Part of stage 3, the part that cuts the rate applying to incomes over $45,000 from 32.5 cents in the dollar to 30 cents, will benefit most taxpayers. The bigger part extends that low rate all the way up to $200,000, abolishing an entire rung of the tax ladder paid by the highest earners. For those very high earners, the part of their income that was taxed at 37 cents will be taxed at 30, as will part of the rest that was taxed at 45 cents.
A politician, on a base salary of $211,250, will get a tax cut of $9,075. A registered nurse on $72,235 will get a tax cut of $681 according to calculations prepared by the Australia Institute. More broadly, a typical middle earner can expect $250 a year, whereas a typical earner in the top fifth can expect $4,230 according to a separate analysis by the parliamentary budget office.
The fate of the middle earner will be made worse by the loss of the $1,000+ middle income tax offset which wasn't extended in this year's budget, sending the middle earner backwards.
The typical female earner will go backwards too after the loss of the offset, getting half as much as the typical (higher earning) male, according to the budget office.
- Peter Martin, ABC News, 11th May 2022
If there is one common trait among every single person in existence, it is that the centre of their universe is between 19mm and 21mm behind their corneas. As a consequence, very few people bother to or even dare to imagine the world complexly, and from any other standpoint apart from their own. I think that it's reasonably fair to say that the realms of religion and economics both recognise the central plank of human nature that people have an almost unlimited propensity for selfishness.
You can apply this to the question of what people are willing to accept as truth. Right through school, swathes of people can't be bothered to learn anything because learning is hard work. When it comes to the
formation of opinions to do with deciding policy, people again can not be bothered to bother to learn basic concepts in science, economics, arts, literature; precisely because those things might interfere with and upset their pre-formed demands to be selfish. People's unlimited propensity for selfishness is likely the root cause of all of the vices and outworkings of those vices such as obesity, domestic violence, racism, sexism, et cetera ad nauseum. I am still yet to be convinced otherwise.
You can apply this to the whole realm of politics, from anything from education to health policies, to wages policies and taxation. The kinds of people who in the days long gone would have owned other people as chattel goods, now do not want to pay wages, or for the things which will benefit society as a whole. This has been evidenced by not only the fact that people have only voted for nominally leftist government for 25% of the past quarter century but also in the current and vociferous opposition to the current government's semi-wish to abandon the so-called "Stage 3" tax cuts.
Income tax is actually a tax on the net increase that someone has made over a calendar year. Income Tax Assessment and the 1936 and 1997 acts therein, allow for people and businesses to make deductions from the overall amount being assessed for taxation. The tax rates are then progressively applied; so that the last dollar is taxed at a higher rate than the first one; usually at various taxation brackets. One of the common fallacies that you hear is that when someone moves up into a higher tax bracket, they are worse off. This is obvious rubbish as it is only the very last few dollars which are being assessed at the higher rate; the rest of their income is still being assessed at exactly the same rates as before.
What's lost in this narrative being pushed by richer selfish people, is that it is actually prudent to tax that last dollar at a higher rate of tax because the utility of that last dollar tends to decrease as incomes increase.
The Utility of a thing is the usefulness of a thing; which is measured or imagined to be measured in theoretical units call 'utils'. Utility generally refers to the amount of enjoyment, usefulness or advantage that a thing confers upon a person.
When we refer to the marginal utility of a thing, we are looking at the amount of enjoyment, usefulness or advantage that the very last slice of a thing confers. If we take an infinitely small slice of a thing, then we can use calculus to work out what the point marginal utility of a thing is. However, while I might derive enjoyment from doing calculus, I am pretty sure that you do not. I am sure that my average enjoyment of doing maths is far more than yours; so I shall explain this concept not with maths by mayonnaise.
Suppose that we have a very small economy, where the distribution of mayonnaise determines how wealthy our citizens are. The citizens of our Kingdom Of The Kitchen are Alice, Bob and Charlie (A, B, C). Alice has 1 jar of mayonnaise. Bob has five jars of mayonnaise. Charlie has 50 jars of mayonnaise.
We can determine their marginal rates of utility by making them eat their mayonnaise. Even if you have unlimited mayonnaise, there is always some point where it is simply unpalatable to keep on wolfing down the stuff. Nobody in the world needs to eat that much mayonnaise. Probably most people will enjoy 1 or 2 teaspoons but by about 10 teaspoons of mayonnaise, it gets pretty horky borky pretty quickly.
You put your teaspoon in, you pull your teaspoon out.
You put your teaspoon in, and you have a little snack.
You keep on eating mayonnaise until you chuck,
And that's what it's all about.
Whoa horky borky borky!
Whoa horky borky borky!
Whoa horky borky borky!
That's what marginal utility is all about.
In general, the marginal utility of a thing tends to go upwards to a point and then drops off after maximum utility/usefulness/happiness has been achieved. At some point, you simply can not eat that much mayonnaise.
If we were to enact some kind of taxation policy in our mayonnaise based economy, we can compare different kinds of policy mixes.
With a solitary stationary standing statutory rate, we can compare a taxation demand of 1 jar of mayonnaise. Alice loses all of her mayonnaise. Bob loses 20% of his mayonnaise. Charlie loses 2% of his mayonnaise. The average rate of taxation is regressive in this case as the actual burden of taxation falls most heavily on Alice.
With a flat rate of taxation at 20%, Alice loses 0.2 of a jar, Bob still loses 20% which is 20% of his mayonnaise, and Charlie loses 10 jars.
With some kind of progressive rate of taxation, Alice who has less mayonnaise will have less of her mayonnaise demanded as a percentage than Bob, who will also have less of his mayonnaise demanded as a percentage than Charlie.
The thing is though, that it makes sense to impose progressive rates of taxation precisely because the marginal utility of mayonnaise decreases with each individual jar beyond a point. You can test this my making them eat the mayonnaise. Alice might very well be able to eat 20% of a jar of mayonnaise. Bob would likely start to protest if you made him eat a whole jar. Unless Charlie is some kind of mayonnaise freak, there is no sensible set of circumstances under which he would eat anymore than about a jar and a half of mayonnaise.
Alice might be taxed at zero mayonnaise. Bob might be taxed at 1 jar of mayonnaise. Even if Charlie is taxed at the rate of 10 jars of mayonnaise, there is still no sensible set of circumstances which suggests that he is going to be short of the stuff as he still has 40 jars.
So it is with money.
Mayonnaise is subject to the same sorts of marginal utility as mustard, chocolate, houses, knives, chainsaws, poison ivy, cars, and money are. If we substitute our jars of mayonnaise with say $40,000, then Alice has $40,000, Bob has $200,000 and Charlie has $2,000,000.
If we impose a solitary stationary standing statutory rate, then the burden of that taxation is going to fall most heavily on Alice. If we impose a flat rate of taxation, then the actual burden of that taxation is still going to fall most heavily on Alice. If however we impose progressive rates of taxation, then it makes sense to impose a higher rate of marginal taxation upon those dollars that people are the least likely to miss.
The thing that the right-wing scum media outlets are trying to do at the moment, is justify the baked in "Stage 3" tax cuts. By riling up the Bobs of the world and poisoning their opinions of Alice, they can justify lessening the burden of taxation on Charlie. Guess what? The right-wing scum media outlets are Charlie. Charlie doesn't need the mayonnaise. It's just that Charlie has an unlimited propensity for selfishness.
Further Reading:
https://www.jstor.org/stable/2548766
- On the Marginal Utility of Money and Its Application, Economica No.40, R.G.D.Allen (May 1933)
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