Public Equity and Progressive Politics



We heard from the OECD on Wednesday morning (10 Dec) [Focus on Inequality and Growth] that inequality suppresses economic growth. (Here are Radio New Zealand’s morning reports on this.) This is hardly a surprise to many economists and non-economists alike. The key point in this report though is that distributive policies are required to help the third quarter of the population (“the relative income of the lower middle class is a key factor”).

The neoliberal idea that it’s OK for the rich to grab as much income as they can, and transfer crumbs to the poorest (fourth) quarter of the population (and lend to the middle two quarters), simply does not wash any more. “Policy must not (just) be about tackling poverty, it also needs to be about addressing lower incomes more generally”.

Labour’s Stuart Nash wants to tax labour less and capital more (Q+A, TVNZ, 7 Dec). Worthy, but it’s still old bureaucratic politics, using the language of class division.

At the core of democracy, everyone is equal; it’s self-evident. The simple democratic solution is to tax all income at the same rate (eg 33% or 35% or 37% or 39%).

How about this? 2018 Budget, the first Budget by New Zealand’s first progressive government of the decade. (Probably a Labour-led government, but a National-Green-Maori government could also choose to be progressive.) Tax all income at 35% and pay every adult $200pw as a public equity dividend. Nice round numbers. Almost impossible to not understand. Even the cynical mainstream media might eventually get it.

(Pay top-up benefits as appropriate, and superannuation at an appropriate top-up level above the public equity dividend. No households on low incomes would become worse off.)

There is no need to distinguish labour income from capital income. It’s all just income. So company tax, a form of income tax, would be set at the same 35%. (There may be grounds to discount company tax to some exporting firms, for example. But properly account for such a discount as a corporate subsidy.)

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Do the arithmetic for different groups of people. The top income earners would be worse off, but not significantly so ($2,680 worse for a person earning $200,000). The immediate gains come to people in the third quarter of the income spectrum. (A person today earning $40,000 per year who presently receives zero benefits would gain $2,420; ie $46.54 per week.) This is the group who most need attention. Further, the insufficiency of the third quarter represents the poverty trap faced by the bottom fourth quarter.

Public Equity is the big idea that can make a democratic and sustainable difference in the 21st century. Support it if you want to make a positive difference to your future, and the future of your children and grandchildren. You don’t like debt? Then try equity instead. Equity is the foundation of democracy as well as of liberal capitalism.

Try actual progressive politics. Public equity represents the difference between liberalism and neoliberalism. Propose liberal economic democracy; unite around the cause of public equity.

Leave the comfort zone of opposition politics. Actual progressive politics is about being for something good, not against something bad. Think of income tax as a levy on the use of public-domain resources. Think progressive, act progressive, advocate progressive, in 2015. Start a ‘35-200 for 2017‘ campaign. Educate the mainstream media. Cut through the nay-saying. Change comes from a simple good idea.


  1. You are advocating Gareth Morgan’s Universal Basic Income to be funded by a Comprehensive Tax on Capital Income. Love it.

      • Gareth Morgan suggested a flat tax of 30 cents/dollar, although he suggested payments of $8,000 per year at age 18 (as opposed to $11,000 per year for adults), and suggested that for a tax rate of 32 cents/dollar we might throw in a child allowance as well.

        • Thanks Mikesh for reminding me of this.

          Part of the problem with Gareth Morgan’s proposal is that it is tied in the public mind with a whole new set of (property) taxes. Property taxes may or may not be a good idea, but they represent a significant distraction from the core proposal to integrate income taxes with basic benefits.

          A second problem is that any approach that posits a UBI as a replacement for all other benefits is doomed. To achieve that unnecessary aim, either the people at the bottom get poorer or the UBI is too high to be politically credible.

          The concept of a Public Equity Dividend comes without much of the mental baggage now associated in many minds with the UBI. 35-200 reduces the whole idea to its core principle while not proposing nearly as much actual change as some people might think. (So it is politically viable.) The essential changes are that people in the third income quarter cease to be short-changed by the system, and that the first $200pw of any benefits we receive are ours of right (understood to be drawn from the public equity income pool) and not handouts. It means that Work and Income will have significantly fewer clients.

