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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 32
2.
Is there anything that would be covered by Henry Simons’ definion of “income” that would not be covered by the
definion in the Income Tax Act? If so, what?
o
There are lots of things (e.g. realised capital gains, inheritances, consumer durables) – see above 19 quesons
3.
If the government repealed the definion of “income” provided for by the Income Tax Act and replaced it with Henry
Simon’s definion, and leſt the Act otherwise unchanged, would the Act produce more revenue, less revenue, or the
same amount of revenue as at present?
o
It would produce more revenue – Simons’ definion of income covers everything in the ITA plus more
4.
If the government repealed the definion of “income” provided for by the Income Tax Act and replaced it with Henry
Simon’s definion, and if the government wanted to maintain revenue neutrality, what would be the obvious way of
doing that?
o
Reduce the rates of tax – there are more things to tax as the definion of income has expanded
5.
Who would pay more tax and who would pay less tax if the government (a) repealed the definion of “income”
provided for by the Income Tax Act and replaced it with Henry Simon’s definion and (b) adjusted the rates of tax so as
to maintain revenue neutrality?
o
People who realised a capital gain, received inheritances or giſts, or benefied from the use of a consumer
durable will pay more tax
o
People renng their house or paying off a mortgage will pay less tax
o
It may be that Simons’ definion of income would produce a more equitable tax system that right now
because most people would pay less tax whereas the wealthier (people who made large capital gains, have no
mortgage, have valuable art collecons, received large inheritances) pay more tax
6.
Simons’ definion of income is not an argument for increasing the level of taxaon; it’s an argument for
broadening the
tax base
. Would it be a good idea for the government to repeal the definion of “income” provided for by the Income
Tax Act and replaced it with Henry Simon’s definion? Why?
o
According to most economists, this is a good idea
o
Policians think this is a bad idea because they appreciate that some of the taxable income in Simons’
definion would cause them to lose votes (e.g. paying tax for living in a house that you own)
7.
Does Simons’ definion of income produce equity between home-owners and renters?
o
Depending on the way you look at things, yes
Simons’ definion is a useful benchmark, but even he did not suggest that it should be used in legislaon in its pure form. For
praccal purposes, he said “income” should
not
include:
unrealized gains (as they are inconvenient to tax, and people argue about how much there was an increase in value)
self-supply (growing your own vegetables, etc.) (this would be impraccable to tax)
small giſts (because small giſts are exchanged all the me, so this would be impraccable to tax)
o
The threshold between small and large giſts might be $27,000 (as this was the threshold for giſt taxes when it
used to exist)
But income
should
include the use of consumer durables.
Simons on the US federal income tax: “dipping deeply into great incomes with a sieve”
o
This is occurring in New Zealand right now with the proposed 39% tax rate for income over $180,000
o
Many people think that rich people are not paying enough tax, so the government can increase the maximum
tax bracket to make it appear that there is more tax equity – but the policians oſten are connected with
people who earn higher incomes, who know they will not pay 39% because most are in a posion to avoid it
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