Yes of course we\’d all like a pony

More people want increased public spending even at the price of higher tax rates, according to the annual British Social Attitudes survey.

But is a pony for all actually possible?

For it\’s entirely possible for taxes to be at such rates that increasing said rate produces less tax revenue than before. That old Laffer Curve thing.

Looking around at the major taxes I\’m not entirely convinced that there is much room to raise them. 45% (including NI etc rather higher than that) seems to be around and about that Laffer peak. Certainly, there are enough people who seem to think it is. The Saetz paper for example, tells us that 54% including employer paid taxes on employment is the peak in a system with allowances. Allowances including things like the basic EU right to bugger off. Ad we are around and about at that 54% with employers\’ NI.

Certainly I think taxes at the benefits/wages interface are above the Laffer Curve. The millions of people facing higher than 60% marginal tax and benefit withdrawal rates, the hundreds of thousands on 80% and more.

We\’re told that 28% CGT is that peak collection rate.

VAT at 20%….not sure I see all that much upside possible in that rate. Fag taxes with the smuggling in from Europe don\’t seem to have much upside. There\’s good economic support (and a lot who shout about the idea to be sure) that any corporation tax rate above 0% is over the long term peak.

I\’m not drawing a line in the sand you understand, insisting that no more revenue can be squeezed from the populace. Rather, pointing out that higher tax rates do not necessarily mean higher revenue. And that it wouldn\’t surprise me at all if the UK economy was around and about at the peak of what can be squeezed out given the current underlying structure.

Change the structure and you probably could gain more of GDP in taxation. But doing so would probably mean going the Nordic route: having a much more classically liberal economy underneath than we do.

14 thoughts on “Yes of course we\’d all like a pony”

  1. Surely the logical step then, if (as you correctly said) we have optimum tax rates on income/CGT/VAT, is to dust down various of Ritchie’s proposals and deal with the tax gap ?

    Even without signing up to RM’s hyperbolic estimates there must be a £10-20bn to be garnered from preventing the likes of Jimmy Carr paying pretty much no income tax and tightening up VAT collection ?

  2. “More people want increased public spending even at the price of higher tax rates.”

    That’s one way of presenting the findings.

    The other way is that 36% want higher spending/higher taxes, but 55% want spending frozen and 6% want it reduced.

    Seems like a very solid win for Osborne’s spending policy.

  3. I’m a democrat in the sense that I’ll go with the flow for a quiet life, but the message I hear appears confused. The majority of people believe benefits are too generous and should be restricted/reduced; yet people are willing to pay more tax for improved public services. Of course both could be true: an improvement in public services AND a reduction in the general level of benefit payments. Though when it comes down to it I suspect it translates into tax those rich bankers more but leave me out of it…and don’t you dare touch my child benefit, school or local hospital. Given the general level of discontent and lack of growth in wages I just can’t see much scope for an increase in taxes of any description.

  4. Surely the logical step then, if (as you correctly said) we have optimum tax rates on income/CGT/VAT, is to dust down various of Ritchie’s proposals and deal with the tax gap ?

    The sensible thing would be to simplify the tax system. Which would stop there being quite so many games for clever accountants to play.

    Dusting off any proposal, figure or report from Ritchie is more or less the last thing you should do before collapsing in to dribbling insanity and being carried off to your nice padded cell.

  5. SE:

    “The sensible thing would be to simplify the tax system. Which would stop there being quite so many games for clever accountants to play.”

    To be fair plenty of RM’s ideas are to simplify the tax system. Like abolishing tax havens, trusts and most of the benefits to higher rate tax payers.

    I’m pretty sure that in RM’s ideal world Tolley’s tax guide would be significantly slimmer than it is today.

    Now, it would contain much that many here wouldn’t want to see but it would be slimmer.

  6. Mysteriously, parties advocating high taxation do not win general elections. Obviously the elections, with their millions of opinions, are less valid than a survey.

  7. Regarding the Swedish economic system, I was talking to a Swedish woman the other day about employment law (I know how to woo the ladies!!), and she was astonished at the employment rights here in the UK. Someone was causing a problem at her place of work, and the boss was unable to sack her because of all the paperwork/tribunal threats etc. Back in Sweden she said the boss would be able to sack you on the spot for bad behaviour at work.

    So perhaps we should be more like Sweden as Polly says after all………………..

  8. There are very few rich people paying 45% (don’t you mean 46%?) and a very large number of people with effective tax rates over 80%. That is the critical factor for the UK economy. We may find that the housing shortage is relieved if we don’t import so many workers from eastern Europe to do the jobs that British workers cannot afford to do because non-tax-deductible travelling expenses exceed their after-tax income from them.

  9. When states get in serious economic trouble they turn to pillage. When the Roman Empire needed money to pay for the armies and, what luck, the Christians had become powerful, the pagan temples were looted of their wealth. When Henry VIII was down on his luck, he nationalised the monasteries.

    All you have to do is guess whose turn it is now. Pension funds?

  10. To be fair plenty of RM’s ideas are to simplify the tax system. Like abolishing tax havens, trusts and most of the benefits to higher rate tax payers.

    How does the British government abolish nation states? Invade?

    Having different benefits for taxpayers on different rates is hardly simplification.

    Murphy wants everybody to pay more tax – regardless of who they are – and will happily write more rules to ensure it. You are deluding yourself.

  11. Shinsei 67 (#5)

    You’re certainly correct it would be simpler. In the world envisaged by Richard Murphy, Everyone would be paying an effective 100% rate because he’d most likely make everyone and everything the property of ‘The Courageous State’, and as you identify (and the book itself does) that state would be global -a tyranny more monstrous than any envisaged in human history…

  12. Nordic Route

    The other thing about the Nordic route – at least in Sweden – is that when the Centre-Right coalition took over the mess left by the Socialists, they radically simplified the tax system. The least benefit of simplification is all those smart tax lawyers being obliged to do something which produces new wealth, rather than wrangling over shares of the previously-created wealth.

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