Explaining John Keys tax in a meme is hard

It’s a mighty challenge trying to communicate complex science, economics or tax policy in the form of a meme or with 140 characters or less. It’s difficult, and that’s why simple, yet elegant hashtags like #illridewithyou catch fire, because they articulate both the frustration people feel with the state of things as well as their desire to do something positive and meaningful about it.

In my observation, people generally want to take actions, say words and share content that reflect their values and part of my my job is to tap into that desire and activate it for good. At ActionStation, part of our role is to condense long, complicated issues with lots of background information into compelling communication that can be easily understood and shared by a wider audience. Yes, our goal is to get LIKES and SHARES, but only to the extent that those clicks lead people to take ACTIONS.

ActionStation is a rapidly growing people powered movement, but without the growth or people part, we’re not very powerful.

Yesterday I posted this image in an attempt to highlight the sometimes bizarre unequal effects of our tax system:

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With the comment: “A simple, albeit hyperbolic example of how our tax system is broken: A worker on the minimum wage pays a 10 times higher tax rate than the Prime Minister.

The minimum wage worker on 40 hours per week earns $29,640 and pays $4,207 in income tax and $4,149.60 in GST giving a total tax of $8,356.60 or 28% of income.

On the other hand the Prime Minister earns $428,000 from his PM’s salary along with this year’s $5,000,000 increase in his wealth (according to NBR’s rich list) which gives him a total income of $5,428,000. On this total income he pays just $132,160 in income tax and approximately $21,400 in GST giving a total tax of $153,560 or 2.8% of income.”

Within 30 hours the post had reached more than 40,000 people.

Unfortunately (though not totally unexpectedly) the post received some backlash with people questioning the meme, the math and the motivation. Accountability to our members is core to our values at ActionStation, so I wanted to respond to those questions and critiques and keep the conversation moving.

THE MEME

I got the figures for that image from a blog post by the colourful and sometimes controversial John Minto. Minto had rehashed this piece in response to a damning report that had come out earlier in the week stating that:

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I’ll be the first to admit, I’m no tax expert but this doesn’t sound fair to me. Based on these articles, I made both the memes above. I posted them on our Facebook within a couple hours of each other, but unlike the JK meme, the second one only managed to reach 1,000 people.  Why is that? Each meme communicates the same underlying message: OUR TAX SYSTEM IS BROKEN, but one gets clicks and shares and the other doesn’t. The reason the JK post reached 40 times as many people is because 1) It’s shocking and 2) It’s John Key. But the reason I made each meme was to communicate the same thing: Our tax system is not working and we need to have a conversation about it.

THE MATH

With several comments and questions popping up on our post asking for justifications of the math, I got in touch with John Minto to ask him for an insight and here is what he said:

ME: How did you reach $21,400 as an approximate for JK's GST spendings?

JOHN: JK’s GST is based on the highest income 10% paying less than 5% of their income on GST – this income is his PM’s income.

ME: Which tax rates did you use for the minimum wage worker & JK? Because they appear to be off. Minimum wage should be 17.5% no? And JK's should be 33%?

JOHN: The tax rates you quote are the marginal tax rates – the rates which kick in above certain levels – you can go to IRD website and put the salaries in and get the income tax paid calculated by IRD.

John then went on to say, “There are people who’ve questioned and criticised the figures but they never come back with their own calculations which would simply reinforce the main message from the calculations. I think it would be good to keep challenging them to come back with their own calculations because it will confirm the disparity and the injustice.”

So I decided to take up the challenge and do some of my own calculations using a slightly different income tax rate than Minto. For the minimum wage worker I used used 17.5% (based on $14,000 - $48,000pa) and for John Key I used 33% top tax rate with the standard 15% GST.

