Laffer Maximum

Britain decided to increase income tax on the top one percent of taxpayers to fifty percent.  Predictably, revenues from the top one percent of tax payers collapsed.

This demonstrates the entirely unsurprising fact that a income tax of 50% plus VAT tax of 20% for an effective tax of 60%, is well above the Laffer limit.

I doubt that this came as any surprise to those imposing the tax.  More likely the tax was imposed for political reasons, so that heavily taxed poor people would spitefully and self destructively vote for high taxes because rich people are taxed even more.

5 Responses to “Laffer Maximum”

  1. […] blogger “Jim” just wrote a short post on the Laffer curve. I started to write a comment and it mysteriously grew into an […]

  2. It is incorrect to analyze the Laffer Curve in terms of nominal revenue. The point of tax policy is not to maximize nominal revenue, but to maximize the purchasing power of the voter. A high tax rate can be a good thing in some cases, not because it brings in revenue, but because it suppresses the purchasing power of people who who are earning high incomes in unproductive pursuits. I wrote more, but it turned into an essay, so for a complete explanation, see my most recent blog post.

    • JD says:

      I read your piece. Insightful, and I’ll look into it. Be aware of generational differences when comparing historical data — it’s one of the biggest confounds that many people (even economists!) never consider. (e.g.: the post Civil War and WWII eras are comperable generations and enjoyed similar post-war growth even though the former was governed by small-goverment presidents and the latter was clearly not.)

  3. spandrell says:

    Why didn’t they dodge the previous taxes anyway.

    If I were wealthy I wouldn’t wait for a tax hike.

    • jim says:

      I doubt that most of the drop was tax evasion. I am seeing massive movement of the affluent and wealthy into low tax regimes, and/or semi retirement. Low tax regimes are often high tax regimes that go easy on foreign wealth, such as the South of France.

      I cannot provide any statistics for this, merely anecdote and casual observation. Indeed, there are no statistics for this, for those moving typically claim residence at a high tax address, while they move to the place that most of their money is quietly moving to, continuing to pay high taxes on rapidly diminishing assets located in the high tax region.

      High tax regimes tend to be unpleasant, threatening, hostile, aggressive, corrupt, lawless, and dangerous. For example London has no zero crime areas. The British government has pursued a policy of reducing the concentration of criminals in poor areas by subsidizing housing for criminals in elite areas. The British government has also pursued a policy of demonizing the top one percent, encouraging people to feel that brutal attacks on such wicked hateful people are fully justified, that not only do these wicked exploiters of the poor deserve to be robbed, but deserve to be tortured and physically mutilated by the righteous Robin Hood robber. Paying fifty percent income tax on top of physical danger for oneself and one’s family is just too much, when there are beautiful zero crime areas all over the world. I am surprised that there are any producers left in London.

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