income tax. It is a fallacy that they can be squeezed much further. This is a class that has been hit with the heaviest tax increases since 2010. The graph underneath highlights this: We also need to be aware of a handy graph known as the Laffer Curve, hailed by the likes of Reagan, which plots government income and taxation. Though general and speculative in nature, it emphasises a trend that when taxation is increased past a certain point, total government income from taxation declines. The burden of heavy taxation and regulation means workers lose
the incentive to work hard, production falls, and therefore so does government revenue. This is more than just a theory. When Gordon Brown raised the top rate of income tax to 50% during the last six weeks of his government, the amount collected from such earners actually fell. You see, raising the top rate of income tax by 1% would raise only £1bn. This is assuming, of course, that top earners wouldn’t change their behaviour following a hike, which seems improbable given the above. To raise £60bn, one cannot just tax the rich: everybody must be taxed more. Higher taxes, anyone? What’s left is higher corporation tax. Increasing corporation tax is popular, and is economic suicide at a time when governments such as the USA are cutting corporation tax. As Helen Miller of the IFS observed: “Higher (corporation tax) rates can reduce the returns to company owners (shareholders), but there is also evidence that a significant share of the burden is passed to workers in the form of lower wages”. Higher corporation taxes, as well as failing to raise the sums Labour wants them to, could depress wages, hitting income tax and national insurance receipts.
We need to take a step back, and acknowledge the cost of Corbyn’s plans. £60bn. That’s £60bn we simply cannot afford. The common misconception among muesli-eating guardian readers is that state money is seemingly unlimited. All economic rationale is thrown out of the window when we enter into this mysterious realm of “public funding”. “Isn’t it unlimited? Can’t we just borrow more? Well then tax the rich!” they chant. But as Margaret Thatcher wisely noted: “The state has no source of money other than the money people earn themselves. If the state wishes to
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