          • Morgan’s property tax (actually a tax on an “equitable rate of return” rather than a property tax as such) is an idea that is independent of his UBI suggestion. However I accept that a PED would probably be easier to introduce.

            • For workers in their primary employment, income would be taxed at source and sufficient of the tax revenue would be paid directly to employees as PED. Only the difference would be submitted to IRD.

              Thus a typical weekly payslip would include two items: after tax wages ($650 for a person on $1,000 per week before tax) plus PED ($200). Such a person would clearly see that she had private income of $850 pw, derived from two sources; a mix of privately sourced income and publicly sourced income.

              • The amount of a worker’s PED entitlement would not be known until the end of the tax year, and would require most taxpayers to submit an annual tax return. Morgan’s suggestion that we pay each adult $200 a week (say) and charge a flat tax on all income seems administratively simpler.

                • Under the 35-200 proposal the PED would be $200 per week!

                  That’s why I call my proposal ’35-200′. It means 35% income tax and an unconditional publicly-sourced payment of $200 per week.

                  • Part of the $200 is would be the tax reduction that the worker gets anyway under a progressive tax system. What I should have said above is that the question of how much that reduction amounts to won’t be known until the end of the tax period.

                    • Less uncertainty than at present. The need for a final end-of-tax-year settlement will be much reduced.

                      Employers will no longer deduct different percentages for each of their employees. The paperwork will be so easy.

                      Employees with several casual jobs but no main job will receive their $200pw as a weekly credit from IRD. All their employers will deduct 35% from every dollar of pre-tax income.

                      Many people on lower incomes will receive exactly what they receive now, given that they are in receipt of payments from Work and Income, or are in receipt of Family Tax Credits. It’s just that $200pw becomes unconditional; there will be no circumstances (except emigration) through which they could lose that $200.

                    • “Employers will no longer deduct different percentages for each of their employees. The paperwork will be so easy. ”

                      So, in fact, your system and Morgan’s are exactly the same, differing only in the amounts involved – 30% and $11,000pa in his case, and 35% and $9,000pa in yours. (And perhaps also in the actual mechanics of payment.)

  2. The big Ceo’s of power companies receives very high salary’s now that
    the industries partly privately owned, but comments in press say ,a CEO in private sector is under more scrutiny they have to perform higher results. So when it was government operated they didn’t expect a high level of scrutiny obviously,but still got very high salaries. So the public get a lower standard than shareholder companies.
    Child poverty or any poverty does not rate at all with governments, maybe the one in charge of social welfare rates a big pay cut for failing in this area. A CEO can be a poor performer under government control and still get big bonuses for poor work,not appropriate for performance pay, maybe the big bonus is for “trying.”
    The BIG money trail will always stay with the ones who generate big money for shareholders,
    and higher prices for consumers,nothing trickles down here except price increases, the profit rises to the top of pyramid.
    Useless to say to this government “deal to child poverty they will tell you “the country cant afford it”.

  3. Hi,

    It’s an interesting idea. My thought would be though instead to introduce two measures that any left wing government should find not too unpalatable. (The neo libs might have a collective heart attack though!)

    The first is to change the way tax cuts are introduced. Instead of reducing the top tax rates, reduce the bottom ones and lift the income thresholds for them. Yes I know it doesn’t help the non earners, but everyone else benefits including beneficiaries.

    The second is to introduce triple bottom line reporting. The social economic impact of various company’s actions should be measured and reported. This would hit the Amazons and Walmarts of the world.

    Cheers, Greg.

      • Hi,

        Because what you’re proposing is revolution, and revolution is always big and hard and comes with pain and turmoil. Better I think to go for evolution which people can adapt to and learn to like. Baby steps and all that.

        Cheers, Greg.

        • What I am proposing is little more than a simple reconceptualisation of what we already have. Do the arithmetic. It’s a revolution in the way we understand income taxes, and an explicit acknowledgement of public equity. The claimed “baby steps” are unnecessary complications and distractions from the central idea.

