We Are All Better Off With Lower Taxes

Some people treat tax cuts for the rich as though they were ‘hand outs’. This is not an accurate characterisation. It all comes down to what vision of society you subscribe to. Are the things people make theirs to begin with? Or are they collectively owned by default? Let's take a look.

Consider the amount of taxation people pay, and the amount they receive back in government benefits. From ABS 6537.0 – Government Benefits, Taxes and Household Income, Australia, 2009-10 (latest issue: 29/06/2012).

See this graph:

‘Final income’ in this case includes transfers and benefits paid by the government. So by assessing the movement up or down from private income to final income, we can understand who has paid more (Net Payer households) vs who receives more back in benefits (Net recipient households). Notice how only the top two quintiles are Net Payers.

Data drawn from this table: 

Now for the most obvious disclaimer here: this is household data, the story with individuals will differ. There were also other taxes and benefits that weren’t incorporated in this particular ABS study. But the underlying concept of net payers and net receivers still applies.

This is why it is absurd when people speak as though tax cuts are a ‘hand out’ for the rich. They are net payers, and when taxes are lowered to charge them less, this is clearly not a ‘hand out’. It’s charging the rich less, which also comes back to benefit society in other ways.

Society benefits from lower taxes because it attracts highly talented workers and entrepreneurs to our shores. Society also benefits from lower taxes because it means more money can be productively invested in making goods and services cheaper for all of us. Society also benefits because those resources left in the hands of private individuals are used to help provide jobs or raise our incomes.

Don’t fall victim to politicians appealing to baser emotions with the politics of envy. Realise instead that by lowering taxes we can all be better off.

This is a guest post by Stephan Livera. Mr Livera is a corporate internal auditor with a passion for communicating libertarian ideas. He blogs at www.stephanlivera.com where this article was originally published. 

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