? Oh yes. Taxing the rich.

I fall pretty squarely on the left in terms of politics. According to the most recent shot I had on Vote Compass**, I'm pretty much in the middle of the left-libertarian*** box. One of the things that goes along with that is that I believe in taxing people (particularly rich people, particularly very rich people) more in order to make it possible for the government to pay for more stuff, allowing the public access to free or heavily-subsidised services.

To clarify, I'm talking about income tax here. In NZ we have two primary kinds of tax - income tax on the money we earn, and GST (Goods and Services Tax) which is a percentage of the cost of everything we buy. The current government have cut income tax, and increased GST.

The problem with doing this is that while people with higher incomes will always pay a higher dollar share of income tax, even if the percentage is flat across all income brackets (here in NZ it's not, though I couldn't tell you the precise rates off the top of my head), GST always runs into the "you can only buy so much stuff" problem I mentioned in my last post. With income tax the government will get a bigger share if more people earn more money, while with GST the only way for the government to increase their take is to convince people to buy more stuff - and even the richest person can only eat so much food, and wear so many clothes. On top of this, increases in GST are always passed on in the price of the Goods and Services in question - so raising GST makes everything more expensive for everyone, which disproportionately affects the poor.

So, I'm in favour of plans (regardless of which party they come from) to cut GST and increase income tax in the top brackets to compensate. One of the most common objections I hear to plans like this is that they "punish people for hard work", and that if we tax them too heavily all our richest citizens will head overseas. To which I say, "who cares?"

First off, there's a tendency to misunderstand the way that tax brackets work in New Zealand - or to wilfully misrepresent it, if you want to be cynical. When you enter a new tax bracket, the new tax rate doesn't affect the entirety of you income - just the bit that pushes you into that new bracket. Secondly, if someone makes over a million dollars a year, and you really do tax 50% of their whole income - they still end up with a minimum of $500,000 - which is still more than 5 times the median income.

And as for people who'll leave if they're taxed - I contend that we can do without them.

There aren't that many people making more than a million a year in New Zealand, so if they all left at once the impact on our population would be pretty tiny. Moreover, the jobs that they're doing can, I believe, be done at least as competently by people who are willing to accept smaller salaries. I don't believe that people who have the skills to be CEOs of large companies are actually as rare or as superhuman as they like to make out, and getting $500,000 (even $1,000,000) per year instead of $4,000,000 still leaves you pretty well off.

The question is this: do you want it to be possible for some (not very many) people to be astronomically rich to the point where they couldn't spend all their money if they tried? Or would you rather have free schools, hospitals, and ambulances?

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*What do you mean you don't watch Adventure Time? It's really good! It hits that Moomin-flavoured sad-stuff-for-kids button whilst also being actually funny, and has D&D jokes without being self-conscious about its nerdiness. And it's a kids' cartoon where the characters aren't perpetually snarking at one another and the voice acting isn't 50/50 gravel and horrendous squeaking. Seriously. Go do it.

**It's a tool that aligns your personal values with the stated policies of the major political parties here in NZ. If you're a New Zealand resident, I strongly recommend you have a play with it. I didn't find the results especially surprising for me, but I get the impression that others might - and it's always nice to have your sense of where you sit politically confirmed.

***In the sense of letting people mostly do what they want - I'd call it "anarchistic" but the axis on the graph that Vote Compass gives you calls that "libertarian" as opposed to "authoritarian" on the other side. Basically, I'm on the side of Chaos if you're familiar with 4-axis D&D alignment grids. Chaotic Good, I hope.

Trickles (the "Living Wage" and stuff...)

My wife runs a small business, and is doing a business course* to improve her policies and procedures and things. Recently, she got into a discussion with her classmates (and a separate but similar one with the small business group she's a member of on Facebook) about the Living Wage. Obviously you can go find out about the Living Wage at that link if you want to, but for my teal deer friends: it's a recommended wage, calculated based on the cost of living in New Zealand. Notably, it's about $4.50 an hour higher than the minimum wage.

My wife's course-mates and co-small-business-groupers were resoundingly against the idea, on the basis that it'll make it far too expensive to employ people and cost jobs. This is the point of view currently presented by the majority of right wing parties in New Zealand at the moment as well. Unsurprisingly to people who know me, I think they're wrong.

Now, a disclaimer: I am not an economist**. I think though, that economics is a less scientifically objective discipline than some economists like to make out - and it's certainly not immune to ideology or fashion.

The primary argument against the Living Wage (as I said above) seems to be that it will cost too much for small businesses. First off, this doesn't seem to be the case. The Living Wage people offer accreditation for businesses that adopt the Wage. They're all over the place (there's a cafe here in Palmerston North that does it) and none of them seem to be keeling over at time of writing.

I think there's a fundamental misunderstanding going on here. It's tempting for people to see themselves and their families and businesses as somehow sealed off from the rest of the world, with a little door where inputs and outputs go through. That's not quite right though. If paying your employees just meant more money in the salaries budget and nothing else, the naysayers would be right. What actually happens is more complicated.

Pretty much everyone is familiar with the concept of "trickle down" - the idea that cutting taxes would mean that the rich would spend more, and everyone would benefit all the way down the chain. It was a lie, of course. The problem with trickle down is that while some rich people might enjoy having more money, there's only so much stuff you can spend money on. Some people do buy a bunch of stuff they don't need once all their immediate needs are met, but there's a limit even to that - to put it simply, people don't need to eat twice as much just because they earn twice as much. All this money just ends up accumulating, and doing nothing much useful for anybody***.

You know who does have stuff they need but aren't buying? Poor people. Not even poor people - below-averagely well-off people. Ordinary people. The people who, for the vast majority of small businesses, make up almost all of your customer base.

"Trickle down" is a lie, but "trickle up" actually works. Measures that put money in the hands of people who don't have any are going to be more effective at stimulating people to buy stuff, because I can guarantee that there is stuff that those people want and need that they cannot currently afford to buy. Unless your business is selling multi-million dollar real estate****, these people are your customers and their lack of money is what stops them from giving that money to you.

There are other benefits - the Living Wage seems to greatly improve staff retention, and having done recruitment and discovered how badly it sucks, that seems like a major plus to me. It also seems fairly self-evident that paying employees a rate they can live on would make them less likely to dip their hands in the till or otherwise let the side down.

There's a counterargument to the effect that if you give one staff member at the bottom of the chain a raise, the other staff members will all expect a commensurate one. I think this is flawed. First off, I don't think that good staff would begrudge someone a payrise that brings them above starvation wages just because it narrows the gap between them. Secondly, the Living Wage is a base rate like the minimum wage - it's something you decide not to go below. You can still address everyone else's pay through whatever mechanism you ordinarily use, you just don't go below the Living Wage.

This is part of my grand theory "You've All Got Capitalism Wrong". More on that anon.

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*It's going well, thanks for asking. Seriously, really well - I'm very proud of her indeed.

**My Uncle Brian is, but that doesn't really mean anything useful here.

***I'm aware that some rich people donate vast chunks of their largesse to charity. This is irrelevant to my argument because a) charity is a terrible way of meeting the majority of social needs, and b) money put into charity patches holes in the social fabric - it doesn't do a great amount to push the economy along.

****Or brain-destroyingly-expensive jewellery, or painfully high fashion, etc. etc.