As well as putting his name to the Laffer Curve, another of his great observations was that tax receipts fall by far less than you'd expect when tax rate cuts are announed in advance (and rise much less than you'd expect when people know that rates are going to go up) because of timing differences. This is largely a one-off thing and not to be confused with the general Laffer effect (i.e. the increase in economic activity wholly or partly balances out cuts in tax rates and vice versa).
There was a fine example in today's City AM:
BT HAS paid the latest instalment to its pension deficit programme nine months early in order to qualify for the tax deductible corporation tax rate of 28 per cent, rather than the 26 per cent rate that will apply from April.
BT says the decision to pay £505m into the BT Pension Scheme, the actuarial value of the £525m due to have been paid in December, made financial sense. The timing of the tax deduction will also be brought forward to the first-half of the upcoming financial year.
Surprised by the outcome
1 hour ago
3 comments:
More proof of Mises observations that central planning always fails. Central planners perennially confuse their attempts to make people do what they want rather than what the people want to do themselves with 'organisation', which is what entrepreneurs and others do.
Ho hum
Presumably they will now become the target of a certain "tax expert" and be accused of tax avoidance.
L, correct. Although
a) A savvy government would see this coming and compensate for it somehow.
b) These big companies with big pension fund deficits are stupid, they could turn a real (but latent) pension fund liability into a real bond liability at the drop of a hat and bank the whole corporation tax saving on Day One.
SF, good point.
As it happens, the previous government introduced infinitely complex rules to prevent individuals doing similar things with contributions to personal pensions when they started scaling back the 40% relief to 20% for very high earners.
The whole thing was a nightmare with marginal tax rates in excess of 100% so the current lot did the sensible thing, reinstated the 40% relief but cut the upper annual limit from £215,000 to £50,000 (another one from the UKIP manifesto).
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