Janet Daly has written this in the Telegraph today:
So we were right all along. Or rather, our hero Arthur Laffer was right. Those of us who insisted that the Laffer curve was a pretty much irrefutable rule of income tax rates and their perverse relation to actual tax revenue collected, were not just rightwing ideologues with an unwholesome desire to protect the "rich". We were bang on the money (no pun intended) on the logic of taxation.
She claims this because of the data I analyse here.
Unfortunately for her, as I show, there was no Laffer effect at all. Far from income going down in 2010-11 as Laffer would predict, it actually went up once one of tax avoidance was adjusted for.
The Laffer fans are, as ever, in La-La Land, clutching at straws when there is not a shred of evidence to support their idea that at any recently tried UK tax rate there is a risk of tax revenue falling because of a rise in rates, or of it increasing because of a fall.
That's because we're firmly on the upward sloping part of any Laffer curve that might exist.
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I can’t be bothered to read the article, but I think there is some evidence of the Laffer effect when it comes to stupid taxes like Stamp Duty Land Tax. Although there was no actual increase in the rates, all the development land taxes introduced by Labour governments did not raise sufficient revenue to justify the cost of implementation and were quickly removed by the Tories. Labour were even deluded enough to consider reintroducing such a tax as Planning Gain Supplement. Absolutely nonsense. Not sure they’ve ‘got it’ yet.
Direct taxes are another thing.
Janet Daley really is totally and utterly nuts. Have a look at this post from her, for example:
http://www.telegraph.co.uk/news/politics/9684778/Were-heading-for-economic-dictatorship.html
“In this dystopian future there would have to be permanent austerity programmes…” – well, yes, Janet, but that’s not because of ‘socialism’, that’s because austerity fetishists like George Osborne are deliberately wrecking the economy so they can destroy public services and shock us into a “micro-state” economy which would benefit only the top 1%.
Compared to Janet Daley, even the likes of Tim Worstall look (relatively) sane!
Tim, sane?
Wow!
RELATIVELY sane… Tim’s crazy of course, it’s just that he can at least put together a coherent argument on occasion… Daley can’t even do that.
Thanks be that we no longer have to suffer the unendurable awfulness of Janet Daley (and indeed her whiny voice) on the Moral Maze.
Although, whether Melanie Phillips is any better is perhaps moot.
That programme brings me out in spots: I recommend you stop listening to it for the good of your health. 🙂
There was a time when the belief that the sun went round the earth was irrefutable. Then someone took a good hard look at the figures.
🙂
The right’s obsession with the Laffer curve is comical. In the first instance the basic premise behind it that you get no taxes at both zero and a hundred percent is not true as you will still collect something at a hundred percent (and even in excess of that) but even if we accept the general idea it still doesn’t work because as you say we (and likely everywhere else) are on the upwards sloping part. The right always trots out the Laffer curve as if it proves that any tax cut raises revenue. If that were true why don’t we cut to 0.1% and roll in the new income?
In reality the only credible estimates of a tax maximising rat for income tax seem to sit at around 60-70%, which rather undermines the arguments of tax cutters. I know why people are so keen to believe the fairy tale of course, the notion of being able to pay less in tax and actually have more public services as a result is an appealing one, but as my Mother taught me as a child if something seems too good to be true it generally is.
Of course that is not to say that always raising tax is a good idea from the public purses perspective. In a time of recession raising taxes without raising spending by at least as much will worsen the recession and may indeed reduce the tax take despite the rise. That is why the tax rises in Portugal yesterday are very unlikely to close the deficit there, but cases of tax exacerbating recession aside I don’t see the argument that tax cutting raises revenue being of much use.
Agreed!
When someone says Laffer is ‘our hero’, I begin to fantasise of a lonely economics professor sitting in his office one day trying desperately to assume all sorts of other-worldly scenarios when a radioactive dung-beetle enters his office and bites him on his ankle. Suddenly all sorts of powers undreamt of begin to course through his veins. His mind becomes super-alert. He designs a green costume with question marks all over it and races through the dark streets of the metropolis dispensing his equations in vapour-form into the unsuspecting mouths of befuddled academics and journalists. Suddenly they all wake up the next day and left is right and north is south and making rich people even richer incentivizes them but making poorer people poorer …. well it incentivizes them too!
All due to our friendly neighbourhood Lafferman. Remember with great power comes irresponsibility. Janet Daly has clearly been inspired by the Avengers Assemble film. I can’t think of any other explanation. Now I am clearly insane and I take great offence at having Janet Daly on our team. Go find somebody else to sit in a padded cell with Janet. This one is paid for the NHS and you probably don’t believe in that but then you are a visiting professor at the private-sector University of Buckingham. Problem solved!
Ugh. The comment ought to have read:
“Unfortunately for her, as I show, there was no Laffer effect at all. Far from income going down in 2010-11 as Laffer would predict, it actually went up once one of tax avoidance was adjusted for.”
If I’m not mistaken, the argument is precisely that people will start avoiding taxes, causing tax revenue to go down.
Or did you think the argument was narrowly limited to a decline in labour supply, consumption etc? Heads up: it isn’t.
if you exclude tax avoidance then you are inflating the tax take, and hence your analysis must fail. Does your definition of tax avoidance include all those pesky rich people departing these shores?
As ever, you comment makes no sense
Please don’t waste my time having to delete them