500 \u201cbusiness leaders\u201d have written a letter to the Telegraph today, encouraging George Osborne to drop the 50p tax rate.\u00a0The letter is short \u2014 dwarfed by the list of names \u2014 and doesn\u2019t really attempt to make much of an argument.<\/em><\/p>\n The 50p tax is set to reduce government income, and damages the economy, the public services and charitable giving.<\/strong><\/em><\/p><\/blockquote>\n This claim is hard to back up with empirical evidence. As we reported last month, the HMRC\u2019sbest estimate<\/a>\u00a0is that :<\/em><\/p>\n The first year of [the tax rate's] introduction led to a \u201csurge\u201d in revenues of hundreds of millions of pounds.<\/strong><\/em><\/p><\/blockquote>\n Without data to support it, the signatories have had to resort to trotting out discredited economic theories when they have defended their letter on TV and radio.\u00a0The phrase of the day is \u201cLaffer Curve\u201d.<\/strong><\/em><\/p>\n The Laffer Curve is a concept coined by the economist Andrew Laffer which adds one and one and one and makes three million. It begins with three \u2018common sense\u2019 claims:<\/em><\/p>\n - At an income tax rate of 0 per cent, the income tax revenue will be \u00a30, because no tax will be taken in.<\/em><\/p>\n - At an income tax rate of 100 per cent, the income tax revenue will be \u00a30, because no one would do any work if they didn\u2019t get paid.<\/em><\/p>\n -\u00a0Somewhere between 0 per cent and 100 per cent is a tax rate which maximises income tax revenue.<\/strong><\/em><\/p><\/blockquote>\n From this,\u00a0Andrew<\/span>\u00a0Arthur Laffer and the signatories of todays letter draw the conclusion that cutting income tax will encourage people to work harder, and increase revenue.<\/em><\/p>\n Unfortunately for them, we now know where on the curve revenue is maximised \u2014 and it\u2019s pretty far away from 50 per cent.<\/em><\/p>\n As Matt Yglesias\u00a0writes<\/a>:<\/em><\/p>\n Christina Romer and David Romer have a new paper\u00a0looking at evidence from the 1920s and 1930s<\/a>\u00a0and find that the revenue-maximizing rate on the highest earners is extremely high\u2013over eighty percent.<\/em><\/p>\n Among the top 0.05 percent of the income distribution they find an elasticity of taxable income of 0.19 percent\u00a0which<\/a>\u00a0implies \u201cthat tax revenues would be maximized with a tax rate of 84 percent;\u00a0that is, you could raise taxes up to 84 percent before people\u2019s reduced incentives to make money would compensate for the higher tax rates<\/strong>.\u201d<\/em><\/p><\/blockquote>\n![\"\"](\"http:\/\/www.leftfootforward.org\/images\/2012\/03\/Laffer.jpg\" "\\"The")
<\/a>Their main claim is that:<\/em><\/p>\n