It can never be repeated enough - high levels of taxation are self-defeating. We have the third highest marginal rate of income tax in the world. This is bonkers economics. The man who wrote the book on this and has had his theory proved time and again is one of a panel that the Speccie asked to address our no-growth problem (a problem that is NOT being addressed in No. 11 Downing Street). Here is his cut-out-and-keep easy aide memoire to articulate the argument:
Cut the 50p tax Arthur Laffer, Chairman, Laffer Associates
Reducing the burden which government places on the economy, through tax cuts, is the surest way to promote growth. I have never heard of a country that taxed itself into prosperity. Yet Britain last year raised the top rate of income tax from 40 per cent to 50 per cent. For more economic growth, and more tax revenue, this rate should be lowered immediately.
This paradox — lower rates, but higher yield — has been demonstrated time and time again, the world over. Between 1980 and 2007, the US cut tax rates on every form of income, the highest, the lowest and all those in the middle. The result was that the rich paid more, even if their tax levels were reduced. Let’s take the top 1 per cent of earners. Over this 27-year period, their contribution to the income tax collected in America doubled from 19.5 per cent to 40 per cent. The same dynamics applied in Britain: when the top rate of income tax was lowered to 40 per cent in 1988, the share of income tax collected from the richest 1 per cent rose from 14 per cent then to 27 per cent last year. Raising tax rates on the rich is about as bad an idea for the UK as I could imagine.
The government doesn’t need to do something. It needs to undo much of what it already has done. If you want poor people to do better, create jobs, not welfare — and to do this make taxes lower, not higher. ‘The best form of welfare,’ in the words of John F. Kennedy, ‘is still a good high-paying job.’
Not nearly enough people articulate this basic argument. If you test the alternative socialist argument to destruction - tax the rich more and more and they will pay more and more - you will find that the 'rich' (and the wealth creators, and the job creators) have moved abroad, and not just to Switzerland, because ANY other jurisdiction will be an improvement. Remember the old maxim:
Socialism is the equal distribution of misery.