Robert MacCulloch: An inconvenient truth about capital gains taxes that Labour and the mainstream media covered up

The Attorney General David Parker presented the Inland Revenue "High Wealth Individual Research Project" to a gullible mainstream media that swallowed the political purpose of the report hook, line and sinker. For example, the NZ Herald did a video to explain to its readership of several million Kiwis that the reason why the "super rich" are paying an effective tax rate of 9.4%, compared to 20.2 % for middle earners, is because the wealthy get their "economic income" mostly from capital gains which are not taxed in NZ.

If economics was only that simple. The conclusion that our Attorney General, Minister of Revenue & Herald jumped to was incorrect

at least if you compare our IRD survey with a very similar one that was commissioned by the White House. It concluded that the super rich in the United States are paying an effective tax rate (measured in a similar way as our IRD survey) of 8.2%. That survey was even referenced in the Kiwi IRD report which states, "The approach we take is similar to recent work undertaken by the US Council of Economic Advisers that estimates effective tax rates for the 400 wealthiest US families".

Spot the problem? The US has a comprehensive capital gains tax that even includes the family home. Yet the effective tax rate of the wealthiest Americans is lower than ours! A reason, according to the White House, maybe that whilst realized capital gains are taxed in the US, unrealized ones are largely not - an approach also recommended by Labour's Cullen Tax report in NZ.

So if you think a capital gains tax, as designed by Labour, will increase the "effective tax rate" of the wealthy, which was the conclusion of our media & NZ's top "tax experts" that it consulted, then dream on.

Sources:
https://www.nzherald.co.nz/nz/explained-why-the-super-rich-are-paying-a-lower-effective-tax-rate/4534YIKZAEPH4D5VDNAO3QEKBI/

https://www.ird.govt.nz/-/media/project/ir/home/documents/about-us/high-wealth-research-project/hwi-research-project/final-report-april-2023/report-high-wealth-individuals-research-project.pdf?modified=20230423203807

https://www.whitehouse.gov/cea/written-materials/2021/09/23/what-is-the-average-federal-individual-income-tax-rate-on-the-wealthiest-americans/

https://taxworkinggroup.govt.nz/sites/default/files/2019-03/twg-final-report-voli-feb19-v1.pdf

https://www.beehive.govt.nz/sites/default/files/2023-04/SPEECH%20-%20Parker%20HWI%20.pdf

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.