In the Telegraph today here and here, we have fine examples of the Laffer Curve in action. Headline grabbing politicians looking for bogeymen to tar and feather raised the tax rate to 50% on high earners. The result is not only fewer taxes collected but a shift in jobs and expertise abroad. Much as I predicted in my post on the Flat Tax:
The real misery however of the Vince Cable type of class envy politics lies not just in the lost tax revenues. Higher taxes also leads to lower economic growth, less goods in the shops, less money to buy services, less innovation and more unemployment. This is always the problem with a modern democracy. A politician can get easy and immediate benefits making populist class-envy statements. David Cameron can splash all over the Sun that he will sock it to the bankers and impose a 50% tax on their bonuses. But the maintenance man and sandwich supplier will never know that the job they would have got now no longer exists because the hedge fund has moved to Switzerland. And how many life saving new medical devices haven’t been produced because the capital gains tax rate made it too costly to invest in the project? Politicians love to talk about increasing taxes on cigarettes and alcohol to reduce their consumption. Hence, the current concern about cheap supermarket booze and its impact on binge drinking and falling pub revenues. However, there never seems to be a connection made between raising the cost of work, savings and investment through taxes and regulations, and the fact that by doing so, you get less work, savings and investment.
Could we have the Flat Tax now please?