The event was on the economy and Brexit and covered a lot of ground but I began talking about the UK as a tax haven which we are led to believe is Philip Hammond’s Plan B. I explained why this was a terrible idea roughly following these notes:
Tax haven UK
To turn the UK into a low tax nation
What’s wrong with being a low tax nation? OK, sure, it’s a political choice. 35% of GDP running through government, 45%, that’s (with the usual exception of France) about the spectrum for European countries. Shrug, being at one or the other end of that is indeed just a political choice, it’s not a threat.
Will it work?
No: there is no evidence low tax rates boost investment, productivity, employment or growth
In fact they tend to discourage investment because the tax incentive to spend is reduced
A professor of international political economy said that? Seriously, that’s entirely contrary to all of the economics on the point. It’s possible to make the argument, and for certain public goods even I would stoutly maintain that that argument is correct, that government deployment of the tax raised produces more wealth that the pocket leaving fructification. But we still do have those deadweight costs of the tax raising itself, they don’t go away just because the spending is upon something nice.
And the Laffer effect?
That kicks in at tax rates well over 50% and we don’t have those
So this is a tax giveaway
No, Laffer Effects exist all the way up and down the tax curve. That’s the point, it’s the Laffer Curve after all. It’s the peak of the curve which is over 50% – 54% according to Diamond and Saez. Which is all taxes upon income, not income tax and when we add employers’ NI (which Spud will readily agree is incident upon the employee) to income tax we get to around and about that rate.