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Anorak | The Taxes Are Too Damn High|: John Redmond’s Laffer In

The Taxes Are Too Damn High|: John Redmond’s Laffer In

by | 3rd, August 2011

NO, not just the ritual complaint that the State is taking away the hard earned pelf of the capitalist classes. Actually, it’s a complaint that the State isn’t taking away enough of said cash wrung from the bitter tears of the workers’ starving children. They’re doing this by having a tax rate that’s too damn high.

Imagine my surprise, therefore, when I looked at the detail of the Treasury and OBR’s own forecasts following the Budget. There quite clearly shown, is a fall of £500 million or 15% in CGT receipts next year compared with this. It takes more than a year for the full effects of a new CGT rate to come in, given the lags in selling the assets, reporting the gains and then paying the tax. So the official forecasters themselves accept that 28% is not an optimum rate . They reckon the higher rate will cost the Treasury £500 million of lost revenue in the first full year.

It has to be said that John Redwood does have an argument there. We’ve got a higher tax rate and we’re getting less tax revenue from having that higher tax rate.

For there really is something called the Laffer Curve. No, really: those who deny the existence are simply noncey-boy socialists, out to confuse you. It’s a mathematical certainty that at 0% tax rates no tax revenue is collected. At 100% no bugger does anything so again there’s no revenue. At 1%, at 99%, something happens and some revenue is collected: excellent, now we’ve a curve.

The real arguments, those not being made by froth-mouthed loons, are about where the peak of the curve is. What’s the tax rate at which the maximum amount of revenue is raised? This is different for the short term and the long term. It’s different for each tax. No one at all thinks that the old 18% CGT rate would be the revenue maximiser if that were the income tax rate. But it might be the revenue maximiser as the CGT rate.

And John Redwood does have a point here, as I say. If we’ve got our new higher tax rate and we’re getting less revenue then perhaps we are over the peak of the Laffer Curve on the capital gains tax rate? Thus we can have more hospitalsn’nurses by having a lower tax rate.



Posted: 3rd, August 2011 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink