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Samizdata quote of the day – You’d need a heart of stone not to Laffer You’d need a heart of stone not to Laffer
– Sunday Sport in response to A Serious Newspaper…
Scottish tax hike for high earners backfires with loss of £22m
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Governments try (amongst other things) to change behaviour through taxes, e.g. sin taxes on alcohol and tobacco. And then they are surprised by behavioural changes when they put taxes up.
Gosh, if only someone had foreseen this.
DJ: Well, exactly. These are the people who brought us minimum pricing for alcohol.
That high tax rates produce less revenue (less – not more) was first fully laid out in Tuscany – back in the 1700s (the high tax rates established by the Medici family regime, to crush rival families, were reduced – and tax revenue went up, not down, Florence which in the early 18th century had become known for terrible poverty, was restored to some measure of prosperity) . And it has been, repeatedly, demonstrated since then – that pushing up tax rates reduces revenue and reducing them to a more reasonable level increases revenue.
Dr Laffer has spent his life showing this – again and again, and so have many other economists.
For the SNP regime to follow the policy if high taxes is criminally irresponsible – even by their own ideology, as they claim to want more revenue to spend on benefits and public services, yet are following a policy that produces less revenue.
When high tax rates fail, and they always do fail (they even failed in Sweden – which is why they were reduced there), the final move of the Collectivists is property confiscation.
This was done, for example, in the Papal States by Pope Gregory (the Gregory of the Calendar) – he demanded that all property owners produce “just title” to their property – not just that they themselves had bought inherited it justly – but that it had-always-been-so (going back through the generations) – of course no one could produce a just title going back for-ever, so Pope Gregory got a pretext to confiscate property from anyone he disliked – and use the wealth for the public-good (and he was quite sincere – he did try and use the wealth for high minded projects).
Sadly this “public-good” produced the most poverty ridden society in Europe – where it was said (without much exaggeration) that most people were either beggars or bandits.
But that is different from a tax on high earners: the Scottish government is not trying to reduce earnings at the top.
… or is it??
@Snorri Godhi
If your political ideology regards wealth as a sin then taxing it becomes desirable, even if the revenue declines.
What DJ said.
None of these clever treasury types ever seem to quite get it because none of them ever attended The College of the Blindingly Obvious: punitive taxation of the wealthy is punitive taxation of those best placed to avoid it.
Snorri Godhi and Discovered Joys – yes they may indeed have this objective, I had not thought of that.
And it would, sort of, be traditional – as the Medici family in Florence introduced high tax rates not to get more revenue – but to ruin rival families, to reduce the number of rich people.
They also crippled the economy and massively increased poverty over time – but that was a side-concern.
“The real taxation of the rich has never been tried. We’ll get it right this time.”
Of course getting it right involves building a wall at the border so the rich can’t get away. And California has proven decisively that they cannot properly do a project involving long lines and big money.
@JJM
None of these clever treasury types ever seem to quite get it because none of them ever attended The College of the Blindingly Obvious: punitive taxation of the wealthy is punitive taxation of those best placed to avoid it.
But that assumes the goal is to raise revenue, which I think maybe is only a small part of it. You only need to look at the gap between what they spend and what they raise to recognize that it isn’t about fiscal responsibility — they can always just borrow more — in their minds anyway.
I think this growing movement is really about appearing punitive against the rich. It is a little smoke screen to pretend they are fiscally responsible and a misdirection away from their profligacy to those evil rich people to satisfy some ugly sense of schadenfreude or perhaps to offer justification to the feeling of the general public that they are getting screwed. Getting screwed by the system — which may well be true, but it is the system of government that is screwing them not the rich people who provide them a job, and so it is a form of misdirection. “It isn’t the government’s fault things are so bad, it is those rich bastards over there — let’s get ’em”.
And I think it is worth saying that those rich people who are supposedly targeted understand the game perfectly well, understand that they will mostly avoid any extra punitive taxes via their complex tax strategies, and continue to send the politicians money. That isn’t true for all of them of course, but a surprising number of rich people are contributors to left wing politicians, which seems odd on the surface given these tax policies. Though it is not surprising when you realize that we mostly live in a crony capitalist state, and so they are simply paying their dues.
I think mine is an overly simplistic explanation of a very complex situation, but it is certainly more complex than “the treasury folks are stupid.” There is a lot of theater going on here to deceive the plebeians while the patricians, in smoke filled rooms, work out what is really going to happen.
Ellen – as you know, wealth decays if not managed well. So even if every rich person was kept, by force, in California – the place would still fall apart.
