<p>The premise of your question that the two systems are similar is wrong, so the answer is that the systems are not similar.</p>
<p>&quot;It seems a flat tax together with UBI can produce a result which is remarkably similar to the combination of the existing progressive income tax plus welfare in Australia. ... My question is: would this have been intentional? Is there any justification for designing a system in this manner?&quot;</p>
<p>The graphs (especially the first one) are deceptively plotted to make it seem the two systems are similar, but they are nothing alike once you try to analyze the differences. The premise of your question that the two systems are similar is wrong, so your question can be answered only by pointing the premise is wrong.</p>
<p>For example, any reasonable economist would agree that any difference in after-tax and transfer income between two tax and welfare systems that is larger or equal to \$500 would be a very large difference (actually the literature would give support for even a lower figure like \$250 or \$100 (in fact even lower, I am basing this on assuming AUD is worth only half of USD to get nice round figures, but AUD is worth about 0.7 of USD), since especially at the lower end of income distribution utility of an extra dollar is very high, but I want to give your argument as much benefit of a doubt as possible).</p>
<p>You generated 388 data points in your excel spreadsheet, out of those 388 the difference in post-tax and transfer income is larger or equal in absolute value than \$500 in 338 cases. Thus the two tax systems are 87.37% different (or 12.63% similar).</p>
<p>Furthermore, you end your analysis at an arbitrary cut-off point of \$349000 income. I am sure there are millionaires in Australia so you should extend the analysis to them as well. That would reveal even more differences, especially flat tax would let the richest keep more of their income than the progressive tax. Hence the 87.37% difference is a gross understatement. Moreover, that is the whole point of progressive tax system whether you ideologically agree with it or not. So these differences cannot be excluded. My guess is that once you properly extent the analysis they would be &gt;95% different.</p>
<p>Lastly, as mentioned earlier the \$500 cut-off is giving your argument as much benefit of a doubt as possible. With more reasonable cut-off of \$100 the systems are 97.42% different and only 2.58% similar.</p>
<p>No reasonable person can claim that two tax and transfer systems are &quot;remarkably similar&quot; if they give raise to significant economic differences 87.37% or 97.42% of times. Even if they would differ only 49% times it would be a stretch to call them similar and to hit the 49% figure you would have to choose \$2200 as a cut-off. Moreover, you still ignore the top of income distribution which makes your argument much worse.</p>
<p>Consequently, the answer to your question is that the systems were not designed to be similar because they aren't similar. Visually they can look similar on your deceptive graphs, but choosing correct scale and graph you can deceptively  make any two series look similar.</p>

