So we\’ve Ritchie copying the Left Foot Forward mistake about the Laffer Curve. Something to which I\’ve already responded:
Umm, Alex, if you want to quote a research paper in support of your assertions it might be useful to read and understand the research paper to make sure that it does in fact support your assertions.
Specifically this one \”Other economists put the peak closer to 76 per cent.\”, the Diamond and Saetz paper. Now, as one of them has a Nobel and the other is highly likely to get one I do agree that this is an interesting and useful paper that we might want to consider.
Now, in that paper they are discussing the US taxation system. Which as you know is subtly different to ours. Most importantly, leaving the country doesn\’t get you off US taxation. Leaving the UK does get you off UK taxation. So whatever the peak is for the US the one for the UK will be a little lower. How much, don\’t know, but that you can flee the jurisdiction will lower the rate.
But much more important than this is that you\’ve not in fact understood what they were saying. The 76% rate is only if there are no allowances. No ability to shift income for example to capital gains. No charity credits, no pensions savings, no mortgage interest deductions.
As they point out, that isn\’t how the tax system works. So, within the constraints of the current tax system they say the peak of the curve is 54%. Do go read the paper to check, won\’t you?
They also point out that this is not in fact their estimation of the revenue maximising federal income tax rate. This is the revenue maximising \”all taxes\” rate on incomes. And something you\’ve obviously missed, for it seems like a detail in the US tax system, is that they are including the employer paid Medicaid tax in that top rate.
When we move over to the UK system this becomes very important though. The US has social security taxes, just like we have NI, employer and employee paid. However, in the US system, both are capped. No further contributions are made over a certain income level. The only tax that isn\’t capped is that Medicaid one. And Diamond and Saetz include it in their workings. And the important of this is that NI is not capped in the UK. Employers pay 13.8% however high the wages go. Employees pay 2% I think from this year? We must therefore include the NI rates in our calculations for the UK.
So, from the paper you yourself call into evidence we find that the top \”all tax\” revenue raising rate is 54%. In that we must include the two NI taxes, 13.8% and 2%. It\’s what is left after that that gives us our revenue maximising income tax rate.
That is, your very own evidence shows that 50 % income tax alone is over the revenue maximising rate.
As I say, you might find it useful to actually read the papers you\’re calling into evidence. For you might find out that if you don\’t you\’ll be calling into evidence something that entirely disproves rather than supports your assertions.
Not that that is all that unusual over here in leftyland where there are infinite money trees, unicorns poop rainbows and everyone does indeed have a pony.
So that\’s that part. And then Ritchie descends into hte depths of his own howling lunacy and ignorance.
I have – let’s be clear 50% only really applies at incomes of £1 million as an overall rate
So shall we get real?
Yes, let\’s get real. The Laffer Curve is about marginal tax rates. Ritchie has just there appealed to average tax rates. You\’d think that the whole marginalist revolution of the 1870s had entirely passed him by, wouldn\’t you?
As, apparently, it has in fact. You know, all this Alfred Marshall stuff, the Cambridge School, the influences upon and even teachers of Keynes himself?