The existence of the Laffer Curve can be proved by thought-experiment alone. If a government levies an income tax rate of 0 per cent it will raise zero revenue. If it levies a rate of 100 per cent it will also raise zero revenue, as no-one will bother to earn any money – or at least declare any earnings. Somewhere between those extremes lies an optimum point at which the tax-take reaches a maximum value.
Trouble is, no-one really knows where the peak of the Laffer Curve lies for income tax, or for any other tax for that matter. George Osborne asserted that – at least for income tax in Britain – it lies some way below 50 per cent. He has some data to back it up, too – he was able to claim earlier this year that the revenue received from top-rate taxpayers increased by £8 billion after he cut the top rate from 50 per cent to 45 per cent.
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