CC BY-SA 4.0
2022-06-27T10:12:07.447Z
You seem to have misunderstood my opening post.  More than half the commentary was on the big differences like $6500 for someone on 32k  The question was actually about whether the big differences were intentional.
Dbl
CC BY-SA 4.0
2022-06-27T10:14:17.800Z
@Dbl I quote from your post: "It seems a flat tax together with UBI can produce a result which is remarkably similar to the combination of the existing progressive income tax plus welfare in Australia."
csilvia
CC BY-SA 4.0
2022-06-27T10:24:26.737Z
Yes, and then I spend more time talking about the big differences.  Furthermore the question was actually asking whether the big differences were intentional.
Dbl
CC BY-SA 4.0
2022-06-27T10:26:29.773Z
Really your whole answer is a strawman
Dbl
CC BY-SA 4.0
2022-06-27T10:29:21.903Z
Look at the second plot where I zoomed in to highlight the big differences.
Dbl
CC BY-SA 4.0
2022-06-27T10:37:42.943Z
@Dbl you are being completely deceitful, even in the comments under your question you argued "part from the issue at low incomes, with slightly higher flat rate and UBI the red and blue curves can be made to agree to within 3.5% over the entire range out to incomes around a billion dollars. People on incomes of 115k-390k are slightly better off than everyone else with the progressive tax, but it doesn't appear significant," now you try to walk that back once you were proven wrong
csilvia
CC BY-SA 4.0
2022-06-27T10:38:58.783Z
you are clearly not here to learn but just to argue or get your views validated. Stack Exchange is not place for that, maybe try posting it to your facebook friends. I answered above your question as it was written in your main post, I have nothing more to say, have a good day
csilvia
CC BY-SA 4.0
2022-06-27T10:42:01.587Z
I have been saying it is similar and different so clearly don't have an agenda.  My point is that I have spent more time speaking of the differences, and that was my purpose for posting, and that is why I posed the question in that way.
Dbl
CC BY-SA 4.0
2022-06-27T10:46:56.723Z
It's amazing that after going to the trouble to try to quantify how similar they might be you call be deceitful.  You don't know me, what is this?
Dbl
CC BY-SA 4.0
2022-06-27T10:47:35.090Z
@Dbl First, logically two tax systems can't be similar and different at the same time with respect to their effect on income. Second, you only said that was one particular point in your question and even later when in comments I challenged your conclusion you responded "part from the issue at low incomes, with slightly higher flat rate and UBI the red and blue curves can be made to agree to within 3.5% over the entire range.", I also in my answer respond to direct quotes from your question
csilvia
CC BY-SA 4.0
2022-06-27T10:47:39.360Z
In any case, I am already repeating myself, I think anyone can make their own judgement reading this, I wont follow your comments on this thread anymore. I know people who come here to argue always have to have last word so you can have it
csilvia
CC BY-SA 4.0
2022-06-27T10:03:10.407Z
2022-06-27T10:08:45.037Z
2022-06-27T10:08:45.037Z
csilvia
<p>In the following diagram the blue line represents the net income versus gross income, assuming the Australian progressive income tax, plus the Jobseeker welfare payments for a single person with no dependents. The red line shows the net income if instead a flat tax rate of 40% is used, and everyone receives a UBI of $17000. I'm ignoring the 10% GST.</p>
<p><a href="https://i.sstatic.net/cHJqe.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/cHJqe.png" alt="net income versus gross income" /></a></p>
<p>It seems a flat tax together with UBI can produce a result which is remarkably similar to the combination of the existing progressive income tax plus welfare in Australia.</p>
<p>The blue line has a low gradient where the gross income is between around \$7000 and \$32000. In fact the effective marginal tax rate (when accounting for welfare) is 67.6 cents in the dollar in this section. The marginal rate for the very rich is only 45 cents in the dollar, so this doesn't seem reasonable. The existing system seems particularly unfair for those on a gross income of about \$32000. They seem to end up with about \$6500 less net income that would be expected given the effective tax on people with other incomes.</p>
<p><a href="https://i.sstatic.net/dRDNk.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/dRDNk.png" alt="net income versus gross income" /></a></p>
<p>My question is:  would this have been intentional?  Is there any justification for designing a system in this manner?</p>

CC BY-SA 4.0
2022-06-27T12:31:47.643Z
Comments are not for extended discussion; this conversation has been [moved to chat](https://chat.stackexchange.com/rooms/137359/discussion-on-question-by-dbl-tax-and-welfare-in-australia).
1muflon1
<taxation>
Tax and welfare in Australia
Dbl
# Tax and welfare in Australia

(Asked by: username_0 on 2022-06-26)

In the following diagram the blue line represents the net income versus gross income, assuming the Australian progressive income tax, plus the Jobseeker welfare payments for a single person with no dependents. The red line shows the net income if instead a flat tax rate of 40% is used, and everyone receives a UBI of $17000. I'm ignoring the 10% GST.

[![net income versus gross income](https://i.sstatic.net/cHJqe.png)](https://i.sstatic.net/cHJqe.png)

It seems a flat tax together with UBI can produce a result which is remarkably similar to the combination of the existing progressive income tax plus welfare in Australia.

The blue line has a low gradient where the gross income is between around \$7000 and \$32000. In fact the effective marginal tax rate (when accounting for welfare) is 67.6 cents in the dollar in this section. The marginal rate for the very rich is only 45 cents in the dollar, so this doesn't seem reasonable. The existing system seems particularly unfair for those on a gross income of about \$32000. They seem to end up with about \$6500 less net income that would be expected given the effective tax on people with other incomes.

[![net income versus gross income](https://i.sstatic.net/dRDNk.png)](https://i.sstatic.net/dRDNk.png)

My question is: would this have been intentional? Is there any justification for designing a system in this manner?

**Tags:** taxation

> **Comments:**
> **username_1**: Comments are not for extended discussion; this conversation has been [moved to chat](https://chat.stackexchange.com/rooms/137359/discussion-on-question-by-dbl-tax-and-welfare-in-australia).  

---

## 1 answers

### Answer by username_2 on 2022-06-27. Score: 1

The premise of your question that the two systems are similar is wrong, so the answer is that the systems are not similar.

