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Rich paid less tax when rate went up

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Rich paid less tax when rate went up

3News NZ

The highest earners have been paying less tax (file)

The highest earners have been paying less tax (file)

By Pattrick Smellie

Treasury research has found the proportion of all tax paid by the highest earners fell after the 2001 tax changes that took the top personal income tax rate to 39 per cent from 33 percent.

Far from its intended purpose of increasing the contribution by wealthy people to the cost of running the government, the 2001 tax increase spurred the highest income earners to find ways of avoiding tax, the Elasticity of Taxable Income in New Zealand paper found.

It tracks the proportion of income tax paid by different income bands between 1994 and 2008, and finds the top 10 percent of income earners had begun to pay an increasing share of total income tax in the years immediately preceding the tax rate increase and peaked at 38.9 per cent at the time the tax rate increase was announced.

"However, following introduction of the 39 per cent rate, it fell to 33.9 per cent in 2001," the report says.

"Between 2001 and 2009, the share of taxable income obtained by the top decile fluctuated between 33.7 percent in 2008 and 34.6 percent in 2005."

Treasury warned the results should be treated with caution, but that it showed "the elasticity of taxable income is substantially higher for the highest income groups", meaning the higher the income bracket, the more capacity that group of earners has to manipulate declared income.

"For lower deciles of the income distribution, the elasticity was found to be negligible," the report found.

The Inland Revenue Department last year won a landmark case against two Christchurch orthopaedic surgeons who declared dramatically lower incomes after the 2001 income tax changes than in previous years.

NZN

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Comments

23/08/2012 12:36:33 p.m.

Neil wrote:

Maybe we should be heading the way USA treats those holding public office. They should annually release to the public their tax returns. We are their employers afterall.

8/08/2012 1:30:51 a.m.

Al wrote:

@Mike. Actually he was one of the four key(!) advisors to Alan Greenspan on deregulating the Derivatives market. @Christopher. What you don't get is this isn't just a case of left and right, they are two sides of the same fractional-reserve coin. Continually banging on about Left versus Right is beside the point. After all, a lot of "lefties" love Clinton. But he was worse than Bush in a lot of areas. But the bottom line fact remains: the top tier cry and whine when they don't get not only what they "deserve" but still hold their pitiful claws out for more. otherwise, my mate at Studylink wouldn't have to tell at least one whiny child of these people a week (it's usually a lot more) to stop trying to collect Student Allowances when they are getting handed well in excess of some peoples working wage by their sugar daddies. And boy do they whine: "The IRD doesn't count that!" No, they don't and for reasons we need not go into. Trouble is, places like studylink treat income as actual income. That is, money that comes into your account. Whine, whine, whine they go. Then he gets their parents on the phone. "Oh, I guess that's fair." Whine, whine, whine. If it was just a case of Left versus Right, this would be a heck of a lot simpler. But it's not, it's simply a case of people who didn't EARN IT BY ACTUAL PRODUCTIVE WORK making it difficult for the rest. And the best part - they've reduced it down to a situation where people are scrapping over the crumbs. Now, if you don't get that, some serious reading in real world economics is in order

5/08/2012 8:05:39 p.m.

mike wrote:

The other day i read online, that US President Bill Clinton, confirmed. John Key Prime Minister of New Zealand was an advistor to the 'Federal Reserve Bank of New York' on Derivative Market! Derivative Market! the very thing that robbed so much from the mum and dads in the states. just take one example. FACEBOOK IPO or worse the 'Libor Rate' these Neo-cons economists are criminals with power.

5/08/2012 11:22:22 a.m.

David wrote:

@George that is complete and utter rubbish. The wealthy have the opportunity to setup family trsust... within those trusts they can setup shell corporations... those shell corporations can be used to write of GSt expenses. Dont blatantly lie on a story, you will become as bad as Chris whos entire post is the twisting of the truth and leaving out factual bits of information that show that National instead of labour is responsible via legislation that National put in place. As we know... government legislation can affect things for decades after it is enacted.

4/08/2012 8:24:19 p.m.

george wrote:

Does this article take into account the extra GST these people paid? It doesn't mention this. If you have a higher disposable income then you will buy more things and hence the amount of GST paid is significantly higher, especially with the rate increasing. This article is plain bad reporting as it looks at one part of the equation. If they brought in the additional GST paid then I would give it more credence.

4/08/2012 2:23:12 p.m.

Alex wrote:

It probably had a lot to do with the trust rate being 33%. If that rate had been 39% as well, the tax take would've been higher. Solution? Increase the trust rate as well. Or just have a revolution, it's the richies' choice.

4/08/2012 11:40:43 a.m.

Christopher wrote:

You ignorant lefties need to research your facts instead of showing your ignorance and blind bias. On July 21, 2006 the National Business Review (NBR) published its annual Rich List. The list contained the richest 187 New Zealand individuals and 51 families. This super-rich group had increased their wealth by just over $3.7 billion in the past year with Labour in power. That increase is as much as the entire wealth of the entire Rich List back in 1992. The people on the Rich List now have wealth estimated at over $35.1 billion. By the time the last National Party government went out of power in 1999, the Rich List had 135 individuals and 36 families, with wealth estimated at just over $9.8 billion, so the growth of the fantastically rich has speeded up under Labour. The graph of the rate of growth of wealth is therefore interesting. Under National in the 1990s it went up relatively modestly, and then after Labour entered government in 1999 it curved dramatically upward. The rise in the 2004-2005 year – when the super-rich got over $9 billion richer – makes the upward curve especially pronounced. By contrast, during the period that Labour has been in power since 1999, wage rises have averaged between 2 and 3 percent per annum, barely keeping up with inflation. Some years, real wages – what you can buy with your pay – have actually fallen. Median household income grew by a mere 13 percent between 2001 and 2004, while the super-rich saw their wealth increase by 75 percent in those same years.[2] Meanwhile poverty remains endemic, especially child poverty. The number of people living in “extreme hardship” has risen from 5 percent of the population to 8 percent under the current Labour administration.[3] Why is it that the rich did so well under Labour? What kind of party is this? What is its track record? Isn’t it supposed to be some kind of “workers’ party”, or didn’t it used to be? FACTS NOT FALACIES YOU MORONS.

4/08/2012 10:58:31 a.m.

David wrote:

What a crock Cherie... absolute garbage. The problem is that the rich are allowed to get away with being petty criminals. Someone steals a loaf of bread for their kids... they get arrested and go to court and possibly end up in jail. The wealthy steal and get rewarded with a tax break... yeah thats mutt logic for you. FOrensic accountants and abolishing family trusts will ensure that the wealthy cant continue to act like petty criminals who are above the law... tightening up tax law would also be a great help. Thos on low income dont steal from the tax man... those at the top do it on a daily basis.. and the result should be jail time.

3/08/2012 9:58:52 p.m.

cherie wrote:

Well they are only coming out with what educated people know. Up the taxs and you will get less from those with most. Simple really. Looks like the Nats have it right I would say. Keep the tax rate for those with more where it is and they wont take off overseas or hide it etc.

3/08/2012 5:38:12 p.m.

Tony wrote:

Charlene - you didn't actually read the article did you? What it said was that when the rates were RAISED the rich found ways to reduce their tax bill, which had a negative affect on the overall tax take. The better-off will always be more mobile and they will move if they think they are getting hosed. Already, French high-income earners are moving their affairs to the UK in response to the 75% tax rate. If, after studying the facts, you still believe that the rich should get 'bashed' you probably need to understand that you and your sense of entitlement and greed are the real problem.