A point I have made many times: if we accept that e.g. 50% income tax is the very top of the Laffer curve in terms of maximising revenues (which should not be a policy goal anyway, but that aside), then the same applies to lower earners.
If we see means-testing as a way of reducing the cash cost of the welfare (which shouldn't be a policy goal either, long story) then the cost minimising rate of benefit withdrawal + PAYE on lower earners should also be restricted to 50% (which can be easily achieved by issuing claimants with K-codes).
BobE has spotted somebody coming at this from a different angle...
50. Planeshift
"@22 No doubt 18% was the top of the Laffer curve too."
Evidently Iain Duncan Smith thinks 65% is the top of the Laffer curve – because this is the taper rate for universal credit – which he is spinning as being about creating inventives to work.
(incidently, the DWP's impact assesment actually shows that whilst 1.2 million will have a greater incentive to work under universal credit, 2.1 million people will have less of an incentive to work due to this taper rate being higher. Meaning the spin is complete bollocks – and needs to be challenged)
How about this for a policy?
The top rate of tax should be set at exactly the same level as the taper rate for universal credit. Lets see how long the tories support a 65% rate then!
From: Thatcher's key legacy – 'trickle down economics' – may come to an end sooner than later
5 comments:
Quite right except that once a UC claimant hits the income tax and NI threshold, his marginal rate goes up to 76%.
AC, correct, it's far worse than the headline 65%. Not a lot of people realise that :-(
"A point I have made many times: if we accept that e.g. 50% income tax is the very top of the Laffer curve in terms of maximising revenues (which should not be a policy goal anyway, but that aside), then the same applies to lower earners."
No it doesn't. Falling back on my LSE Econ degree for this one. People at different points on the income curve can have wildly different "discouragement" rates.
The problem with most lefties is that they're just as much in favour of means-testing (shit, it's "to each according to their need"). They'll get very pissed that a billionaire gets a free TV license, despite the fact that dealing with exceptions for rich pensioners probably costs more than just giving it to them.
Personally, I've always got picky about Income Support. If you've got £20K in the bank you don't get it, despite the fact that that's capital rather than income.
RA,
a. Did I say that the Laffer maximising rate for low earners was the same as for high earners? No I did not.
b. Is there a Laffer minimising rate of welfare withdrawal + PAYE? Yes.
c. Is it probably less than 80% (which is the overall marginal rate for the bottom half of earners)? Yes.
d. What is that rate? I'm buggered if I know, but 50% can't be far off.
e. Perhaps it is true that the Laffer minimising rate for low earners is higher than the Laffer maximising rate for higher earners, but so f-ing what? If we expect people to take NMW jobs of £6 or £7 per hour, does it not seem to be a basic act of humanity to leave them with at £3 or £4 cash in hand?
TS, "dealing with exceptions for rich pensioners probably costs more than just giving it to them."
I agree.
"f you've got £20K in the bank you don't get it, despite the fact that that's capital rather than income."
I disagree, and trying to draw a distinction between current income and accumulated but unspent income (by calling it "capital") leads to all sorts of misunderstandings.
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