          • Hi,

            It maybe a simple idea, but the philosophy behind it would smack neo-libs in the mouth. You’re talking about giving $200 to babies and the unemployed regardless of whether they want to work or not. I don’t personally have a problem with this, but every neo-lib out there will be claiming that you’re incentivising unemployment, solo mums and large families. They would fight you tooth and nail.

            It’s not about the dollars and cents of the matter, it’s about the ideology behind it. And you want a war by the looks of things.

            I’d rather avoid the war, and use a system that delivers practically the same benefits to the poor and disinfranchised,

            Start tax cuts at the bottom of the income floor and keep raising the thresholds – it incentivises employment for the unemployed which keeps the neo-libs happy. And introduce triple bottom line reporting which seeks however hard it may be, to make companies responsible.

            Cheers, Greg.

        • By the way, note my actual proposal:

          Tax all income at 35% and pay every adult $200pw as a public equity dividend.

          Children benefit in the main because both parents would receive a PED. Children themselves would not get a PED. That does not presuppose that there should not be any kind of child benefit. It’s just that no child benefit forms a part of the 35-200 proposal.

          35-200 is not fiscally radical. Most adults already receive close to $200 pw in benefits relative to 33% or 35% income tax. It is conceptually radical, however.

          • Hi,

            So what you’re saying is that children aren’t part of the equity of the country? That seems discriminatory when the idea behind your equity is that every kiwi is part of the country and the payment is based solely on that.

            And for the neo-lib you’re still incentivising unemployment.

            Cheers, Greg.

          • No conceivable tax or benefit system treats children as equals of adults. Indeed all benefits payable on behalf of children are paid to their adult care-givers as part of the care-givers’ disposable incomes.

            35-200 is not explicitly about children, but children benefit in many ways. The most important is that all of their care-givers, many on low incomes, receive a full PED of $200 per week. Work and Income benefits would remain payable to provide further support to single-parent families. (Child Support also comes into the equation.) 35-200 is especially helpful to parents presently reliant on casual and part-time employment.

            Of course children are people, and have a stake in the public equity. If you must account for a PED for children, think of it as a substantial contribution to the cost of their education.

            You can easily go down a hobbit hole by linking the issue of children’s fiscal rights to the 35-200 proposal. Complicating simple policy solutions creates political inertia. Insisting on a PED to children represents one hobbit hole to avoid. Child Support is another matter that must be addressed elsewhere.

          • Hi,

            No I’m not complicating the idea, I’m keeping it simple by paying all kiwi’s the grant. You are the one who’s complicating it by saying that some shouldn’t be paid due to their age. Ideologically you are compromising your vision for practical reasons, and to make it seem more acceptable.

            And your problem grows. The instant you say that your grant is not given to all kiwis, that some are exempt, we have to start wondering who else is exempt. Prisoners in jail? Kiwi’s living overseas? Especially if they are not intending to return any time soon? The institutionalised?

            We end up with what is called the no true scotsman fallacy from philosophy. The grant is paid to all kiwis. But some kiwi’s do not receive it. Therefore they must not be true kiwis. The end result being that more and more kiwis are suddenly no longer kiwis.

            I don’t disagree that there are practical reasons for not paying the grant to some groups in society. Only that if your ideology is to pay all the people a grant based purely on equity, you can’t refuse to pay it without compromising your ideology.

            And to compare your grant to a tax rebate sort of, is cheating. Taxes and rebates are based on income. Children do not get tax rebates because they do not earn. And the grants they do get already go to their parents. I would see no ideological reason why your $200 grant would not also go to their parents. Only why it should be given regardless of age.

            Cheers, Greg.

          • Read the first and third paragraphs of my previous response.

            Yes, sure we can argue that public equity dividends must never be paid to adults unless they are also paid in full to all children. It would be an argument designed to euthanise the 35-200 income tax reform.

            While the fiscal equality of children is a quite separate issue to be discussed in a separate place, it can easily be accommodated by paying the $200 pw to the caregivers of children in the form of education vouchers. But it’s a pointless digression. All children are presently entitled, free, to at least $200pw worth of school, pre-school, and other child-specific services and subsidies. Their caregivers already receive, in kind, childrens’ PEDs.

