And the one thing that all economists are sure of is that the incidence of employer’s national insurance is on labour – and that without it wages would simply be higher instead. Unambiguously this charge is a tax on labour. It’s a complete and gross misrepresentation to suggest otherwise…..
That’s not quite what the argument is, no. Who bears the burden depends upon the relative elasticities. We do assume that given the elasticities prevalent in the economy that from the majority to all falls on labour yes.
So it isn’t that unambigously this is a charge upon labour. Although we can take it as a good working assumption that it is.
However, let us take this argument as Ritchie has presented it. Employers’ NI is unambiguously a charge upon labour.
What does that do to actual tax rates in this country then? 45% top income tax rate for next year, 13.8% employers’ NI, 2% employees’ NI above the cap. You can’t add them directly but because I can’t be bothered to work it out I shall.
60.8%. And the Diamond and Saetz paper tells us that, in a tax system with allowances (as we inevitably have in the UK because people can leave the country and yes, this is an allowance in the sense that D&S use the word) the peak of the Laffer Curve is 54%.
Thus, using only Ritchie’s arguments plus a paper that Ritchie himself has approvingly quoted we find that the UK income tax system is over the peak of the Laffer Curve.
Well done Richard, well done indeed.