An open letter to John Christensen

Just two little points I\’d like to make.

You\’re really doing yourself no favours in trying to use Johann Hari as a source of economic logic or facts.

Secondly:

Thanks for your letter extolling tax competition: do you think that cutting VAT rates would stimulate growth, or is it only taxes on capital that concern you? I have noticed a tendency for politicians to push for tax cuts for some (those rich enough to provide party funding) while being all too happy to increase taxes on poor people (who foolishly don\’t fund politicians and their parties). Why are some tax cuts competitive but others not? I only ask because raising VAT – a regressive tax which will only make British society even more unequal – was among the first measures your party took on assuming government.

Yes, of course, a cut in VAT rates would boost growth. This is why Alistair Darling did so, remember? Straight fiscal expansion.

However, there is more to the art of taxation than simply the difference between the amount collected and the amount spent. There are the relative deadweight costs of different taxes.

As we see here, lowering taxes on capital and raising them on consumption will indeed stimulate growth for the same revenue collected.

Hey, must be true, the OECD tells us so.

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