Fraser Orr – yes Sir, when one looks at the tax and debt position of New York City (even before Mamdani) and Chicago (if one includes the Education Board and County debt – Chicago is in an even worse debt position than New York City is) it is hard to escape the conclusion that governments that have spent on this level for so long – are either controlled, for a long period of time, by lunatics (if I may use that word for the mentally ill), or by people who are deliberately trying to wreak everything.
However, I am forgetting the “after me, the deluge” factor.
Each Mayor (starting with the wild spending Mayor Wagner of New York of the 1950s and 1960s) could say to themselves – “yes, this level of spending will lead to breakdown – but AFTER I am gone”.
As for blaming the rich – yes indeed Sir.
Starting with Mayor Curley of Boston in the early 1900s – he made the city unattractive for business, with high taxes, endless (and arbitrary) regulations, and by demands for bribes – yet when business enterprises left, he blamed them for rising unemployment and poverty, and posed as the champion of the poor.
In local government it is called “the Curley effect” – increase poverty and distress and become more popular by claiming to be the champion of the suffering, in spite of being the person who caused the suffering.
This has absolutely-nothing to do with revenue, positive or negative. The folks who implement these schemes don’t care about the revenue, if they even think about it at all. This is simply and solely about buying votes by persuading voters that ‘ we’re making that rich bastard over there pay more so we can give you his money”. It’s six foxes and one chicken, voting on what’s for dinner.
If you really want to see this mindset on full display, just take a look at some of the political ads running around the Michigan democratic primary election. A motley crue of candidates, each trying to top the other with their promises of just how much more they’re going tosoak those billionaires than the other guys will. We even have one candidate who proudly boasts that she’s the only candidate “who’s not a millionaire”. Look at me – twenty years in cushy goverment jobs and I totally failed to save and plan from my generous government salary – but if you elect me, don’t worry, it’s the billionaires’ money I’ll be pi**ing away!
The lure of endless free s**t never fades, I guess.
llater
llamas
It is sometimes said that monarchy is more fiscally responsible than democracy – but many Kings have bankrupted their realms.
As for oligarchy – the landed oligarchy that controlled England from 1688 to 1832 greatly increased debt, ending up with half of all revenue going on just servicing debts – more than was spent on the army and navy put together.
Perhaps no form of government is any good.
Roger Sherman (the only man to sign all of the founding documents of the United States – although those documents are not quite what he hoped for) argued that all talk of “liberty”, “freedom” and “rights” is vain if there are not strict limits on government spending and borrowing – and if money is not a real commodity (such as physical gold and silver) rather than Credit Bubbles that governments and bankers can manipulate.
I think Roger Sherman was correct – a bankrupt society can not remain a free society.
Not to challenge the great Paul Marks, but it was even earlier than that.
The concept was first articulated by the 14th-century Islamic philosopher Ibn Khaldun, who observed in his 1377 work The Muqaddimah that high tax assessments yield small revenues while small assessments yield large revenues.
“The purpose of taxes is not to make us rich, Winston, it is to make you poor.” – O’Brien 1984.
OK, I made that up.
Following on from Fraser Orr and llamas, this is all about punishing or appearing to punish the wealthy (definition: everyone with a fiver more than me). Unfortunately such policies are likely to be vote-winners, because there’s plenty of people out there who are unhappy with their lot and like the idea of people they see as more fortunate suffering. Even better if there’s a chance they will get some of that ‘redistributed wealth’.
In Britain, there seems to be growing resentment at the elderly for being asset-rich. Successive governments encouraging immigration and the BoE suppressing interest rates seem to get a pass. Even in allegedly right of centre publications like the Terriblegraph, generational conflict is being stoked. I suspect this reflects a lot of lobbying by the state and its associated think tanks for a new round of fleecing the kulaks.
One of the problems with all this is that Britain is nowhere near as rich as people think it is. “The rich” are not as numerous or as wealthy as people think and once they have been taxed to bits or fled, that will be it. I wonder how many of the people who left Britain for Australia, the USA, the UAE or Singapore in the past few years might have ended up wealthy business owners had they stayed?
Marius.
Yes Sir – Britain is not as rich as many people think, for example it is not really number ten in industry (although some lists pretend it is – by leaving certain countries out), on balance Britain imports manufactured goods – as well as food and raw materials and (yes) even energy these days.
As for the rich – they are leaving, and selling their assets for what they can get.
As you know, assets do not have a fixed price – as an economy (a society) goes down hill – so the assets are worth less than they used to be.
Presently people can still get millions for houses and land and so on – that in a few years, even if they are not burned out, will be worth a lot less than they are now.
