Interesting assertion

What it implies is an attitude that Scotland should not tax companies, capital and wealth too heavily for fear it will relocate. That there is almost no evidence that real wealth does relocate for tax reasons does not matter to those who promote these arguments.

That it’s a basic assumption in all economics about taxation seems to escape the Murphmonster. All those very bright people filling libraries over the centuries, they’re all just wrong. Because.

Gordon Brown actually proved it for us as well. North Sea taxes were raised above the level where companies said they would invest. Companies didn’t invest, North Sea tax revenues fell.

But, you know, reality and the Great Tuber.

In particular, there is a worrying suggestion that the so-called ‘Laffer Curve’ might be relevant in a Scottish context and that there are limits to the tax rates that it might wish to consider. I suggest that this is wrong. The work of economists working with Thomas Piketty has made clear that there is no tax rate that Scotland might reasonably consider where an increase in tax rate would reduce tax yield.

There’s reasonable – not conclusive I agree, but reasonable – evidence to suggest that current UK top income tax and capital gains rates are at the peak of the Laffer Curve. It’s even true that the major theoretical paper of recent years, Diamond and Saez, concurs. Taxes upon income – note taxes upon income, not income taxes, therefore add in NI – peak at 54% in a system with allowances. The ability to leave the country and remove oneself from the tax system by changing residence is an allowance in this definition.

Err, Saez works with Piketty, no?

Sigh.

24 comments on “Interesting assertion

  1. that Scotland might reasonably consider

    Reason. And the SNP? Nah.

    Independence. For every reason. At any cost.

    It would probably look better as a slogan (i.e. nobody would know what it meant) in Gaelic.

  2. I live in a country whose financial system is entirely predicated on internal tax competition. And yes, people and companies do move canton based on tax rates, and do take decisions on where to incorporate a company based on tax rates.

  3. Leftards dismiss Laffer Curve by simply saying we’re not at the peak.

    ‘There’s reasonable – not conclusive I agree, but reasonable – evidence to suggest that current UK top income tax and capital gains rates are at the peak of the Laffer Curve.’

    Until conclusive, it can’t be used as an argument. At least not with the Left.

    Ask Murphy why most pro golfers live in Florida. Hint: it isn’t the weather.

  4. Has the Spud monster not considered the world is a lot smaller place than it was in (say) 1965? The idea then of upping sticks and leaving the UK (or wherever) and making a new life for yourself abroad was pretty much a no-goer, for the average person. Too many unknowns, too many risks, too much of a cultural earthquake.

    Today you could decide to relocate to Ulan Bator and I bet you’d find someone on the net to help you do it, plus all the info you needed. In fact I suspect you could arrange to relocate from the UK without leaving the house until you’re on the way to the airport, such is the power of modern communications and banking systems. If the average person can do this, those with a bit of money will certainly be able to do it.

  5. ‘… there is no tax rate that Scotland might reasonably consider where an increase in tax rate would reduce tax yield.‘

    100%?

  6. “Leftards dismiss Laffer Curve by simply saying we’re not at the peak.”
    The real problem is they think we should be at the peak. As though that is the function of the economy.

  7. “The real problem is they think we should be at the peak.”

    Past the peak.

    “All your money are belong to us.”

  8. ‘no evidence that real wealth does relocate for tax reasons”

    Because nobody lives in Bermuda or Monte Carlo…

  9. And towards the end of last year thousands of companies left Catalonia because the communists who are trying to take over the region were threatening to destroy whole industries with punitive taxes and absurd regulations. Some of these were very big companies whose very identity has been linked to Catalonia for over a hundred years.

    Anyone who’s run a business of any kind knows that tax is a cost, and you try to reduce it as far as possible.

  10. In fact I suspect you could arrange to relocate from the UK without leaving the house until you’re on the way to the airport, such is the power of modern communications and banking systems.

    Assuming that all the visits to girlfriend/fiancee/now wife don’t count it still took 2 trips to London: once for a medical at the embassy-approved doctor, and an interview at the U.S. Embassy itself.

