It would be very interesting if they were accurate, wouldn’t it?
Around two thirds of Britain’s highest earners deserted the UK after the 50p top rate of tax was introduced, according to figures.
While some 16,000 workers declared an income in excess of £1million in the 2009/10 tax year to HM Revenue and Customs, that number dropped to just 6,000 after then Prime Minister Gordon Brown brought in the new tax rules.
Tax paid by the top earners fell from £13.4billion before the top tax rate came in to £6.5billion in 2010/11.
That would make the peak of the Laffer Curve for the UK’s income tax somewhere below 50 %, wouldn’t it? And given that we’ve actually now conducted the experiment, got an answer, we know this and we’ll not increase tax levels over the peak of the curve again, eh?
Interestingly this empirical result also accords with the theoretical one in Diamond and Saez. Which was, you recall, that the peak is up over 70% in a system without allowances in an America where you can’t just leave the country. But is 54% in a system with allowances. And that is the total tax rate, not just the income tax rate. So one needs to shoehorn in the employers’ national insurance under that 54% rate.
How excellent, theory and reality agree: the peak of the Laffer Curve for the UK is under 50%. Now that we know this we can put the matter to rest, eh?