Now, we all know that the Laffer Curve exists, that’s a simple piece of maths. Where all the argument comes in is at what tax rates do we start to see Laffer Curve effects?
Such effects can go either way: a fall in tax rates leading to higher tax collections, or a rise in tax rates leading to lower such revenues. The Guardian tells us that we’ve actually spotted one such Laffer effect in the wild:
The last time a windfall tax was imposed on North Sea operators in 2005, it brought short-term gains to the Treasury but led to a slump in drilling activity that ultimately cut tax revenues.
Interesting, no?
1 response so far ↓
1 Mark Wadsworth // Mar 5, 2008 at 11:57 am
IIRC, this was not a windfall tax as such, they hiked the North Sea Corporation Tax surcharge permanently from 10% to 20% in 2005.
http://www.ifs.org.uk/ff/budget_measures.xls
Ergo, canny oil companies deferred expenditure by a year, so their 2005 taxable was overstated (on which they paid 40%) and their 2006 taxable was understated (on which they paid 60%). Sooner or later this will even out. This is all according to Art Laffer’s great article on tax policy - when tax rates are decreasing, people will defer declaring income and/or speed up capital expenditure (on which AFAIAA North Sea companies get 100% first year allowances) and if tax rates are increasing, there is an initial boost, but then the boost tails off very quickly.
Link porn:
http://markwadsworth.blogspot.com/2008/03/uk-mulling-fuel-poverty-voucher.html
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