Perhaps a new government may turn the tide – but that is three years away, and there is no guarantee that the right will win the next General Election, or would be allowed to do anything if it did win. The Freedom Party in the Netherlands was not allowed to do anything, and the Freedom Party in Austria was not even allowed into the government (although it won the election). Elections must not be allowed to stand in the way of the “noble” work of destroying Western nations.
It is not just a matter of Collectivist economic policies (although in Britain and so on – they are bad enough) – there is also ethnic conflict, which is going to get much worse.
The Chancellor of Germany described the recent Islamic terrorist attack as “an effort to divide us” – he does not understand, or will not honestly admit, that there is no “us” – and the British establishment, including the the King himself, are the same. They cling to their illusions about a united society – against all reason and evidence.
When David Amess (MP) was murdered his Islamic attacker sent a text message “it is done” – the police were not interested, they had their murderer and (like the rest of the establishment) wished to portray him as a “lone wolf” – who “did not represent his community”, it is always the same – even with the industrial scale rape gangs.
It is the same with leftist murderers – the murderer of Anne Widdecombe will be presented as another “lone wolf” – and his support for the leftist doctrines that dominate the education system and the media (the BBC and so on) will be down played.
As for the churches – even as the physical churches are burned, the people in charge of the various denominations (who have, long ago, reinterpreted God to mean “the community” or “the people” – which is why they think all religions are basically the same, as they, the “Christian leaders” do not believe the doctrines of their religion, they, mistakenly, think that Muslims do not believe the doctrines of Islam) pretend that nothing is wrong, and that Britain, France, and so on are big happy families – with no basic fault lines. All united in seeking Collectivist “Social Justice”.
And if anyone tries to warn the establishment of Britain, Germany, France (and so on) – they-are-punished, for “Hate Speech” and so on.
Dan Souter – I stand corrected Sir.
We are distracted by the poor revenue raising consequences of taxing wealth. Maybe deliberately so. If you regard the proposals as arising from envy and malice then that is a more powerful explanation in my view.
The current government’s existing tax changes (inheritance tax changes for farmers and imposition of VAT on private schools) are fresh examples of envy and malice in action and there are already some poor consequences visible. Not that the current government cares to notice them.
One of the major rules of economics is that you can not tax people into prosperity.
Paul:
Prompted by your mention of him, I finally looked up Mayor Curley of Boston. He was indeed a rogue and a criminal as you mentioned.
I was struck by the eclipse of the WASP population of Boston when Curley became mayor. The Irish Catholics eventually had the numbers to take the city over. I see the same thing happening in Britain, only it is not Catholics who are taking over. Can anything else explain the hold over London that “Lord” Khan enjoys?
I am not looking forward to the future, Not one bit.
Paul:
Bradford De Long wrote (at least) a couple of papers about this:
Princes and Merchants (1992) and
Overstrong Against Thyself (1995).
Sorry about not being able to provide a link to the latter, but if you can find it, Fig.3 is particularly enlightening, since it shows that the revenue-maximizing tax rate (1) is higher than the growth-maximizing tax rate (2).
(1) which a rational prince would choose — but not all princes are rational.
(2) which a merchant oligarchy *in a republic dependent on trade*, such as the Venetian Republic or the Dutch Republic, would rationally choose. Except that the Dutch Republic was arguably irrational.
PS: credit to Dan Souter for mentioning Ibn Khaldun.
Regarding the SNP Government of Scotland minimum alcohol unit price, although the Government forced the booze retailer to charge more for the cheapest hooch this price increase in profit was split between retailer, and wholesaler and manufacturer. The meanies of Scottish government got none of this because it is UK government in Westminster that sets booze tax.
For me this meant that I bought better quality booze because the law had equalised the retail price.
The quantity of booze consumed in Scotland, and consequential problems, did not decrease.
So the Scottish Government increased the minimum price of 100cc of alcohol from 50 pence to 65 pence. No doubt expecting a different outcome.
The distillers and retailers are no doubt grateful for the extra profit. Maybe they show it to the politicians in the traditional way.
Snorri Godhi – perhaps not irrational, but “short term”.
Whether the government is a monarchy, an oligarchy or a democracy – the rulers tend to think short term (monarchs are supposed to think long term – but they normally do not), borrowing money, or debasing the money, seems like a good option in the short term – “in the long run – we are all dead” as the, despicable, J.M. Keynes used to say. Even the good Emperor Antonius Pius debased the coinage – because it is just such an attractive short-term option.
Private coinage (legal in the United States till the 1850s) is the answer – a private mint that debased the coinage would lose credibility and be destroyed by competitors. As for government – no borrowing allowed, just no borrowing. If you want a war, or whatever, pay for it up-front by taxation – “but we do not want crushing taxes” – then do not spend the money, if you want to spend the money – finance it openly via taxation.
