What’s Laffer got to do with it?!?!
There will be no reduction in the tax burden for five years, states Chief Secretary to the Treasury Danny Alexander in an interview in the Observer.
‘The tax burden is necessary as a significant contribution to getting the country’s finances in order. So, it will have to stay at that level for quite some time’.
When asked whether or not a reduction in the overall tax burden would be possible once the nation’s books were back in order, Alexander adds: ‘You are asking me to make decisions for five years down the line now and I am not going to do that. What I want to see is a rebalanced and fairer tax system. That is what I think is most important’.
Now the economic times are dire, yes – but that really was a counsel of sheer despair. It’s hard to give Alexander credit for his glass thoroughly half drained future outlook… Perhaps the coalition is running the risk of being bitten by its’ own negativity?
MPs concerned with their left flank constructed a budget with “progressive” stamped all over it. When that notion was challenged, by the IFS, they then had to elaborate- claiming that they have no intention in cutting the tax burden or moving towards that direction for at least five years. So, they can only prove that they are being “fair” by being redistributive. Anyone who suggests there is another way surely must want to stamp all over the faces of the poor…
But surely the answer to Britain’s deficit and other problems is not a constraint on public sector spending. The answer may just be sustained growth.
Fortunately/unfortunately, whatever, Britain’s economic success is linked to global demand, and developments in the U.S., in China and of course, in European economies such as Germany (with enviable levels of economic growth). Wealth is also not just created by governments but by the individual and enterprising companies, propelled by what Keynes called “animal spirits”.
However, the government does have control over the tax system. It can keep tax levels high to make a political point, you know -“fairness,” but only at the cost of inhibiting growth. A high tax take and tax rates, more recently known fondly (!) as banker-bashing policies will just have the bankers quietly running to the arms of other nations, think Switzerland and the East…
Maybe, just maybe, Alexander needs to get acquainted with Art Laffer, (still alive) the economist of the Laffer Curve fame. The curve points out, among other things, that the best way to increase revenue was to get the rich to pay less tax… No, NO, LET ME FINISH – the curve points to incentivising wealth creation by lowering taxes, domino effecting growth in a positive way and leading to increased tax receipts…
The other option, which the coalition has chosen to embrace, is to raise the taxes up so high that bankers will simply move abroad. Good riddance you say? No. No it’s not. If the top 1% is paying 23% of our tax revenues, how is it in our interests to drive this money away? Does that not leave us with 23% of the money short? Think about it…
Or let us let Camberwell’s most famous son put it: ‘I left for eight years when tax was put up to 82 per cent. The newspapers said: “Michael Caine’s leaving: let him go, the stupid, overpaid, loudmouth idiot, who cares where he goes?” Well, you didn’t get 82 per cent tax from me for eight years and a quarter of a billion dollars worth of movies were made outside this country instead of inside it. Now, that is just from one stupid, loudmouth moronic actor. Imagine what happens with companies that disappear.’
The Squeezed Middle.
Progressive? Lafferble… If we’ve learnt anything over the past few decades, it’s that lightly taxing the rich does not cause wealth to trickle down – it floods up FROM the poor (and sparked the debt crisis).
Cuts in public services and indiscriminate higher taxes will hit the poor, slow down economic recovery and increase unemployment. This is a purely political exercise for the Tories to finish what Thatcher began – it is the ‘Shock Doctrine’ all over and it’s all unnecessary.
We need a true crackdown on tax evaders and non-doms whilst imposing a meaningful Tobin Tax (http://www.robinhoodtax.org.uk/) on banks and cutting defence and export subsidies. Meanwhile, reigning in Vodafone (who owe British society an amount similar to the what the recent cuts raised) and cutting off our multitude of international tax havens (which cause poverty: http://www.taxjustice.net) would be a step forward for social justice. We need all of the G20 on board though, doing the same, otherwise the rich WILL just find new loopholes and relocate.
‘If we’ve learnt anything over the past few decades, it’s that lightly taxing the rich does not cause wealth to trickle down – it floods up FROM the poor (and sparked the debt crisis)’
I don’t see how the money can flood up from the poor if the poor haven’t much to start with… or am i missing a point?
The point i’m trying to get is, is that if we tax the rich at such a high rate that they can simply go somewhere else… not only are we depriving our economy of the potential revenue, there will be less money to spend so the poor won’t have better improved welfare…
Gettin the G20 will be a mission. Esp. as many are trying to lure away the businesses we will be taxing away soon….
