It seems Arthur Laffer’s famous curve is finally starting to bite into Gordon Brown’s economic plans, you know, the ones based on hope, pie in the sky, and getting one solitary day past the next general election date. Apparently Gordon is puzzled by Britain’s steady economic growth, of approximately 2%, but its fall in tax revenues, last year, of around £8 billion pounds.
Well, Gordon, it’s like this. If you borrow £37 billion pounds, plus a few other hidden tens of billions on public-private ‘partnerships’, you’ll get apparent economic growth, because all of the paperclip suppliers in the country have been working flat out to feed all of those nice new shiny government bureaucrats with nice new shiny stationery equipment. But one day all of those paperclips are going to have to be paid for, Gordon. I know, it’s just terrible, isn’t it?
And having hit the wealth-generating sector of the economy with a cornucopia of new taxes and regulations, since 1997, Gordon, the latest being an extension of IR35, and then having thrown the proceeds at your friends in the wealth-spending sector of the economy, you’re about to hit what we credit-card junkies call ‘economic reality’. That’s when the credit card company finally stops letting you borrow any more money from this month to pay off next month’s minimum card payment. Bummer.
If I were you, Gordon, I would get that Tony Blair out of office, right now, or at the end of January at the very least, to take his job. Then land poor old Alistair Darling in at the Treasury, so he can carry the can when it all goes bang. Does that sound like a plan, Gordon? Good. Glad we’ve got it sorted.
I’d send you a bill for fifty quid, for this consultancy advice. However, I sense that although you possess the economics of a half-wit, possessing political cunning to your fingertips you’ll already have the Tony Blair Hutton/Top-up fees assassination plan well in hand. Nice job on preparing his ejector seat excuse, by the way, “for reasons of my health”. Top quality.
While I admire the logic of The Laffer Curve, I get vaguely ill thinking about optimal tax rates from the government’s point of view. The curve describes cynicism in the extreme: extracting the maximum amount of tax revenue from a gradually more discouraged work force.
I never understood what was supposed to be so clever about Laffer’s ideas. To me the question:
“Will our revenues go up/down if we raise/lower the tax rate”
is the same as:
“Will our profits go up/down if we raise/lower our prices”
and, of course, the answer is the same – you basically have to try it and see what happens. How Laffer’s ideas add anything beyond the normal concepts of supply and demand has always eluded me.
There is a variant on this that occurs to me that I will refer to as the laffer precipice- A point which someone will deliberately not cross as that is where compliance costs kick in.
I recall an older Telecoms Contractor who chose not to register for VAT- regardless of how good a year he had he stopped working when he reached the registration threshold as he felt it was too much like hard work.
He did eventually relent- the incremental cost of VAT compliance over IR35 compliance is no longer significant when you have to get an accountant involved. (His Wife did the books previously).
Following the Laffer Curve links, there is a delightful comment in the academic paper therein:
“However, it is our understanding that the Laffer curve is a completely useless tool for economic policy advice if either based on the ad hoc model or the labor market model because in both cases the optimal size of government is zero.”
Haven’t they missed the point? It sounds splendid advice from a libertarian perspective!
Isn’t this what socialism is all about?, raising taxes to the point where any incentive to work, produce, or otherwise perform, is destroyed.
Aptly named the Laffer curve. There used to be a House of Laff’s on Brighton pier.
Looks as though it will be golden goose, instead of turkey for Christmas this year!.
And who said Brown was not evil, just ignorant?. One man’s ignorance is another man’s evil.
earnest,
I said that Brown was not _self-consciously_ evil. That his evil actions were, most likely, the consequence of ignorance not malice. I was making a clear distinction between intentions and actions. Good intentions, born of ignorance, can lead to evil actions. My point was crystal clear.
I recall an older Telecoms Contractor who chose not to register for VAT- regardless of how good a year he had he stopped working when he reached the registration threshold as he felt it was too much like hard work.
I do much the same sort of thing but for me the threshold is £7K above where the 40% tax band kicks in. Why £7K? – I can stick up to that in a pension (being under 35) and get higher rate tax relief on it but I don’t see why the hell I should carry on working additional hours when the Government takes 40% tax and Employers and Employees’ National insurance and VAT off the top. I reckon the Government is losing out – if they scrapped higher rate tax I would work more weeks in the year and employ people to do my cleaning, laundry etc.
Paul,
Sorry, just a generalised comment while waiting for the coffee to brew. I agree with you, just see it from a slightly different viewpoint. Nothing personal!….:-)
I must be an exception then. My basic is into the 40% band and nothing stops me from trying to bring in as much cash as I can shovel into my bank account.
Even a 50% band up around 100K wouldn’t stop me I don’t think.
But I am on a commission system so I tend to get dollaps of money rather than hourly stuff.
The simple economic principles of the laffer curve are beyond the intellectual capabilities of the Left. So when tories announce that they will reduce taxation and increase revenues the Lib Dems and Labour accuse them of “voodoo economics” in the same way as a rainforest tribesman would accuse someone who does a primitive card trick of being a witch.