All theory, no reality

No Right Turn gives us a great example of the difference between an academic theoretical analysis, and understanding the real word.

He blogs on income distribution:

So, the median income is around the decile 5 boundary of $23,000 a year. …

So, 78% of us don’t even pay the middle tax rate, and the top tax rate is utterly irrelevant to 91% of the population. Remember that next time the government or the media talk about “middle-income” tax cuts – they’re not talking about you, or most of New Zealand. Instead, they’re only talking about themselves.

The Standard have made the same mistake also. You see in New Zealand, we have these things called families and households. What No Right Turn sees as a mass of poor people who will be unaffected by tax cuts, are spouses, older children, many students and even parents of those who do earn more than $23,000 a year, or even $48,000 a year.

If a family has one parent earning $60,000 a year, and one on $15,000 part-time, they both benefit from a change to the 33% tax rate. Because they are a family!!

Likewise most students still get some support from their parents. The income deciles are for adults aged 15 and over, so that covers Year 11 to 13 at school plus full-time tertiary students. And many of those students will have higher salaries once they are not studying.

There are also those on benefits who don’t pay any net income tax. Remember 76% of net income tax is paid by 10% of the population.  But if you are retired and earning just $25,000 a year, that doesn’t mean you are against tax cuts, because you are happy that your adult children will benefit from them.

So ignore the stupid stats and graphs about individual incomes. They are relevant to academic theory, rather than the real world. Household Family income is what affects most people. Now as of June 2009, the median household income was around $64,000. 30% of households have income over $93,000.

If a household is a couple with at least one child, the median annual household income is around $75,000.

Here is what would be a more useful stat. Of households or families that have at least one adult in full-time work, how many of them have at least one adult earning over $48,000 (the threshold for the 33% rate).  It will be a lot more than 22%.