Satan, Art Laffer and John Rentoul

pregethwr

All this proves is that Britain was a more unequal aociety (the rich had much more money compared to everyone else) in 1999-2000 than 1976-77.

Mark

No it doesn't, pregethwr. It only proves what it shows, namely that the proportion of income tax paid by the highest earners rose while the top rate of income tax fell.
I agree that it does not prove the cause and effect for which Fraser Nelson argues, although there does appear to be a correlation.
High earners in the 1970s engaged in all sorts of schemes to avoid paying tax. I seem to recall that owning forests in Scotland was one means of reducing exposure to income tax, for example. The highest earners had the money, but did not pay much tax at 83% or 98%.

FRANK O'Connell

Just been watching Peter Schiff versus Art Laffer.
Draw your own conclusions.
http://www.youtube.com/watch?v=LfascZSTU4o&feature=related

Lance Grundy

"Yet my argument (explained more fully in this week’s cover story)"

So the devil is in the detail then Fraser?

Sir Graphus

pregethwr: but were the poor of 1999-2000 richer than the poor of 1976-77?

Johnathan Pearce

Evidence from around the world seems to bear out Fraser's analysis. But even if it does not, it might be refreshing to see high taxes opposed not just on utilitarian grounds of being ineffective, but on the moral ground that people are entitled to their property and not to be looted, even by a democratic government. The Tories should instinctively understand that; it is frankly depressing that as yet, Mr Cameron appears too nervous to challenge the spirit of vengeance that seems to motivate this tax hike.

And I write this as someone who is unlikely to earn big bucks, but I can see envy and aggression in play here, and it is daft and dangerous.

Tiberius

Rentoul reveals two further characteristics of the Left: no sense of humour and no sense of irony.

Grytpype-thynne

Of course we could have total equality, Pregethwr; we could all pay 100% tax and be equally poor, except of course, for the Commissars

Aless Bieri

pregethwr, yes, it does show that society becomes less equal. That's the whole point, the rich get much richer and the poor get a bit less poor, no losers, only winners.

What is so wonderful about equality? I'd much rather some people be rich than everyone be poor.

ChrisD

The poorest earners lost their 10p tax rate when Brown was still Chancellor, and we all know about the publicity and electoral damage that did him and his government last year.

That is why any party who sought to reverse this increase for higher earners would find it equally politically toxic.

At the end of the day, Brown has been catching more and more poorer and middle income earners in the higher tax band nets for years in a stealthily way of increasing taxation revenue, and while he did everything to accommodate our more wealthier contributors to the UK economy. They have had it better than most for a long time under this government.

Now we have a truly staggering debt mountain to tackle, and that means everyone sharing the burden of pain through higher taxation for a while. Sorry, I cannot get as excited about this tax increase as I did about the 10p tax being abolished for poorer earners in the present climate. And I think the public in general are on the same page with regard this issue.
Its not as if this higher rate is going to be used to give poorer earners any tax breaks in the foreseeable future.
Its all about everyone doing their bit in a tough downturn, and that is a powerful political message for any party right now.

Its also why Cameron made clear that reversing it was not at the top of his list of taxation priorities right now.

donald fraser

Why not bang the drum for curve knowledge, Laffer and Phillips at the same time? Is the curve you know a topic for a public poll? Both are subject to the omnipresent law of diminishing marginal returns.

It takes time for taxpayers to accumulate knowledge and confidence to avoiding paying taxes. Moreover easy mechanisms to do so (validation by legal test cases and reducing professional service plans) take time. There are advantages to “shooting fish in a barrel” and no doubt the government will work hard to ensure tax loopholes that the mega-rich enjoy are kept for the mega-rich. So what happens in predicting a strong “Laffer Curve” if it proves weak and revenues increase? It opens the doors to tax-mageddon and further rises.

It is best to pre-empt any success in “taxing the rich” by re-visiting “diminishing marginal returns”. The best route to do so would be by discrediting another curve, the Phillips curve. How?

The Phillips curve explains why unemployment lowers inflation by reducing expectation of inflationary wage demands. However it works by dehumanising the unemployed and this generates a massive fiscal “bureaucratic overhead of the nanny state”. It controversially includes the rising numbers of “sick” with mental health issues. This is where the Phillips curve is subject to the law of diminishing returns. It is the largest evidence of theoretical weakness in Monetarist Theory that was not foreseen in the original model.

It is the prime area in which Monetarism is due for the next theoretical leap. On the contrary theories against high-tax rates have not been tested severely for nearly 30 years. So while examining curves, the Conservatives could take the opportunity to re-evaluate and jettison “Phillips Curve” theory. It will be difficult because it is central to Monetarist theory. However new focus on the “Laffer Curve” might shed light on the way forward. Can you imagine a Conservative government proclaiming “We oppose higher taxes but we are committed to full employment” and “We believe in current times it is better to challenge the theory of the Phillips Curve than the Laffer”?