“I don’t see how the money can flood up from the poor if the poor haven’t much to start with…”
The problem is, is that this is exactly what has been happening. In the US, for example, the pre-crisis years were seeing $1.5 trillion redistributed from bottom 90% to the top 10%. The economy has been growing quite nicely over the past thirty years, but the proceeds of that growth have been limited almost exclusively to the top 5%. For the vast bulk of society wages have effectively stagnated despite massive economic growth.
Cutting taxes won’t actually change that much. For the bottom 95% of society the rapid increases in the standard of living we have seen have only been driven by debt. We’ve reached a point where consumers are over-saturated with debt and are hard pressed to pay it back. Any extra income these people get is almost certain to be used primarily to pay down debt levels – which is necessary, but would not contribute to economic growth. For the wealthy, they have no shortage of funds whatsoever, but they have no real reason to invest in the UK. Massive amounts of capital are flowing out of Britain and cutting taxes on the wealthiest would just add to that flow. If you’re managing money, there is no reason to save in Britain at 3%, or invest at 4.5% when you can drop it in a Brazilian/Chinese/Australian bank at 7%.
It’s an interesting idea, but using tax cuts to prime the economy only really works when the economy is essentially attractive enough to hold onto the funds released.
‘ using tax cuts to prime the economy only really works when the economy is essentially attractive enough to hold onto the funds released…’
yes, but how will the economy become attractive now esp. as we seem to be on the path of driving away the business which we desperately need to hold on to for economic recovery and stability on the long term?
And you speak of the bottom 95% as if everyone in that bracket is equal. They are not. Also, yes many are heavily debted, however how much does that really have to do with lifestyles and our consumer culture and less to do with being generally not very well off and the top 5% hooging it all?!?!
But we don’t need these businesses – the financial services sector is fundamentally unstable and their liabilities are quickly becoming the liabilities of the state. We can’t drive them away in droves, but we can’t make life easy for them either. We quite deliberately need to freeze their expansion.
On a side note, though, even with all the changes made so far, very few bankers have left the UK. They keep on threatening and yet… Never do. Perhaps because all the other alternatives are either hollow shells of cities (Zurich, Dubai) or engaging in many of the same tightening practices we are (New York, Frankfurt, Shanghai). We can’t forget that bankers are people too and are unlikely to flee just because things are marginally worse.
Finally, it’s definitely true that the bottom 95% is not all the same. But that was dealt with in the Laffer Free Zone 😛
hahahahaaaa, so that’s the plug ladies and gents – read up on Pete’s rebuttal post here – 🙂
http://checkpoint48.blogspot.com/
http://gerardwhyte.net/images/misc/reaganomics.jpg Wealth ‘flooding up’ has caused the poor to become poorer – the poverty gap has increased across European and American economies and this division polarises societies. OECD reports have shown that child poverty has boomed over the past 25 years whilst the rich have become richer. In fact, Thatcherism (as extended by New Labour and now the Con-Dems) widened the UK wealth gap to it’s biggest since WWII [http://www.guardian.co.uk/society/2010/jan/27/unequal-britain-report]
Growth is not everything. Japan was stagnant for over a decade yet has 5% unemployment, amongst the lowest income inequality, healthcare for all, a super high life expectancy, low infant mortality, near top levels of numeracy and literacy, very low crime rates, incarceration, homicides, mental illness and drug abuse. http://www.guardian.co.uk/commentisfree/cifamerica/2010/aug/11/paul-krugman-japan-lost-decade Scandanavian countries, meanwhile, always top the UNDP development indices and often have up to 50% tax rates – in other words, they’re literally rated as the best places to live in the world.
If loopholes are closed and there is consistency around the world, banks and big business will have nowhere to run and thus won’t be driven away.
Perhaps an article on the gini coefficient and why/how Britain is languishing below tin-pot African and Eastern block states? http://en.wikipedia.org/wiki/List_of_countries_by_income_equality or a word about Slovakia and Hungary are better places to grow up than Blighty? http://www.telegraph.co.uk/telegraph/multimedia/archive/01388/Child_wellbeing_in_1388070a.jpg
I despair for Britain, I’m not sure I can ever return to settle down.