            35-200 works as a piece of practical policymaking, because, though conceptually innovative, it is not fiscally radical. It is affordable. While it helps children by helping and acknowledging their caregivers, 35-200 is not about children, just as it is not about the labour market. With the 35-200 reform in place, we will be able to see more clearly the ways that we can help children further.

            35-200 is not a utopian cure-all. Rather, it’s a simple tax reform that properly applies the principle of horizontal equity.

    • The flat tax rate is an absolutely critical part of this proposal. Otherwise you get very high top tax rates and run into problems of capital flight and it makes the system less fair too.

      I think Triple Bottom Line reporting is a fool’s errand. For it to properly work two additional units of currency would have to be introduced: one for the environment and one for “social”. The problem comes in measuring how all this happens; how to determine those extra currencies are created.

  4. So Keith…presumably you would cut WFF tax benefits and accomodation? If so this would make our $34K househols (excluding those benefits) slightly worse off under your plan. Also would you keep GST? Third, taxing dividends, all equity in housing etc?

    • Nobody in the bottom three-quarters of the income distribution would be worse off. People on lower incomes who currently receive more than you would calculate with the 35-200 formula would keep their extra as a top-up benefit. Presumably top-up benefits would be streamlined over time, but in a way that doesn’t involve anyone in the bottom three-quarters of the income distribution getting less.

      The top-up could still be called WFF or AS or whatever.

      A few people might choose to receive a bit less, if it enables them to discontinue their relationship with Work and Income.

      GST is outside the framework; a quite separate matter. All income would be taxed at 35% at source. I can see no reason for changing the definition of ‘income’ from that which currently prevails; certainly (like GST) any plan to redefine income is a separate matter. The 35-200 proposal must be kept simple.

  5. It would also have the added bonus of simplifying the tax system and eliminating an industry of tax specialists who work out ways for high earners to legally avoid taxes.

    The downside is that because you are taxing income only you would create a volatile tax revenue stream – which you dont if you get your taxes from say income, consumption and capital gains.

    Kieth are there any countries in the world which currently use a flat income tax and universal benefit like you are suggesting – or at least anything which approximates it.

    • You say “because you are taxing income only”.

      I never said anything about other forms of tax. The 35-200 proposal only addresses income taxes and cash benefits. Other forms of tax are not addressed by my proposal; they are separate matters to be considered at some other time. If you start to complicate the core idea, you end up losing it. So assume that, under my proposal, all other forms of tax remain unchanged.

      I am not doing active research in this area now. But my understanding is ‘no’; no countries follow this approach. We are talking about setting a precedent. Most countries with flattish tax scales (some in Eastern Europe I understand) are following the neoliberal approach, in which the word ‘flat’ is used as a euphemism for ‘low’.

      As I see it, any implementation this or next decade would require a tax rate in the 33% to 39% range. Neoliberals find this unacceptable because they want low taxes, and they implicitly but emphatically reject the concept of public equity.

  6. I’ve been thinking about this lately and how expensive a BIFT would be. I feel that with rent/mortgage payments being such a large aspect of weekly expenses that this policy will work best if there is a large scale and serious effort to reduce the currently overvalued house prices. That would reduce the amount of Basic Income needed and hence the flat tax rate.

    Since I hate when people just talk about problems and don’t offer solutions here are some ideas on how to do this:
    Large buy-ups and also some build-outs of residential (and maybe commercial) property by central and local government to then rent out at non-market rates and mix in long term land leases (where the improvements including the house are 100% owned by the residents).

    Legislate against negative gearing on residential property (ringfence profits and losses from other unrelated business/income).

    Phase in a high warrant of fitness standard to rental properties.

    A capital-gains tax (of the same rate as the flat tax) on non-owner-occupied properties and a tax on unoccupied buildings/apartments and undeveloped land.

    Banning non-citizen or non-resident ownership of land.

    Changing banks’ capital adequacy ratios so that mortgage lending isn’t favoured over other types.

    • … reduce the amount of basic income needed [my emphasis]

      Needed for what? A public equity dividend is NOT a needs based payment. It’s a simple division from the public income pool.

