Laffer Curve no longer funny in Britain

The British Treasury revealed that increasing the top tax rate from 40% to 50% “actually cost the UK £7 billion in lost tax revenue” (Telegraph).

The tax hike was put in place two years ago, just before the Labor Party was bounced by the voters. The effects were striking:

Almost two-thirds of the country’s million-pound earners disappeared from Britain after the introduction of the 50p top rate of tax, figures have disclosed.

In the 2009-10 tax year, more than 16,000 people declared an annual income of more than £1 million to HM Revenue and Customs.

This number fell to just 6,000 after Gordon Brown introduced the new 50p top rate of income tax shortly before the last general election.

It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes.

No. Really?

It is a fundamental axiom of microeconomics that if you tax something, you will get less of it. Macro-economists (to say nothing of accountants) never seem to understand.

This year, the Conservative-Liberal Democratic Coalition reduced the tax rate to 45%, and would you know it…

Since the announcement, the number of people declaring annual incomes of more than £1 million has risen to 10,000.

With any luck, the crew in Washington (or “crews”) will remember: when you tax something, you get less of it.

Cross-posted to the right-wing liberal

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One thought on “Laffer Curve no longer funny in Britain

  1. What happens to the market value of the stocks owned by US million and billionaires if we fall off the cliff for not raising revenues from higher taxes on those individuals? It seems they lose either way. But, losing a bundle in the stock market it would seem, would be much more painful than a mminute increase in taxes??

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