Fraser Nelson

pregethwr has a point, in that the rich went on to earn a lot more. While this meant more money for the Exchequer and a fairer tax balance, there is no doubt that the result was a more "unequal" society. The poor didn't get any poorer, but the rich certainly got a hell of a lot richer. Is that a bad thing? I'd say not: a rising tide lifts all boats. But many on the left see this differently: as the distribution (rather than the creation) of wealth. So it's all down to language.

Mark, a rise in declaring tax (rather than earning) was certainly a corollary of the Lawson reforms. But as Johnathan Pearce says, evidence world over does show a link between cutting the top rate of tax and revenue declared. Russia saw a 25% surge in income tax after intoducing a flat tax. Lowering the top rate to 35% or 40% has proven to be the most effective way a gvt can raise revenue quickly. It stends to reason that lifting it from 40% to 50% will be one of the fastest ways to lose money.

Finally, there are scores of academic papers on this subject based on longitudinal tax data - proof that simply didn't exist in JFKs day (let alone Moses' day). So it's not a matter of faith, but basic understanding of fiscal economics.

AndyS

Agree with Johnathan. It reminds me of a parable I saw a while ago:

Every day 10 men go out for dinner. The bill for the 100 always comes to £100. If the bill was paid as we pay taxes it would look something like this - The first 4 men (the poorest) would pay nothing
The fifth would pay £1.00
The sixth would pay £3.00
The seventh would pay £7.00
The eighth would pay £12.00
The ninth would pay £18.00
The tenth (the richest)would pay £59.00

The men were all happy and ate well but then the owner of the restauarnt threw a spanner in the works - as they were such reliable customers he decided to offer them a £20 discount. The men were delighted but how to split the saving as they still wanted to pay as we pay taxes. So the first 4 men were unaffected as they would still eat for free but what about the other 6 - the paying customers? They realised that if they divided the £20 equally (£3.33) the fifth and sixth men would be PAID to eat so that didn't work so eventually they decided to reduce everyone's bill by roughly the same percentage amount.

The fifth man now paid nothing (100% saving)
The sixth man paid £2.00 instead of £3.00 (33% savings)
The seventh now paid £5.00 instead of £7.00 (28% savings)
The eighth now paid £9.00 instead of £12.00 (25% savings)
The ninth now paid £14.00 instead of £18.00 (22% savings)
The tenth now paid £49.00 instead of £59.00 (16% savings)

Each of the six was better off then before and the first four continued to eat for free. But once outside the restaurant the men started to compare their savings. "I only got £1.00 out of the £20.00 but he (pointing at the richest) got £10.00 - its not fair." "That's right said the fifth man - I only got £1.00 too - it's unfair that he got 10 times more than me." "That's true" shouted the seventh man "why should he get £10.00 while I only get £2.00 - the rich get all the breaks." "Wait a minute" said the first 4 men - "we didn't get anything at all -the system exploits the poor." The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't turn up for dinner so the nine men sat down and ate without him. But when it came time to pay the bill they discovered something important - THEY DIDN'T HAVE ENOUGH MONEY BETWEEN THEM ALL FOR EVEN HALF THE BILL.

I don't mind paying taxes but I do mind when idiots like Martin Bright tell me I need to be broad shouldered and stop whingeing. I shall be avoiding as much tax as possible from here on to prove these spendthrift Liebour class warriors wrong.

Tim Calvert

Fraser,

I tried to make a similar comment to "mark"'s yesterday, but you do not seem to have got the point I (and I believe "Mark") are trying to make.

I entirely agree that as the marginal rate of tax increases, it can reduce the tax take.

This is not difficult to understand - each time the marginal tax rate goes up a certain proportion of those affected will think "this is no longer worth the candle". At some point the number of people who think this become large enough to outweigh the number who carry on paying at the higher rate.

I am glad that there are academic studies to confirm this.

However, the table that you show about tax paid by tax bracket is not PROOF that this is the case.

If you used it as evidence in a court of law, you would be shredded by the other side.

By using it as your prime evidence, you are offering "high-taxers" a completely open goal.

So let's see the real proof of your position, eg the academic papers based on longitudinal tax data.

I am sure you are correct, but the evidence that you keep using is not rigorous. It is a consequence not proof.

David Ossitt

Andy S

Nice one.

hadrian

Well, once again, we see the serious economic principles laid down in Scrpture simply abused as 'loony tunes'- this from a bunch of secular statists whose state greed has got us into this unholy mess. Just who are the 'loonies'?!
Scripture clearly caps top income tax for anyone at the tithe, ot ten per cent. Anything more is just state theft and as pointed out has the effect of putting a huge drag on enterprise, investment and the economy i general, not to mention long term equity and personal responsibility upon which all free socities rest.
And proper dating of Deuteronomy, not some higher critical reductionist nonsense, puts it around BC 1,450 or there abouts, not 700BC., Fraser.