The strong version of the Laffer Curve, that all tax cuts always pay for themselves from increased revenue (over reasonable time scales) is incorrect. The weak version, that some do, is correct. Similarly, the strong version that all tax rises increase revenue is incorrect: the weak version that some tax rate rises will increase revenues and some will not is correct. Technically which is which depends upon the elasticity of this, that and the other. The more mobile the thing being taxed is (whether people or capital) the more likely it is that a rise in tax rates could actually bring about a fall in revenues collected.
We might be about to see this happen with the taxation of the non-doms.
Alistair Darling\’s tax crackdown on Britain\’s non-domiciled residents will end up costing the Treasury more than twice the sum the Chancellor expects it to raise, a new study has calculated……But the study warned that the non-dom plan will cost the Government £2.1 billion in lost tax receipts due to "capital flight", in which wealthy individuals leave the UK and take their money with them. Even the Treasury has admitted that 3,000 of the wealthiest non-doms could leave the UK as a result of the tax plans.
Other than the cry of "make the rich bastards pay" there\’s not really much to commend this plan if that is true. Now I agree, this isn\’t exactly the most impartial of all groups telling us this but what if it is actually true?
According to tax experts at the Society of Trust and Estate Practitioners, non-doms pay £7.16 billion in tax annually. The society has calculated that the departure of the richest would cost Mr Darling more than £2.1 billion.
Isn\’t that interesting. Those supposedly non-taxed non doms actually provide well over 1% of all revenues collected annually? And if we insit they pay more, we\’ll actually get less to spend on schoolsn\’ospitals.
Might be a good idea not to go ahead with this plan then, eh?