That the Laffer Curve is obviously true at some level of taxation still escapes all too many people. 100% taxation of everything would leave no activity to be taxed and zero taxation of anything would raise no revenue. At some point inbetween there's a maximum amount of revenue that can be extracted from the system, quite obviously and quite clearly.
But even among those who manage to get that there are still all too many who fail to realise that each form of taxation has its own curve. We generally think - we think it's a bit high, true, others a bit low - that something like 40% on incomes is a rate which most people will cough up for. There are very few indeed who believe that a 40% VAT would have the same sort of effect. And no one at all who thinks that a 40% transactions tax, say stamp duty on housing or shares, would be an optimal level of anything at all let alone a tax rate.
Different taxes thus have different peaks of their respective Laffer Curves. Something which Paul Mason seems not to know:
Windfall taxes on bank profits and on bankers’ bonuses, and a crackdown on offshore tax avoidance could – if Labour is prepared to be aggressive enough – collect serious amounts of money. So could a financial transaction tax. Touted for more than 20 years by economists on the centre left, the sums raised by a so-called Tobin tax may not be spectacular, because many of its benefits come in the form of financial markets reducing risk and suppressing speculation, thereby lowering any potential tax take.
But in February, former JP Morgan economist Avinash Persaud proposed a plan to extend the UK’s existing tax on share-dealing to bonds and derivatives. Even this modest proposal would generate £5bn a year. In the form advocated by the Trades Union Congress, it could raise at least £20bn.
That TUC version is from the egregious Richard Murphy so we know that that's going to be wrong. The only question, as ever, is in working out why it's wrong. Fortunately, one of us has already done that. The EU's own calculations of even a 0.1% FTT were that that was well above the peak of the Laffer Curve.
And it was truly above the peak too. We are not talking about people avoiding or evading the charge, leaving the country or anything like that. Such an FTT would lower share prices, make capital more expensive, thus lead to less investment and a smaller overall economy. A smaller overall economy from which the rest of the taxation system would be able to extract less revenue, even after we take into account the direct revenue from the FTT. And recall, this was the EU's own analysis of their own proposal.
An FTT loses tax revenue, not gains it, because an FTT at any rate is higher than the Laffer Curve peak for that particular type of tax.
Which is our message to Paul Mason and others who think there is some vast pot of tax money out there that can be gained. Kings and Parliaments have been trying to extract money from us for at least a millennium now. There are no pots someone hasn't tried to tax as yet, there is no miracle to extract more from us without our noticing. And yes, Art Laffer was in fact right at a certain level of tax rate, that rate dependent upon which tax we're talking about.