Wednesday, February 22, 2012

Laffer minute

The Laffer Curve is often used as an example of the theoretical representation between government revenue raised by taxation and all possible rates of taxation. Essentially it posits the higher the level of taxation, the lower the income the government will receive as it becomes counter-productive as people will actively seek to avoid taxation once it goes above a certain level, in the case of the rich it's usually getting a good accountant and/or leaving the country, with the poor it's an increase in the use of the black economy. Either way when a certain threshold is tripped, government revenue raising starts to fall. This appears to be the case in raising the income tax threshold of higher earners to 50%...
The Treasury received £10.35 billion in income tax payments from those paying by self-assessment last month, a drop of £509 million compared with January 2011. Most other taxes produced higher revenues over the same period.
Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.
The self-assessment returns from January, when most income tax is paid by the better-off, have been eagerly awaited by the Treasury and government ministers as they provide the first evidence of the success, or failure, of the 50p rate. It is the first year following the introduction of the 50p rate which had been expected to boost tax revenues from self-assessment by more than £1 billion.
Although the official statistics do not disclose how much money was paid at the 50p rate of tax, the figures indicate that it is falling short of the money the levy was expected to raise.
A Treasury source said the relatively poor revenues from self-assessment returns was partly down to highly-paid individuals arranging their affairs to avoid paying the 50p rate.
Pretty much as I said above, when the government started to grab half of anyone's earnings, people looked for a way to avoid paying so much to the taxman. Oddly enough most people will tolerate what they consider fair taxation, might not like paying it of course, but if they have good governance it's often seen as a price worth paying. Unfortunately, there's nothing like good governance going on in the UK with many of our MP's being corrupt to the core, wastage in practically every government dept and ministry, our taxes are wasted on junkets and irresponsible green energy schemes and we're constantly badgered by government funded "charities" telling us what we should eat, drink, or smoke.
The disconnect between the Westminster bubble and the ordinary people continues to grow, that someone in the bubble thought higher taxes might raise more money is only one sign of the unreality of the situation, but it will continue to grow until they either reform their game or we take them down by armed revolution.
My bet's on armed revolution.

3 annotations:

Mark Wadsworth said...

the 50p rate wasn't intended (primarily) to raise money, it was to "send a message" and the Tories are keeping it in place for the same reason.

James Higham said...

until they either reform their game or we take them down by armed revolution

Or we all go down in a screaming heap.

Dan said...

Perhaps if we were to repeatedly point out that the message "Hey everybody, look at us, we're every bit as mad as Gordon 'gibbering loon' Brown" might get them to stop trying to emulate this great man's great insanity.