Not quite getting it

It makes little sense for those earning £49,000 to be paying the same rate as those on £149,000, nor should those earning £500,000 pay the same as those getting £200,000. The Laffer curve was only created to enable Ronald Reagan to lower taxes so it needs to be discredited, and draconian measures introduced to ensure that the rich, for the first time in our history, pay their fair share. Let’s start with a 90% tax on incomes over £1m.

All tax avoidance should be made a criminal offence, as should giving advice to enable it to take place.

No, the Laffer Curve is a mathematical certainty. And the definition of tax avoidance is that it’s legal.

Sigh, Guardian letters page, eh?

56 comments on “Not quite getting it

  1. It’s in response to Polly’s inane claim that “The refusal to raise tax has become our national disease”. Which would be nice if true.

    But didn’t the government raise VAT to 20% just five minutes ago? And don’t fags cost their weight in gold these days, thanks to tax?

    All tax avoidance should be made a criminal offence, as should giving advice to enable it to take place.

    In 2018 Guardian Media Group reported £30.4m profit and managed to pay only £200k in corporation tax – an effective rate of 0.65%

    I support the idea of jailing everyone who has worked for or with The Guardian until we can figure this out.

  2. £49,000 to be paying the same rate as those on £149,000

    They don’t.

    £49k: £11,850 tax free; £22,650 @ 20%; £14,499 @ 40 %. Total of £10,530 or 21.5 %
    £149k: £11,850 tax free; £22,650 @ 20%; £114,499 @ 40 %. Total of £50,330 or 33.8 %

  3. Those who want more extracted from our hide always have a set of reasons as to how it shouldn’t affect them.

    A publicly listed index of all those advocating extra tax burdens needs to be prepared and made public. Along with those agitating for more life-worsening socialist oppression of every sort. Then people would know with whom they need to engage in reasoned debate.

    A catchy name is needed for our side of the debate. I suggest “Cashbeefas”. I think I heard a similar sounding name somewhere around and it IS catchy.

  4. “The Laffer curve was only created to enable Ronald Reagan to lower taxes…”

    Laffer has never claimed to have invented the concept; he himself has pointed out that there are precedents, including as far back as the 14th-century in a history written by Tunisian scholar Ibn Khaldun.

  5. “Laffer Curve is a mathematical certainty”: not really. You know that the two ends are pinned and that the points in between will lie above the horizontal axis. You’ve no mathematical reason, though, to know that the result will be a continuous unimodal curve. You might have other reasons to conjecture that, but they are not mathematical.

    And, as Andrew C suggests, the idea is common sense, long pre-dating the discipline of Economics.

  6. That letters page should be lovingly preserved as a shining example of the dangers posed by the left.

    Ignorance, made up facts and threats of violence, spiced with stupidity and lack of self awareness.

  7. and draconian measures introduced to ensure that the rich, for the first time in our history, pay their fair share. Let’s start with a 90% tax on incomes over…

    It’s come to a pretty pass where someone, even in The Guardian can, presumably with a striaght face, consider that taking 90% of anything is a fair share.

    To my addled old physicist’s brain a fair share is that everyone contributes the same percentage – a method I believe that has been used elsewhere and actually increased the tax-take as avoidance becomes less worth the effort. When all’s said and done 20% of £1million is still 40 times more than 20% of the average.

    I suppose it’s just the general debasement of the language so beloved of the inaccurately-defined “progressives” (who aren’t) so that “fair” = “manifestly unfair”, “cut” = “reduced increase”, etc.

  8. Dongguan John,

    Don’t those on £149k pay even more than your calculation indicates, because the tax free allowance (note ‘allowance’ not ‘entitlement;) is reduced for incomes over £100k?

    On the other hand, if you are paying £50k or so in income tax, it is well worth employing someone skilled in such matters to see if you are paying too much.

  9. dearime,

    I personally call the Laffer Curve the Weeper Curve, because is isn’t a Laffin’ matter. What you described is of course the mathermatical certainty: when the ends are pinned at zero, and there is a hump between them. No-one, especially Laffer, ever said where the hump occurs along the %age axis, not how high is rises, nor, indeed, that it is a smooth curve..

    At small percentages, of course, the total tax take increases with an increase in tax rates. The problem is that no-one knows the shape of the curve and cannot therefore predict what the optimum tax rates need to be to maximise income.

    My own position is based on some observations, for example, how people tip in restaurants. Typically in the UK, 10% and in the US, 15%. If one rounds the bill, and the tip therefore drops (UK) to less than 7 or 8%, then the percentage wins. That 10% seems sensible goes back to the old medieval church tithes. Of course, people complain less in restaurants when they add the tip themselves than they do when the restaurant does it for them via a ‘service charge’. I suspect that the addition of a 25% service charge would cause a drop in custom – an illustration I suppose of a pseudo-Laffer effect.

