An interesting question and one to which we would like to know the answer.
What’s the top rate we can charge the rich so as to maximise the income we get from charging the rich?
Looks like, for Germany, it’s around 67%.
Hurrah! says Ritchie and assorted minions. Let’s whack up the tax rates on the rich then!
Well, no actually, for two different reasons.
The first is that while we’ve got a 50% top tax rate at present, we’ve also a 13 or 14% NI rate on those top pay packets. This is the so-called “employers’ NI”, true, but just about everyone, including Ritchie, agrees that the incidence of this tax is on the employee. So, using simple addition (I can’t be bothered to work it out correctly) we’re around and about that Laffer Curve peak as it is.
So, higher tax rates on the rich won’t in fact get more money. And yes, the researchers do say that they think their finding applies to all rich countries, more or less -ish.
And there’s a second and much more important reason. The model that was used to calculate this result:
The theoretical model used to determine the optimal asymptotic tax rate posits a closed economy without international migration of top earners. As suggested by Simula and Trannoy (2010) among others, taking potential losses of tax base due to migration into account can significantly reduce the level of the optimal top marginal tax rate.
They’ve used a closed economy in their model. And, do note, we’ve an open economy: anyone in the EU has an absolute and non-negotiable right to live and work and pay taxes anywhere they like in the EU. Discrimination on the grounds of national origin is verboeten.If someone buggers off to France, Germany, Estonia or wherever, we are not allowed to tax them as if they are still in the UK.
So we’ve very much got an open economy. Which, as they say, can significantly lower that optimal (ie, Laffer Curve peak) top marginal tax rate.
Which means that, if our current top tax rate is around and about the Laffer Peak for a closed economy, and that peak is lower in an open economy, then our current top tax rate is above the peak for the open economy which we actually inhabit.
QED and lower taxes now please so as to increase revenue collected.
Interestingly, taking possible emigration into consideration, the empirical finding is that the French top marginal rate of 40% is *too high*.
Yes, we’re well above the Laffer Peak. Lower taxes now please.