Twisting the language of tax for political gain

George Orwell wrote of the importance of language as a political tool. Language could be used to manipulate the way people think.

Today’s example of manipulative language comes from the world of superannuation tax. Apparently, using the language of the politically motivated, high income earners in Australia receive greater superannuation tax concessions than do low to middle income earners. Consequently, reform is needed to make the system fairer and levy a higher rate of tax on the superannuation contributions of the high income earners.

Stop right there. Who says high income earners receive greater tax concessions? The political argument goes as follows: superannuation contributions are taxed at the flat rate of 15% (assuming the contributions are within limits). When it comes to taxable income, there are four marginal tax rates (15%, 30%, 37% and 45%). So by receiving concessional contributions in place of income, the individual can save either 0%, 15%, 22% or 30% in marginal tax, depending on income level.

It is this point that make some say the wealthy receive a greater tax concession for superannuation.

This is wrong. It confuses the meaning of concession with the operation of a progressive marginal tax scale.

A concession is a device that when granted results in tax not being applied where otherwise, but for the concession, it would be. So, an example of a concession is the exemption of the family home from capital gains tax.

When considering superannuation contributions, they are deductible expenses to the employer. How the employer chooses to effectively share that deduction with the employee is no business of ours, but assuming the employer wants to remain cost-neutral, then the employee with a higher marginal tax rate, reduces the effective total tax rate by more than someone on a lower marginal tax rate, by virtue of paying more tax in the first place. Similarly, the deductibility of office stationery expenses (paper clips and the like) save more tax the higher up the progressive marginal tax scale you are.

The absurdity of the argument is made more clear if you consider that the logical change needed to reduce the so-called tax concession for the wealthy is to reduce the top marginal tax rate. In fact, if the wealthy had zero marginal tax rates, then superannuation contributions would be taxed punitively for them. If you find that the way to reduce a perceived higher tax concession for the wealthy is to reduce the income tax rates on the wealthy, you surely have a logical flaw in your thinking. Twisting the language for political gain.