Warning, this is a political post. If you don’t want to read about politics, click on one of the other subjects on the menu bar…
In the context of what may or may not be in George Osborne’s budget later this week, I’m hearing a lot of mentions of the infamous Laffer Curve.
The Laffer Curve is a somewhat questionable piece of economic thinking which states, in it’s commonly-used form, that if taxation is raised to a level higher than the rich would really like to pay, then overall revenue will fall because the rich then won’t work as hard. Such an idea has obvious appeal to the types that take Ayn Rand seriously – Indeed, I always associate the term with a particularly noxious right-libertarian troll on the Pyramid Online forums a decade or so ago.
Yes, I can appreciate the hypothesis that there is a point of diminishing returns if a taxation rate is ridiculously high. It’s why nobody today is suggesting a return to Denis Healey’s 98% taxes of the 1970s. But the Lafferites go further than that. They give every appearance of insisting on a completely arbitrary figure as the threshold of diminishing returns, and expect you to accept this in the complete absence of any empirical evidence to support it.
Not that the hard right are any bigger fans of evidence-based economics as they are of evidence-based science. You can see this in their climate change denial. And don’t even get me started on young-earth creationism. This is the sort of intellectual company the Laffer Curve keeps. So why should we take it seriously?
Hi Tim
The argument put forward by some Ministers is not so much that the rich will not work as hard, but that the higher the tax then the more likely they are to try and avoid it.
The evidence for this is based on what happened in the 80s where as the higher rate tax went from 90%+ down towards 40% they saw the tax take increase.
Cheers, Mike
There is no evidence that reducing it from 50% to 45% will have that effect, though. Arguments that it will tend to be self-serving ones from people who will personally benefit (i.e. not any of us).
What do you mean by “right” as in the phrase “hard right”?
In this context, anyone who advocates supply-side economics as political policy. Almost all of whom self-identify as right-of-centre.
What do you mean by supply-side economics?