  10. Excavator Man is right.

    The personal allowance is withdrawn on incomes over £100k.

    Between £100k and (currently) £123,700 your marginal income tax rate is 60%.

    Someone on £149k would pay £52,700 income tax.

  11. oh yeah good point EM, lose all the personal allowance if you earn more than 124k. So Mr 149k pays 41.7% compared with mr 49k’s 21.5 %. Almost double the rate.

  12. Dongguan John (again),

    Sorry. You should also include NI, I think. This makes the £49k earner pay a lot higher percentage, but the £149k earner is less affected, percentage-wise.

    Whether or not you consider Employer’s NI contributions a tax on the earner is a moot point. Presumably, if they weren’t paid, they would be available as a higher salary.

  13. Bernie from Liverpool sounds a bit of a headcase. All tax avoidance to be illegal? Well, that makes anyone with an ISA a criminal. It also makes the Government itself an accessory, as the entire stated reason for cigarette taxes is to deter people from buying them and paying the tax.

    Working part time? Tax avoider! Look at all that tax you could pay by working full time! As for the unemployed, not paying any fucking tax at all!

  14. PF
    David Reed, of Northampton, talking about LVT and “grasping elderly rentiers”…

    That is DBC Reed, once resident village idiot of this parish.

  15. @Henry Crun – good spot, I suppose it must be. I was wondering why Tim hadn’t highlighted the derangement of that letter…

    That letters page suggests one should never trust a David…

  16. When Dongguan John says he doesn’t know how NI is worked out, he gets right to the root of the matter. NI is a way of making it difficult for the ordinary punter to work out exactly what they are paying! It also means that the low paid get income-taxed even if they don’t know they are!
    If a person is entirely employed, what they pay is fairly simple to work out, and is given on the HMRC website. Problems arise if the person falls into one of a group of classes, for example being self-employed (NI is less, because there’s no unemployment benefit), working on a mixture of employed and self-employed jobs, being over state pension age, being a married woman on the reduced rate, etc.
    The employer NI is similarly complicated, and even includes payment on employee benefits AND expenses. So, you claim a mileage allowance, and after paying it to you, it seems the Gummint wants a cut on top!

  17. NI makes a big difference to the 49k guy – 7960 tax but 4607 NI for total deduction 12,567. (Also 5599 employers NI for those interested!)

    For the 149 k man, tax is 52,700 and NI 6607, for total deduction 59,307. (Emp NI 19,399 too!)

    Ignoring Emp NI the total deductions are at rates of 25.6% and 39.8% so we can see the difference between marginal and average rates!

    For the curious: (tax + NI + emp NI) divided by (gross salary + emp NI) gives rates of 33.3% and 46.7%.

    Source for my tax and NI figures is https://www.uktaxcalculators.co.uk/

  18. I am always amazed when idiots start calling for people to pay their fair share of tax.

    OK, so work out the fair share. For example if its £15k a year then charge everyone £15k. The ones with a bit of money or high income can pay that. OK they have paid their fair share.
    Now what?

    Those who cannot afford to pay that? What to do with them.
    Usually including those who called for people to pay their fair share.
    Yet when it comes down to actually paying their fair share they find that the old system of people not paying their fair share was better for them.

    Telling people who are already paying their fair share plus the fair share of lots of other people to pay ‘their fair share’ should be welcomed by the rich. And put into force.

    Sadly the idiots who come up with the ideas don’t appear to have learnt anything about maths.

  19. @MBE “For the curious: (tax + NI + emp NI) divided by (gross salary + emp NI) gives rates of 33.3% and 46.7%”

    You wait till you get into that 60% marginal band, £100k to £123,700.

    Company has £10k pot to reward an employee….

    £1,212 employer’s NIC
    £5,273 income tax
    £176 employee NIC

    £6,661 to HMG
    £3,339 to the worker

    Cunts.

  20. There will be fury in a certain unimpressive end terrace in Ely at this letter from useful neo-liberal idiot Ralph, who does not seen to have got the message about the real, several hundred billion, tax gap.

    Polly Toynbee calls for taxes to be raised but doesn’t mention the vast fortunes not collected from tax evasion and avoidance. The last figure I saw estimates this at £34bn, which would transform the economy of this country. We haven’t scratched the surface of this illegal and immoral industry and we could start by making it a criminal offence to pay for goods and services into anything other than an accredited business bank account and also to fail to issue a proper VAT or till receipt.
    Ralph Jones
    Rochester, Kent

  21. The more, more, more tendency also ignores the basic facts about who actually pays what % of total tax now. The top 1% of income earners pay well over a quarter of all income tax. The bottom 40% none at all. That looks very fair to the chav on his sofa. Less so to the company owner who hardly sleeps.

