It always comes as a shock to a certain type of person to find out that the Laffer Curve is actually true. No, we do not mean the caricature of it, that all tax cuts pay for themselves, but the actual contention itself. That there are tax rates above which revenue collected falls, not rises. What that rate is depends upon the economy which is being taxed, the tax being discussed and so on. That Laffer Curve peak for, say, cigarette taxation is going to be different than that for income taxes for example.
But that basic contention really is true. And thus the mistake being made by Jeremy Corbyn:
Jeremy Corbyn would fund pay rises for public sector workers partly through a 1% rise in corporation tax and bringing back the 50p top rate of tax, the party has said.
We don't approve of the basic idea here but we do understand it. This is merely politics - I'll take money off those nasty people over there to give to you, my dear voters. That is mere politics - the bribery of sufficient people to get elected.
However, we do still have that Laffer point. The best evidence we have is that the peak of the Curve, for the UK and for income taxes, is lower than that 50 pence or 50% rate. Yes, there's all sorts of exciting shouting matches over income shifting and so on as to what really happened when we had and then did not have said rate but our reading of it is that 50% is too high.
We've also that Diamond and Saez paper in the US which said that, where there are allowances, the peak rate is 54%. One such allowance which the UK has is the ability to become non-resident, an option not available in the US. Further, that 54% is "taxes upon income", not "income tax", meaning that we must add employers NI to our income tax rate to reach that 54%.
Both theory and empirical evidence seem to indicate that 50% in income tax is above our Curve peak. Meaning, of course, that raising the tax rate to that level will not increase revenue with which to bribe Corbynista voters.
At which point there's no reason to do it, is there?