Oh my, Ritchie proves the existence of the Laffer Curve

Bankers, lawyers, accountants and investment managers were asked in the survey referred to (run by the Isle of Man Association of Corporate Services Providers  and the Society for Trusts and Estate Practitioners, who it should be said, are far from objective observers) what would happen to their firms if corporate tax were introduced. The survey revealed:

  • 53 per cent expected that their companies would shrink;
  • 32 per cent said their companies would move elsewhere;
  • 26 per cent said there would be no changes;
  • 16 per cent said they would close their Isle of Man operations.

In addition, 70 per cent believed the Isle of Man’s status as an international finance centre would be adversely affected and 82 per cent said international business would move elsewhere.

The bankers, lawyers, accountants and investment managers surveyed said that revenue would drop by 18 per cent if a tax rate of just 2 per cent were introduced. It would mean that 17 per cent of jobs in the sector would go.

If tax were 20 per cent, they predicted revenue would shrink by 47 per cent. Then 39 per cent of jobs in the sector would disappear.
The jobs most at risk would be administration and support staff. There would be knock-on effects on all sorts of industries, in particular the legal profession who currently rely on international business.

And they predicated wider ramifications:

As people and money left the Island, the value of property would fall.
There would be fewer people travelling to and from the Island, so services would be cut and costs might rise.
Meanwhile, because the tax take would also fall, sustaining leisure facilities would be harder to do.

In all likelihood some of this is true.

Increased taxes would lead to lower revenue collection.

The Laffer Curve.

6 thoughts on “Oh my, Ritchie proves the existence of the Laffer Curve”

  1. He tells us that we are to the left of the Laffer Curve (i.e. there is appetite to pay more tax – all they need to do is raise the rates).

    See here: http://www.taxresearch.org.uk/Blog/2010/08/11/krugman-and-laffer/

    But he has been telling us lately with ad nauseam regularity (as if to hide his earlier embarrassment over the unexplained disappearing post) that the tax gap is widening.

    I don’t know whether or not there is more appetite for tax or whether or not the tax gap is widening (even by his own slippery method of calculating it).

    But surely he can’t be right on both counts. Isn’t a widening tax gap evidence (albeit not conclusive on its own) of less appetite rather than more for a tax increase?

  2. @Juliet

    Ritchie sees what he wants to see, when he wants to see it.

    Ritchie is also a monstrous hypocrite because he claims to care about the welfare of others but is actively trying to torpedo the economies of smaller nations to protect the UK’s.

    In reality, to strengthen the UK’s economy he should really advise that the UK tax system should compete with Havens to encourage people to keep their money in the UK. Then again, that would mean lowering and simplifying tax which would put a lot of tax lawyers and accountants out of work*…hmmm

    *It would also mean reducing the invasive nature of the British government in the markets which Ritchie’s TUC paymasters would hate

  3. Bobski, I agree.

    His cheerleading for more inflation elsewhere on his blog exposes the insincerity of his care for people on low, fixed wages, pensioners etc.

  4. Oh dear oh dear Tim, you have made one of the most elementary errors in economics. You have taken one part of a bigger whole and simply assumed you can extrapolate it to the whole. The Isle of Man is a British Crown Dependency – part of the UK, partially (that is, half-in, half-out.) Isle of Man tax shenanigans cost the UK dear in terms of lost taxes. And that’s not to mention all the other countries that lose tax revenue. Then you see your Laffer curve collapse (try reading Jonathan Chait’s Feast of the Wingnuts on the Laffer Theory).

    Economics 101: I’d recommend it.

  5. Richard Murphy is a cretin but I don’t think the Isle of Man is a good demonstration of the existence of the Laffer Curve, mainly because most of the companies registered there have no business there, they are just conduits and tax for such entities is bound to be the single biggest driver

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