As for “emergency” powers – if government is allowed to do things “in an emergency” – then there will be an endless “emergency”. The emergency of 1933, the United States government defaulting on its gold debt – and voiding the gold clauses in all contracts, public and private, never ended – not after 92 years. And the default on gold obligations to other governments was defaulted on in 1971 – this “emergency” has lasted 55 years.
Borrow, borrow, borrow – then default (and the American government did default – it borrowed gold and it “pays” paper Dollars), this is the way of governments.
JohnK – first it was Mayor FitzGerald (who was relatively moderate) he marked the “Irish takeover” of Boston – only after him came the vile Mayor Curley – these days the Irish in Boston have lost power, power is in the hands of new groups – who are marked by their hatred of the United States.
It is the same, or worse, in other major American cities.
Import the Third World – and become the Third World.
The United States is becoming part of Latin America – and Europe is becoming part of Africa and the Middle East, not all at once – but over decades.
On the positive side – there are quite a few conservative governments in Latin America, for example a conservative President is coming into office in Peru today – 28, 7, 2026.
Paul:
When the government taxes above the growth-maximizing rate, then it is indeed short-termist.
But when it taxes more than the revenue-maximizing rate, then it is plainly irrational.
But if the oligarchs are capitalists, intent on growing their capital by international trade, then they have an incentive to impose taxes at the growth-maximizing rate.
(By contrast, if they are intent on growing their capital by state subsidies, or by state restrictions on competition, then they might favor taxation higher than the growth-maximizing rate.)
I think that was Brad De Long’s conclusion.
Snorri Godhi – interesting points Sir.
Although ruling merchants tend not to run a state in the way they run their own business.
Radical Joe Chamberlain was a good businessman – but supported endless wild spending at both local and national government level.
In America the “let us run government like a business” types, tend to build vast H.Q. buildings – such as the Municipal Building on NYC (almost one million square feet of office space – it was Stalin’s favorite building, he modeled the new University of Moscow building on it) which was built only a few years after “unification” in 1898 – the businessmen politicians who approved that building clearly were not intending a LIMITED government (a limited city government does not need a million square feet of office space – none of which was for the city council, which continued to meet in the old building).
Unifications tend to mean more government – more government spending, more taxes, more regulations – as the Italian and German unifications sadly showed. But most Classical Liberals at the time did not understand this – and, mistakenly, supported the unifications.
Sicily is, perhaps, the saddest example – if they were oppressed under the Bourbons, they were far worse oppressed under the “Liberal” governments in Rome.
Higher taxes, language persecution, conscription (which they had not had before) and on and on.
But any resistance was dismissed as banditry.
Very large numbers of “bandits” were killed.
So vast numbers of people left both Sicily and the rest of the Southern Italy, for the United States – this had not been the case under the Bourbons (when the area was the Kingdom of the Two Sicilies – with its capital in Naples), but was the case under the enlightened governments of liberal businessmen in Rome.
When businessmen enter government they enter a different world – they cease to be businessmen, in the sense of worrying about profit and loss.
It may have been different in ancient times, the Republic of Carthage and so on – it is hard to know for sure.
Sadly Carthage seems to have been concerned with the danger that a successful General might make themselves King, than they were concerned with destroying external enemies.
Both in the First and the Second Punic Wars the Republic of Carthage was obsessed with “talks” – with “making a deal” and would not give the all out support needed to destroy-Rome.
Come to think of it – perhaps they were still merchants. After all the merchant President of the United States has much the same obsession with “talks” and “making a deal” – rather than destroying enemies.
The policy of “soaking the rich” has a lot in common with the minimum wage: both are attempts to overturn fundamental economic law by fiat, and to level out what never was and can never be made level – the varying productive potential of individual men.
But such policies make sense to the large majority who are unaware of those economic laws, so we are going to get a lot more of both.
Ferox – and, for example, the Mayor of Boston supports both tax-the-rich (even more), and the minimum wage doctrine – and “rent control” and every other absurdity of statism.
This is an example of a highly “educated” person – top of her class in Harvard and all the rest of it.
Not much point in being “highly educated” – if what you are taught is a collection of lies and absurdities.
Modern education is a matter of absorbing the stuff provided – and repeating it back.
People who are critical of the basic assumptions – are not welcome.
By the way, for those who do not know, both wages and rents are prices – and price controls do terrible harm.
Someone who things that wages and rents (and other prices) should be decided “by law” (i.e. by the insane edicts of the state – falsely called law) is unfit for any public office.