  22. Worth repeating
    “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

    ― Winston S. Churchill

  23. @Patrick

    In terms of “they can afford it” I don’t worry terribly about tax sob stories of people with very healthy incomes, but I do worry about us becoming over-reliant on their tax contributions. In a recession, isn’t it usual for business owners etc to take a big initial hit in income, disproportionate to the rest of the working population? I seem to recall that post GFC this caused problems for some US states that relied heavily on taxing those with high incomes.

  24. @ BraveFart
    Clearly Ralph Jones never buys a loaf of bread or a newspaper or fruit in the local market. I suppose his servants do that for him.

  25. Baron Jackfield: “To my addled old physicist’s brain a fair share is that everyone contributes the same percentage”

    Exactly. It is a human right to be treated equally under the law. All taxes should be levied in equal rates (or equal amounts).

    Governments stray from justice – with eager approval of the people – when they start using the tax code for anything but raising revenue, or apply taxes unequally.

    FAIR is EQUAL. UNEQUAL is UNFAIR.

  26. MBE – Yes the risk of top earners’ earnings dropping fastest in a recession is a systemic risk. Assuming the cake is there to be sliced is dangerous. Also these people are the most mobile. Crazy high tax rates can scare away the tax base. And then who suffers?
    Politicans love to witter on about sustainability – except when it relates to tax revenues.

  27. At least when Harold Wilson’s Labour Government *did* have marginal tax rates of 98% we got some great music out of it. Taxman by the Beatles, Lazy sunny afternoon by the Kinks, and an entire Rolling Stones album made in tax exile in the South of France.

    If it happens again I doubt Stormzy and Sheeran will produce anything of that quality.

    A conservative is a Socialist with a high tax bill.

  28. To me, fair tax would start at paying for what you receive from the state. Why should refuse removal, street lighting, etc. be different from bread, milk, booze, fuel and fags?

    Then, if we except that some should receive the former at a discount, the question is how much is it reasonable to move away from fair tax and move to unfairly tax rich bastards to fund the indolent and inadequate?

  29. “We could start by making it a criminal offence to pay for goods and services into anything other than an accredited business bank account and also to fail to issue a proper VAT or till receipt.”

    I don’t think that dear old Ralph has just realised that he’s just demanded that the entire bottom 25% of the population (including the vast majority of recent immigrants) be locked up for tax offences. The middle classes and above aren’t going to be troubled by the need to pay using an electronic format, the benefit and council estate classes would be criminalised to a man overnight. I would particularly look forward to this law being imposed on the travelling community……………

  30. To BraveFart,

    There is an echo of such a system in Italy, where when you buy a coffee, the cashier must issue a receipt and place it in the customer’s hand. However, like most pointless laws, it is generally disregarded, with receipt and change placed on a ceramic plate.

    My local Coop actually asks if I want to have a receipt – in the interests of pollution, apparently, but more probably to keep the till roll consumption down.

    Businesses that fall under the compulsory VAT registration threshold don’t charge VAT (obviously) and when dealing with end users like the public would be mad to register voluntarily. As for paying into someone’s bank account, that is the end of cash. Perhaps you regret the almost complete passing of the cheque? I do. But then accepting a cheque requires trust in the payee that businesses can’t always afford.

  31. Whenever I encounter this sort of blather I ask the obvious questions no Socialist ever asks:

    Who writes tax law? Is it The Poor?

    How did Socialist Hero Bernie Sanders end up with three houses, including a summer home with a $600,000 mortgage?

  32. DtP,

    The fundamental problem with progressive taxation is that everyone gets to vote on something that will not affect the vast majority. If we had a vote to say that Muslims should pay 10% more tax than everyone else, leftards would go into meltdown, but it’s okay for the indolent and inadequate to vote for ‘rich bastards’ to pay a disproportionate rate of tax in order to subsidise them.

  33. “Advocating robbing Peter to pay Paul will always get Paul’s support.”
    Kipling wrote a conservative manifesto in “The gods of the Copybook headings”

    In the Carboniferous Epoch we were promised abundance for all
    By robbing selected Peter to pay for collective Paul;
    But, though we had plenty of money, there was nothing our money could buy,
    And the Gods of the Copybook Headings said: “If you don’t work you die.”

  34. The last figure I saw estimates this at £34bn, which would transform the economy of this country

    Lol. Wouldn’t even nudge it, let alone transform it. We also give away about 40% of this ‘transformational” amount to foreigners every year.

  35. @Dearieme

    “You’ve no mathematical reason, though, to know that the result will be a continuous unimodal curve. You might have other reasons to conjecture that, but they are not mathematical.”

    There is no requirement that the Laffer curve been unimodal or smooth or continuous. All that is necessary is:
    1) Points 0 and 100 are at zero revenue
    2) all other points are >0 revenue.