Here are my results:

A minimum wage worker at 40hrs per week:
52 weeks x $570/week = $29,640 a year
Income tax rate at 17.5% = $5,187
GST spending at 14% = $4149.60
= $9,336.60 spent in taxes

Meaning that the minimum wage worker is actually paying 31.5% of their earnings on tax. It may seem odd to include GST in these calculations but this is to highlight that fact that GST – like all consumption taxes – is unequal in its impact as working people spend a higher proportion of their incomes they pay a higher percentage of their income on GST. Click here to read more.

And here are my calculations for Key:
Annual PM salary = $428,000
Increase in wealth in 2014 =  $5,000,000 (according to NBR’s rich list)
Income tax rate at 33% = $141,240
GST spending at 15% = $64,200
= $205,440 paid in taxes

Meaning that John Key (at my calculations which could definitely be wrong) is paying around 3.8% tax of his increase in wealth for 2014 because the current tax system is set up largely only to tax income, not capital gains or any other form of wealth.

Some ActionStation members have already submitted alternative calculations and - even more importantly - have contributed their views.

For example David sent us this:

“Rent or mortgage payments are the bulk of most people’s net tax income which has no GST on it at all. So to say they get GST charged on their remaining income is wrong. Most low income families with working for families have a negative tax contribution. The problem is you are trying to mix up GST, Income tax and Capital gains tax all in the same article. I have old clients who live in $1,000,000 homes and can’t pay their rates, should they be taxed on the increase in wealth which is not realised all they want to do is live in their home. Total tax take $26,397million over 3,375,000 people is our fair share $7,821 per person? The question is how much do we use the tax system to redistribute wealth?”

Joseph Beckett had this to say:

"In my opinion this is THE issue of the decade. Our tax system caters to those who own investment properties (the mortgages of which are paid for by mostly the poor) & other such investors who use legal methods to "hide" their tax liability. Meanwhile salary & earners foot the bill. Even Gareth Morgan admitted the other day the he pays very little in tax because the system allows it. The government extols of the virtue of foreign investment yet I just cannot see the benefit of our national income going to bank accounts in the Cayman Islands."

While on Facebook, we gained insights likes this...

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Saw debates like this…

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And read comments like this…

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Which brings me to the last point…

THE MOTIVATION

I believed the report on tax contributions by New Zealand’s most wealthy was something our growing online community of progressive Kiwis would want to know and that’s why I made these memes. ActionStation stands for a fair and equitable society, a healthy environment and transparent, accountable politics and we make no secret about that.

Many of our members feel that the way the tax system works right now, is neither fair nor equitable and that’s something we wanted to find out more about. We know many New Zealanders want action to make our country more equitable, so is reform of our tax system one of the actions you want to call for? How much do we all understand about how our tax system currently works? And what do you think could be done to make it more fair ?

I made these memes to spark a debate but there can be a fine line between sparking debate and generating confusion. We can see that this image may have done some of the latter, which is not helpful.

I agree with John in that I challenge you to do your own calculations  and make up your own mind about whether or not you think this system of tax is fair. We have a growing gap between rich and poor in this country and I believe we can and need to fix it, but it’ll take everyone chipping in.

And if you’re the clever cookie that has the solution to fix the broken tax system, feel free to email me laura@actionstation.org.nz


Showing 2 reactions

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  • commented 2014-12-17 17:41:16 +1300
    I agree with Ryan Morgan, it’s all designed to be created in favour of the rich, and there definitely needs to be a fairer system put in place. What we’ve got at present is out of date, and seriously needs to be updated and upgraded.
    Trev.
  • commented 2014-12-16 21:09:44 +1300
    It’s definitely a tricky one, and it does seem as though the tax system is to blame here. I’m still trying to figure out how JKs wealth (or anyones for that matter) can increase by 5 mil in a year! Is this real income or just investment growth/speculation due to inflation? Theres got to be more at play here other than a faulty tax system and i suspect it may have something to do with the way money is created out of nothing by privately owned banks! The monetary system seems to be rigged in favour of the rich at the expence of the poor and we can see it happening now with growing inequality all over the world. One thing i would like to see is a campaign for a universal basic income.