"It seems a flat tax together with UBI can produce a result which is remarkably similar to the combination of the existing progressive income tax plus welfare in Australia. ... My question is: would this have been intentional? Is there any justification for designing a system in this manner?"

The graphs (especially the first one) are deceptively plotted to make it seem the two systems are similar, but they are nothing alike once you try to analyze the differences. The premise of your question that the two systems are similar is wrong, so your question can be answered only by pointing the premise is wrong.

For example, any reasonable economist would agree that any difference in after-tax and transfer income between two tax and welfare systems that is larger or equal to \$500 would be a very large difference (actually the literature would give support for even a lower figure like \$250 or \$100 (in fact even lower, I am basing this on assuming AUD is worth only half of USD to get nice round figures, but AUD is worth about 0.7 of USD), since especially at the lower end of income distribution utility of an extra dollar is very high, but I want to give your argument as much benefit of a doubt as possible).

You generated 388 data points in your excel spreadsheet, out of those 388 the difference in post-tax and transfer income is larger or equal in absolute value than \$500 in 338 cases. Thus the two tax systems are 87.37% different (or 12.63% similar).

Furthermore, you end your analysis at an arbitrary cut-off point of \$349000 income. I am sure there are millionaires in Australia so you should extend the analysis to them as well. That would reveal even more differences, especially flat tax would let the richest keep more of their income than the progressive tax. Hence the 87.37% difference is a gross understatement. Moreover, that is the whole point of progressive tax system whether you ideologically agree with it or not. So these differences cannot be excluded. My guess is that once you properly extent the analysis they would be >95% different.

Lastly, as mentioned earlier the \$500 cut-off is giving your argument as much benefit of a doubt as possible. With more reasonable cut-off of \$100 the systems are 97.42% different and only 2.58% similar.

No reasonable person can claim that two tax and transfer systems are "remarkably similar" if they give raise to significant economic differences 87.37% or 97.42% of times. Even if they would differ only 49% times it would be a stretch to call them similar and to hit the 49% figure you would have to choose \$2200 as a cut-off. Moreover, you still ignore the top of income distribution which makes your argument much worse.

Consequently, the answer to your question is that the systems were not designed to be similar because they aren't similar. Visually they can look similar on your deceptive graphs, but choosing correct scale and graph you can deceptively make any two series look similar.

> **Comments:**
> **username_0**: You seem to have misunderstood my opening post.  More than half the commentary was on the big differences like $6500 for someone on 32k  The question was actually about whether the big differences were intentional.  
> **username_2**: @username_0 I quote from your post: "It seems a flat tax together with UBI can produce a result which is remarkably similar to the combination of the existing progressive income tax plus welfare in Australia."  
> **username_0**: Yes, and then I spend more time talking about the big differences.  Furthermore the question was actually asking whether the big differences were intentional.  
> **username_0**: Really your whole answer is a strawman  
> **username_0**: Look at the second plot where I zoomed in to highlight the big differences.  
> **username_2**: @username_0 you are being completely deceitful, even in the comments under your question you argued "part from the issue at low incomes, with slightly higher flat rate and UBI the red and blue curves can be made to agree to within 3.5% over the entire range out to incomes around a billion dollars. People on incomes of 115k-390k are slightly better off than everyone else with the progressive tax, but it doesn't appear significant," now you try to walk that back once you were proven wrong  
> **username_2**: you are clearly not here to learn but just to argue or get your views validated. Stack Exchange is not place for that, maybe try posting it to your facebook friends. I answered above your question as it was written in your main post, I have nothing more to say, have a good day  
> **username_0**: I have been saying it is similar and different so clearly don't have an agenda.  My point is that I have spent more time speaking of the differences, and that was my purpose for posting, and that is why I posed the question in that way.  
> **username_0**: It's amazing that after going to the trouble to try to quantify how similar they might be you call be deceitful.  You don't know me, what is this?  
> **username_2**: @username_0 First, logically two tax systems can't be similar and different at the same time with respect to their effect on income. Second, you only said that was one particular point in your question and even later when in comments I challenged your conclusion you responded "part from the issue at low incomes, with slightly higher flat rate and UBI the red and blue curves can be made to agree to within 3.5% over the entire range.", I also in my answer respond to direct quotes from your question  
> **username_2**: In any case, I am already repeating myself, I think anyone can make their own judgement reading this, I wont follow your comments on this thread anymore. I know people who come here to argue always have to have last word so you can have it  

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