  11. 1970s Labour proved it too.

    Lots of wealthy people relocated by leaving UK

    Mr Hammond should note it’s true today too. F1 drivers – past & present – most are at their “home” race this weekend.

    25% of £40 Million (Lewis Hamilton salary est) is better than 45% of £0

    .
    On spuds 2nd point:
    My brother has changed his tax location from Scotland to England – homes in both. He tells me he’s one of many.

    Also, MOD is trying to work out how to compensate military based in Scotland as many applied for transfers out.

  12. NDReader said:
    “The real problem is they [leftists] think we should be at the peak. As though that is the function of the economy.”

    Yes; even using the Laffer curve (maximising government revenues) is to give up on half the argument. We should be aiming for the peak of the Rahn curve – maximising GDP

  13. the so-called ‘Laffer Curve’

    WTF is ‘so- called’ doing in there? I’m no economic historian but I know enough to know that there really was a guy called Mr Laffer, who may or may not have scribbled something on a napkin, and that he made the somewhat reasonable point that if you set tax rates for anything at 0% you raise nothing in tax revenue and at the other end of the scale if you set them at 100% then you’ll also raise $0 in tax.

    Its axiomatic that there must be some f(x) to describe how much tax is raised for x between 0% & 100% and not far off being axiomatic that it has a single peak of which taxes either side raise lower revenue.

  14. Re capital, not labour, but …

    Presumably it’s perfectly A-OK that countries like Ireland offer very low rates of corporation tax, since no organisation could conceivably want to take advantage of the offering…

    I’m probably being a wee bit unfair here, I think the outrage at Ireland’s “predatory” tax rates is that companies would set up there as nameplates only, but that doesn’t explain the great big physical buildings full of actual real-life human beings that seem to have been set up in Ireland apparently in response to the low tax regime there.

  15. Not just F1 drivers, I wonder how many expats we have on this blog who might consider returning if tax rates on income were lower? Also savings. In an era of QE, it is almost impossible to get a ‘risk free’ real return on savings, but when the paltry nominal return is then taxed as well, the power of compound interest to accumulate wealth is all but destroyed. In the old days private sector workers could build wealth through a pension that accumulated income gross, but then thanks to first Lamont and then Brown the politicians (on lovely index linked pensions themselves) that system was ruined, first by removing dividend tax credits, then by forcing pension funds to invest in super low yielding bonds. Individuals were encouraged to use SIPPs, but these are capped out at increasingly lower levels and certainly at a level which would not buy a pension equivalent to the public sector.

    Of course, the British have accumulated most of their wealth (such as it is) in their housing stock which is the only asset free of CGT, but here too they are increasingly being squeezed in the name of ‘first time buyers needing to get on the housing ladder’. Stamp duty has killed the liquidity, buy to let has been demonised and taxed increasingly punitatively. This is the proverbial boiling frog of socialism, the middle class are having their meagre capital stolen by the state through QE, inflation and tax. An uncapped public sector pension is now one of the most valuable assets you can acquire. The true wealth divide emerging is between those who live off their own capital and those who live off the state

  16. Mark T

    Don’t forget he is in favour of all corporations being controlled by the state so the idea of private pension provision would not exist in a Courageous State – indeed a recent post hinted he would remove the ability to invest in UK equities as he feels they are overvalued and the money currently in then would be better deployed according to ‘the needs of the state’

    Let no one be under any illusion we are dealing with one of the most evil men in the world

  17. @BiND
    Correct. First year maths undergrads are expected to be able to prove this. The Laffer Curve is one of the few results in economics that are based on firm mathematical results, rather than hand-waving.

  18. @Bloke in North Dorset, May 26, 2018 at 10:59 pm

    “the so-called ‘Laffer Curve’ “

    WTF is ‘so- called’ doing in there?

    +1

  19. “there is almost no evidence that real wealth does relocate for tax reasons”

    So the residents of Monte Carlo are just there to top up their sun tans, then…?

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