      The 35-200 proposal is not a proposal to do away with Work and Income benefits. One effect of 35-200, however, would be that Work and Income would, after a year or two of transition, become a substantially smaller organisation. It would therefore intrude into fewer lives, and would have no power to remove people’s public equity dividends.

      • I see your point of view, but I would rather support a basic income that covers everyones basic needs excepting only the only the permanently/long-term sick or crippled.

        • You are trying to achieve two things with one payment. Even a $400pw would basic income would not meet everyone’s basic needs. Under the 35-200 proposal, basic needs would be met, but with some acknowledgement that some people may have different basic needs to others.

          To be politically credible, a public equity dividend should be able to be supported by a rate of income tax not too much above the 33% rate we have today.

          Political credibility is an important prerequisite to something actually happening. If Andrew Little was to campaign for 35-200, would you support it, or prefer whatever John Key offers instead?

          • You totally missed my point on housing. Currently the poor pay around say 2/3rds on rent/mortgage. If that could be changed to 1/3 of a basic income then the amount needed weekly would be ~33% less. $264 a week would be achievable at 40% tax rate (which I don’t think is politically incredible).

          • Once we have 35-200 in place, then we can always use the policy-making process to do lots of other good things, such as changing the way we subsidiise rents.

            And of course the ’35’ and the ‘200’ would both be politically contestable.

            But if we try to do too much in one big hit, then we will do nothing. The hard bit is the conceptual barrier.

            The good thing is that once the conceptual barrier is overcome, then 35-200 becomes a platform upon which other reforms might be built.

            35-200 is not a housing policy. Strictly, it’s not even a welfare policy. It’s a policy of income tax reform that renders some welfare outlays redundant because the first part of present benefit income is redesignated as Public Equity Dividend.

            • I see your point, who would want to go down a shock therapy route? But I think the argument is more compelling when presented as a group of policies – even if they are only implemented one at a time.

            • The 35-200 argument for transparency and equity in the income tax system is rather compelling as it stands, in its glorious simplicity.

              I have difficulty understanding the compulsion to bundle different policies together. Sure political parties’ policy manifestos represent a bundle of policies, but the implementation of one is rarely made conditional on the implementation of others. Rather each policy is negotiable with coalition (loosely defined) partners.

              If a political leader says, ‘when we have done A we will then do B’, this in itself may become a political death sentence for A.

              Further, the full implications of 35-200 can only be appreciated by the population at large once 35-200 is indeed implemented. Once markets have adjusted positively to 35-200, the concerns around housing and child poverty are likely also to have lessened. So the policy responses to these issues need to be adaptive.

  7. So your idea advocates taking more money from people on the highest tax bracket, and then paying $200 per week of it back to them? It’s madness, although the bureaucrats will love it. If we want to redistribute more to low income earners, why not simply allocate a % of budget surpluses to increasing (and possibly extending) WFF (a system that is already in place and has some degree of targeting already) and other targeted benefits.

    • We already do this. Everybody earning more than $70,000 per year is taxed at 33% and gets back $9,080. Do the arithmetic.

      One aim is to simplify, not complicate. The other aim is to acknowledge the critical importance of public equity to liberal economic societies.

      • No, they don’t get anything ‘back’, they simply pay their share of a progressive tax structure. Your plan advocates making millionaires beneficiaries. It’s dopey.

        • A Public Equity Dividend is an equal payment to all adults from the public pool. It’s not a hand-out.

          The 35-200 proposal simply formalises the status quo for high income people, and tweaks the numbers. Thus they would pay two percentage points more of tax on their income (35% instead of 33%), and their present concession of $9,080 would be made explicit and formalised as a Public Equity Dividend, raised to $10,400 per year ($200pw).

          Most millionaires will oppose 35-200. Will you join them in opposing this simple income tax reform?

          • “A Public Equity Dividend is an equal payment to all adults from the public pool. It’s not a hand-out.”

            The money is being taken from person A, recycled through a bureaucracy, and then given back to person A, who doesn’t need it. That is expensive and inefficient. And it is a handout.

            • But when taxes are cut – especially for the wealthy who probably don’t need – that’s not a “hand out”, right?

              A hand out for the rich – and paid by the poor, who face higher GST, government user charges, etc. That’s a bullshit system and as repellent now, as it’s always been.

