Are tax cuts evil?

There's obviously a mock debate going on about tax cuts [wow! way to be a week behind the news!] being conducted variously by Howard, Costello, Turnbull, Emerson and Tanner.

Turbull's was the biggest contribution with some 297 different models. I gather all of them had something to do with cutting tax at the top end of town because of his constant references to "flattening and broadening" the tax system.

Emerson suggested getting rid of the 42% bracket.

Tanner wants us to cut the top rate. Costello doesn't, at least publicly. Howard does, then doesn't, then doesn't seem sure...

My take on it? Cutting taxes is not evil - agreeing to an effective wage increase for working people is not something I feel like I should offer blanket opposition to.

However, there's a pretty big rider I'd attach to that - the tax cuts must be fair, sustainable and maintain the integrity of our progressive tax system.

They have to be fair in that the benefits need to be shared equally.

They have to be sustainable and not compromise our ability to provide services to people (it could be argued that if we can't deliver the services we're elected to provide and manage then we forfeit the right to tax at all). I don't think it's a good idea to kill off our capacity to generate revenue and provide services (thus creating non-tax costs for everyone) in the interests of a small percentage of quite well-off taxpayers

They also need to maintain our progressive tax system. There's no logic at all to high-income earners paying the same rate of tax as low income earners. You're either going to have low-income people paying out a higher rate of tax than at present or you're going to lose the capacity to provide services.

So what do you do?

Tax reform is never a bad idea. As far as I'm concerned, if you can tinker with something to improve it, then you might as well (within the limits provided by people not wanting to re-learn the tax laws on an annual basis!). But tax reform is not simply slashing tax rates.

I'd re-work the system so that you had a kind of steadily rising curve that adjusted for people's circumstances - as a single person working in a full-time job it's fair to say I can afford to contribute more than someone on my income with three SSM's (Screaming Shit Machines, otherwise known as kids).

This curve would be designed to have what I remember from school as a y-intercept that determines the transition point between receiving money (social security and other government benefits) and contributing money (tax). The whole social security and tax system would be handled on one curve and everyone knows where they stand. Of course, I think ideas like that will wind up in the too-hard basket...

What should the rates be for different income levels (what is the gradient of the curve and how should it rise)?

How do you actually design the curve to deliver both the equitable distribution of tax and benefits and a progressive taxation curve?

I imagine a simple* kind of equation with a sort of 'key' number where you have plug in the variables like income and number of dependents and it spits out your tax rate. The 'key' number is the multiplier that would be adjusted annually to move the curve and avoid bracket creep.

Being a curve means that there are no arbitrary steps that lead to your (effective) marginal tax rate rising or falling weirdly, and it's a system that can be claimed to be 'designed' rather than falling, like a hail of shit, into place. People may get tax cuts, but the system is both simple and progressive. It ensures a greater contribution from those who can most afford it while avoiding slugging the poor.

A sketchy looking sketch is here:

The horizontal line is the point at which you transfer from receiving benefits to paying tax. Note that you're earning income before you stop paying benefits.

You could adjust the transition point further along to create tax breaks for families etc. without the current fuckups along the lines of stupidly high effective marginal tax rates (EMTR's- an issue you won't win an election on but can help an awful lot of people if you fix it).

The rate at which working more leads to you losing more per dollar at a gradual and steadily increasing rate.

But to answer my initial question - tax cuts aren't evil. They're probably missing the point though...

* This is I guess drawing on a meaning of 'simple' which is probably more akin to 'a pretty shape but harder to calculate'. It would have to be done up in such a way as to define both the minimum and maximum gradients (it's probably not politically feasible to have a tax rate that tends towards 100%, even if I'd be fine with that personally), while having a steadily rising rate between $0 earnt and whatever you decide ought to be the top rate's threshold (currently $95,000) and having a defined point at which it transfers from net receipts to net payments. As someone who gets the shape but not the numbers, I'd be asking someone else to write the equation :D

[Note - I'm not an economist, so if I'm missing something, or you think I'm an idiot, feel free to let me know in the comments]