What it implies is an attitude that Scotland should not tax companies, capital and wealth too heavily for fear it will relocate. That there is almost no evidence that real wealth does relocate for tax reasons does not matter to those who promote these arguments.
That it’s a basic assumption in all economics about taxation seems to escape the Murphmonster. All those very bright people filling libraries over the centuries, they’re all just wrong. Because.
Gordon Brown actually proved it for us as well. North Sea taxes were raised above the level where companies said they would invest. Companies didn’t invest, North Sea tax revenues fell.
But, you know, reality and the Great Tuber.
In particular, there is a worrying suggestion that the so-called ‘Laffer Curve’ might be relevant in a Scottish context and that there are limits to the tax rates that it might wish to consider. I suggest that this is wrong. The work of economists working with Thomas Piketty has made clear that there is no tax rate that Scotland might reasonably consider where an increase in tax rate would reduce tax yield.
There’s reasonable – not conclusive I agree, but reasonable – evidence to suggest that current UK top income tax and capital gains rates are at the peak of the Laffer Curve. It’s even true that the major theoretical paper of recent years, Diamond and Saez, concurs. Taxes upon income – note taxes upon income, not income taxes, therefore add in NI – peak at 54% in a system with allowances. The ability to leave the country and remove oneself from the tax system by changing residence is an allowance in this definition.
Err, Saez works with Piketty, no?