The Laffer Curve Strike Britain

Who knew?

The Treasury received £10.35 billion in income tax payments from those paying by self-assessment last month, a drop of £509 million compared with January 2011. Most other taxes produced higher revenues over the same period.

Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.

The self-assessment returns from January, when most income tax is paid by the better-off, have been eagerly awaited by the Treasury and government ministers as they provide the first evidence of the success, or failure, of the 50p rate. It is the first year following the introduction of the 50p rate which had been expected to boost tax revenues from self-assessment by more than £1billion.

It’s called the Laffer Curve, gentlemen. You can raise taxes on the rich only up to a certain point, at which point tax avoidance begins to eat into revenues. Where that point is a subject of debate (no economist worth his salt would claim the turnover in revenue does not exist). It’s difficult to compare American and British rates since the effective rate is different, owing to differences in loopholes, deductions, etc. But clearly, Cameron has gone too far.

(Note the poll, which shows overwhelming opposition to the 50% rate. Granted, it’s the Telegraph — the paper of the people who think Britain is run by another country. And every right wing blog has been linking the story. Still … damn.)

You can’t balance budgets entirely off the rich, not even in Britain. Revenues are part of the equation. But in the end, you need a broad tax base and spending restraint.

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  1. Seattle Outcast

    Keynesian economics appears to deny the existence of such a feedback on the tax rate. You need more money, you just raise taxes. Lather, rinse, repeat.

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  2. AlexInCT

    That’s because today’s Kenyesians also all believe like Marx told them that all wealth should belong to the corrupt croosk running the state people, to begin with SO. Start from the premise that it is your money to do with as you wish, and you have no problem making the people you are fleecing into the bad guy for crying uncle.

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