            • No money is taken, recycled through a bureaucracy, and then given back. For people in regular full time employment, the only differences would be the sub-headings in their payslips, a few dollars more in the hand for those earning less than $70,000 per week, and a few dollars less for those on more than $70,000.

              From an employers’ point of view, there is less work, because all employees are taxed at exactly the same rate; no need for separate deduction calculations for each employee.

    • We already do this. Everybody over 65 gets a pension whether they are a billionaire or broke. Everybody loves it.

      • Indeed.

        Actually, we can say that everyone who earns more than $70,000 enjoys ’33-174+’ today. And everyone over 65 enjoys ’33-214+’ today. [Read the ‘+’ sign as ‘at least’.]

        Therefore, everyone earning more than $70,000 who is also over 65 enjoys ’33-388+’ today. It means that everyone with at least $70,000 of before-tax private income who is aged over 65 effectively pays tax (on all that private income) at a rate of 33%, and in turn receives at least $388 per week of publicly-sourced income.

      • Following from my comment above, the 35-200 proposal could perhaps be better understood as a 35-200+ proposal.

        The 35 represents 35% tax on all income.

        The 200 represents a Public Equity Dividend payable by IRD to everybody over 18. (In later years the age of 18 could become subject to public debate, just as the age of entitlement to NZ Superannuation is subject to public debate at present.)

        The + represents benefits paid by other agencies, such as Work and Income. Under 35-200 [ie 35-200+] the total amount of such benefits charged to Work and Income will be substantially less than it is today, given the presence of the PED which would be chargeable to IRD.

        Note also that Work and Income and not IRD should be paying ‘Family Tax Credits’, which are not really tax credits at all. Thus the IRD should not keep any personal details about their clients, such as information about who they are sleeping with and how many people live at the same address.

        We have no choice but to become clients of Inland Revenue (IRD). We, if we need help, apply to Work and Income. Thus it is appropriate that Work and Income keeps some personal information about the people it helps.

        35-200 is a transparent approach to income taxes, as well as representing a small reduction in inequality. The present system of taxes and hidden benefits and subsidies, is, on the other hand, quite opaque.

  8. A CEO of our local Southern Districts Hospital Board gets $500,000 pa. despite the Board running a $17 million deficit. The vice Chancellor of our University gets more. These are not isolated cases; think of the top bank salaries and the Energy CEO’s. Your proposals wont even touch them.
    Simpler is not automatically better. Unless you put a cap on top salaries as well as minimum wages, just playing with numbers wont work.

    • They will squeal at the thought of paying 35% tax on ALL of their income. The top 5% will be among the most vociferous opponents of 35-200, just as they were the visible opponents of MMP.

      Think of what you are for, not what you are against.

      The issue of salary caps is a worthy one, but is part of a separate policy debate. Please note however that an important side-effect of 35-200 will be enhanced bargaining power for people presently on low wages or no wages. 35-200 will indirectly lower the before-tax incomes of the rich as well as directly raising their taxes. But the impact on the rich will not be revolutionary. It will be small enough for them to absorb these proposals for economic democracy without much fuss.

      • Liberal democracy is not about governments tagging people’s salaries. Rather, it’s about maintaining the conditions whereby all people have enough bargaining power to ensure each gets a fair share of the pie. When we stop using a distorted version of property rights to shortchange those without much private property, then the capping you seek will be done by the market, not by the government.

  9. “At the core of democracy, everyone is equal; it’s self-evident.”

    That should read:

    “At the core of mobocracy, everyone is equal; it’s self-evident.”

    The rule of law distinguishes good from evil, and lawful government from a corrupt protection racket.

  10. Still stuck in the same old income tax way of thinking.

    To reduce inequality we need to move away from taxing income and instead tax wealth.

    A small wealth tax would enable the removal of income tax altogether as well as encouraging investment in productive parts of the economy rather than hording more and more wealth through usury.

    No income tax, especially for the bottom 50% of earners, would mean a massive boost to economic growth.

    Why should your hard work be taxed whilst vast amounts of wealth get larger and larger mainly through usury rather than productive effort remain relatively untaxed.

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