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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.