to not be surprised that France's intention to heavily tax the rich will result in less tax intake?(110 Posts)
It obvious to everyone except Hollande that if you inflict a punitive tax on the rich (75%) then they will simply leave the country and take their wealth with them.
It has never worked to inflict punitive taxes on the rich as they will simply vote with their feet and now France is suffering due to this stupid policy.
I do agree that all sectors of society need to pay their way but in most countries income tax banding means that the rich will already being more since a salary of say, £90000 taxed at 40% will pay more tax than a salary of £50000 taxed at 40%. Unearned wealth is another matter but those paying tax (via payroll taxes on a salary) already pay more.
"First, suppose income is taxed at 0%. Total tax take for the government is zero, obviously.
Now suppose income is taxed at 100%. Total tax take for the government is again zero, equally obviously. People aren't going to do work where every penny they earn is handed over to the tax man."
All you have shown with that logic are two discrete points. What happens in between is anyone's guess. Why is it a nice symmetric curve? The peak could quite easily be at 75% or 99%. Or it might not even be a smooth curve at all? It is quite feasible that there is a psychological cliff face above which people think there is no benefit to further work and therefore there could be a vertical component to the "curve".
There is plenty of evidence ( see in particular the work of Krugman) disputing the shape of the laffer curve.
No, not me, I am a microeconomist and haven't studied the laffer curve since before my PhD (if we are comparing letters ).
Nobel price winning, and professor of economics at Princeton, Paul Krugman has a thing or two to say about it though.
Ps. He also worked for the administration during the Reagan years so I'm guessing he's pretty clued up as to what went down (hint: not budget deficits).
It is not "anyone's guess". As I said below, the shape doesn't have to be symmetrical or even single-peaked, but there is no doubt whatsoever that tax revenue decreases after a certain point.
There is no single Laffer Curve, to be applied to all countries across all time - i.e. you can't expect its shape to be identical across history and geography. However, its point is undisputed. You can only raise interest rates to a certain degree before your tax revenues start declining.
I am truly sorry if this is against your belief system.
If you are an economist, would you explain what you meant when you said that Laffer Curve was 'discredited'?
By whom? And when?
As Krugman says in that article, the Laffer curve focuses on the wrong thing: "the problem with super-high rates isnt so much that they reduce incentives to work; its that they create huge incentives to avoid or evade." But of course many rich folks make significant efforts to avoid or evade even low rates.
We are agreeing for the most part - there is little evidence for the inverse u-shaped laffer curve. I also agree that at some point if you raise taxes, tax revenue will fall. I'm just saying that this point might only be 100%. I think it is likely below this but no-one has shown that empirically to a high degree of statistical significance. iUnless you can link to something for me. Therefore aside from 0 tax revenue at 0% and 100% (and you could dispute the latter because there are non-financial rewards to working which you could add to your utility function). We know very little about what happens in between.
In fact, given that there is actually very little variation in the average (as opposed to the marginal) tax rate in any given economy, we will probably never be able to accurately predict most of the interval 0-100.
By discredited I meant a lot of people think it is bollocks. Hth
Not at all
You forget France also has a Wealth taxi paid on all your assets annually. If your assets value goes up and down eg shares you don't get a refund either
And income tax is levied not on your cash income but on what the state deems to be your income, usually higher.
Poor FIL paid his tax in April. Hollande won the election and in July he got a demand for the same again. 75% rate didn't come into this.
If you are asset rich, cash poor you can easily be forced to sell things to pay your taxes. The incentives for tax minimization are huge. As are the penalties. Try dawn raids by armed police.
The very rich of course avoid it.
Hollande and his government are a shining example of how socialism does not work.
Tarka - No, it doesn't look like we are agreeing at all.
"I also agree that at some point if you raise taxes, tax revenue will fall. I'm just saying that this point might only be 100%"
That is a laughable claim. If you have studied any macroeconomy at all (and I suppose you would have to if you are a "microeconomist"), you would have went over the data that shows beyond any doubt that significantly increased taxes result in lower tax revenue. US has ample data supporting this.
In any case, nobody in their right mind would claim that people would continue to dutifully pay their taxes or even work at all if tax rate was 99%
"By discredited I meant a lot of people think it is bollocks. Hth"
No, that doesn't help "Discredited" doesn't mean that at all and I don't understand how you can possibly have written a PhD thesis (on economics, no less) if you have such an imprecise grasp of the English language.
Join the discussion
Registering is free, easy, and means you can join in the discussion, get discounts, win prizes and lots more.Register now
Already registered with Mumsnet? Log in to leave your comment or alternatively, sign in with Facebook or Google.
Please login first.