(o)(o) wrote:
You made an absolute statement - even HMRC didn't go that far.
What we learned are that there are so many tax loopholes, cash we should be able to collect is pissing out of the bucket into rich peoples bank accounts.
Laffer curve have been analyzed to maximize revenue at 75% and higher, including by His Lordship Paul Krugman.
Here's the HMRC report
http://www.hmrc.gov.uk/budget2012/exche ... x-2042.pdf
You are right, I over simplified it; the HMRC are less clear whether it had a positive or negative impact:
The conclusion that can be drawn from the Self Assessment data is therefore that the underlying yield from the additional rate is much lower than originally forecast (yielding around £1 billion or less), and that it is quite possible that it could be negative.
It's worth pointing out that that even that £1bn is a small fraction of the potential revenue. If the increase from 40% to 50% had just been paid with no changes in behaviour it would have collected £6.5bn, which suggests at least 80% of the tax was avoided and the rise had far more of a distorting effect than it claimed in revenues.
The longer term impact is likely to be even worse:
The longer the additional rate remains in place the more people are likely to consider it a permanent feature of the UK tax system and the more damaging it would be for competitiveness. This suggests the negative impact on GDP may increase over time, and therefore the direct yield (and revenues from other tax bases) might fall over time toward or beyond zero.
The point about the Laffer curve is it's it's not something that can be read off from the economy under normal circumstances as it involves too many hypotheticals of the "what would people do if...?" variety, hypotheticals that people are reluctant to provide answers to until they are required. Questions like "what if anything would you do to avoid tax were the rate to hit 50%?"
So a real-world experiments such as the one done here provides very valuable data for such models. And the result of it was pretty clear: the Laffer curve for the UK economy peaks around 50%. This is shown on page 31 of that report
A.23. The Laffer curve for the 0.45 TIE shows that the estimated revenue-maximising rate of tax for those with incomes over £150,000 is between 45 per cent and 50 per cent, and that the Exchequer impact of varying the rate close to this level is relatively low.
I.e. it's not 75% here. Of course that's clearly what they think in France, as they plan to raise the top rate to that to presumably collect more tax (I assume there are economic reasons for it and they wouldn't be stupid enough to do it out of spite). We will find out soon whether they are right.