    Thus, with absolute mathematical certainty, there will be a final maximum point at x<100, beyond which the curve MUST slope downward to y=0.

    The problem for the socialists is that to admit that simple fundamental, undeniable truth forces them to concede that taxpayers will modify their behaviour as a result of tax policy.

    Once they have conceded that, they are lost as they have to recognise that the maximum point is very, very much lower than they tell their supporters – or themselves for that matter.

  36. “We could start by making it a criminal offence to pay for goods and services into anything other than an accredited business bank account and also to fail to issue a proper VAT or till receipt.”

    Anyone want to bet against Ralph also being a supporter of an FTT?

  37. Pedant-General,
    I share your general view, but have to point out that your position is only guaranteed as one approaches x=100. At x=0, the picture is different – an increase in taxation increases revenue. The point is simply where does the point of maximum revenue lie?
    As well as the utilitarian view that revenue must be maximised, there is an alternate view that revenue merely has to be sufficient. Assuming some sort of probably asymmetrical bell-shaped curve, there would be 2 points on it that meet that criterion: one to the left and one to the right of the max revenue point. You realise that Socialists would naturally opt for the latter, to ‘punish the rich’.
    There are other factors at play. For example, who cares a damn what the tax rates are if life is OK? I’d rather be taxed at UK rates than live in some 3rd world shithole (thanks, Donald) where the rates were lower. Also, for example, how much lower would the rates have to be for a middle-income retiree like me to see a significant change in lifestyle? A couple of percent is actually neither here nor there, frankly.
    For a bigger change in tax rates, the Government would actually have to change tack. I’m all in favour of that, eliminating waste, fake charities, labour-stuffed quangos and all the rest, but equally, I’d be prepared to pay more if I had an inkling that it was going to serve some useful purpose. A problem is that we know that socialist-increased taxation would merely increase the flow as it was pissed down an open drain.

  38. EM” there would be 2 points on it that meet that criterion: one to the left and one to the right of the max revenue point…You realise that Socialists would naturally opt for the latter,”

    Would that all socialists wanted was to maximise tax revenue. They would not stop there, at that right hand point on the curve. They would go on. That revenues began falling would not matter. You are right that they want to punish the rich. But wrong to think that that desire plays second fiddle to maximising revenues.

  39. dcardno –

    What made the Burlington College deal even more interesting is that the local Catholic Diocese was saving from bankruptcy by the bankrupting of the college. So Mrs. Sanders is what we can a conspiracy ‘twofer’: A Socialist and an agent of the Vatican.

  40. @Excavator

    “At x=0, the picture is different – an increase in taxation increases revenue. The point is simply where does the point of maximum revenue lie?”

    Quite so, but you are preaching to the converted here. To anyone arguing that Laffer curves exist, this is a trivial truth. The point is to get socialists to recognise that Laffer curves exist at all and it is only by examining x=100 that you can do so.

    Once you have done so, a socialist arguing for really high rates is forced to admit that s/he is quite happy for everyone to be poorer – revenues are reduced – simply to punish the rich: they are forced to state clearly that they are in the game of arbitrary punishment and are not the nice friendly people that they desperately to make themselves out to be.

  41. ‘Every where is freaks and hairies, dykes and fairies
    Tell me where is sanity?
    Tax the rich, feed the poor, till there are no rich no more’

    Ten Years After, 1970

    It’s not about the poor; it’s about the rich. The objective is to destroy the rich. Talk about the poor is chatter to get people to accept it.

  42. There is nothing fair about tax. But it’s not supposed to be fair. It would be quite good if it was simple to calculate and easy to collect. Even better if government limited it to funding only public goods, and raised enough of the stuff to balance their books.

  43. Purely as a point of extreme pendantry, when x = 100, tax revenue > 0.

    Simply in that will always be some – (genuine) communists, even lots of ordinary people who will put in some small legal effort (outside of the new black economy) to avoid the new gulags, nutters, whatever – who will still be working, and handing it all over in return for whatever trinkets the state might offer in return.

    That doesn’t change any of the other points made above: of course the curve exists – only the most ignorant of buffoons could claim or argue otherwise.

  44. 100% tax had been tried, is being tried in China and N Korea, they’re called slave labour camps. If your labour gains you no profit beyond whatever the State deigns to give you to survive on, then the logical response is to stop working and just take what the State gives for free. Which of course cannot be allowed as then nothing gets done and the State has no goodies to hand out. So at 100% tax people must be forced to work.

  45. That is correct, Jim. It’s why totalitarian states eventually rise from whatever fantasy the original government envisioned. When the people don’t comply with the vision – due to cultural hegemony* – the state must take barbaric action to get compliance. The barbaric actions lead eventually to all totalitarian states looking alike.

    *Gramsci

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