Latest news with #LafferCurve
Telegraph
a day ago
- Business
- Telegraph
The Beatles and Kinks would be howling about tax in Labour's Britain
'If you get too cold, I'll tax the heat / If you take a walk, I'll tax your feet / Cause I'm the taxman / Yeah, I'm the taxman.' Those lyrics by George Harrison are from Taxman, the first song on the Beatles' Revolver album, released in 1966. That same year, the Kinks released Sunny Afternoon, with Ray Davies' blunt first line: 'The taxman's taken all my dough.' Artists and songwriters are often ahead of the curve – quite literally in this case. For it wasn't until 1974 that US economist Arthur Laffer drew a line on a napkin capturing what Harrison and Davies were saying: as tax rates rise beyond a certain point, entrepreneurs and wealth creators get cheesed off. They then do less – or move overseas – and the broader economy suffers. What become known as the Laffer curve, sketched at a smart Washington restaurant during a dinner with Republican Party bigwigs, had a profound impact on policymaking in America and elsewhere. Its core idea – that there's an optimal tax rate that maximises revenue, beyond which higher rates lower total revenues by stifling economic activity – was adopted by Ronald Reagan, a showbiz-star-turned-policymaker, as he entered the White House in 1981. Laffer's insight fed into 'supply-side economics' – the school of thought that finally countered post-war 'big state' ideology. It's no good just borrowing and spending more government money in a bid to boost growth if the tax burden crushes genuine commerce. Reagan's Economic Recovery Tax Act of 1981 sparked much howling from vested interests grown fat on state largesse. But it cut income tax significantly – and the US averaged 3.5pc annual growth for the rest of the decade, rescuing the world's biggest economy from 1970s stagnation. Approaching the first anniversary of this Labour Government, UK tax revenues are heading for 38pc of GDP, the highest tax burden since the early 1960s – above levels which riled the Beatles and the Kinks. Yet the public finances are extremely precarious. The Government borrowed £148bn during the fiscal year that ended in April, £61bn more than the Office for Budget Responsibility estimated when that same fiscal year started. It's important to remember the vast scale of that 12-month forecasting error during current rows over whether Rachel Reeves, the Chancellor, has a single-digit-billion buffer in the national accounts in four years' time – the 'fiscal headroom' that dominates political discussion. Arguing obsessively about contingencies of less than 1pc of public spending which may or may not exist in 2029 is pure displacement activity. Our political and media class meanwhile all but ignores today's stark realities – an annual debt interest bill that's twice yearly defence spending and gilt yields consistently way above those seen during Liz Truss's mini-Budget crisis of October 2022. Yes, it's important to rein-in our runaway benefits bill. Even before the Government's latest cave-in, spending on sickness and disability benefits was set to rise sharply by the end of this decade, from under £50bn to well over £70bn a year, albeit by a few billion less after Labour announced its welfare reforms. Now that Sir Keir Starmer has folded, even that minor slowdown in the rate of increase of benefit spending won't happen. The only way to fix the public finances is to get growth going, so tax revenues rise and our vast 100pc-of-GDP-plus debt burden, and near-crisis-level debt service costs, fall as a share of national income. But Labour's tax rises since last July have crushed economic activity, curtailing tax revenues and weakening the public finances further – a sure sign we're beyond the peak of the Laffer curve, with yet higher tax rates set to prove even more counter-productive. The disastrous rise in employers' National Insurance contributions (NICs) has hammered hiring, undermining NIC revenues overall. Employment has fallen every month since the policy was unveiled in last October's budget, by an astonishing 109,000 in May alone, the month after this tax on jobs was introduced. During that same autumn Budget, Reeves raised capital gains tax from 10pc to 18pc for basic-rate taxpayers and 20pc to 24pc for those paying the higher rate. The Office for Budget Responsibility has since sharply downgraded capital gains tax (CGT) revenue forecasts, wiping £23bn off the projected tax take by 2030. Labour indulged its ideological fantasies by loading more taxes on non-dom international financiers based in the UK. Now multiple billionaires have fled and foreign direct investment projects have fallen to a two-decade low – imagine the jobs and tax revenues we've lost. Building on Tory mistakes, Labour increased taxes even more on North Sea drilling, killing off countless energy extraction projects, again destroying valuable revenue streams. Then there's the spiteful imposition of VAT on school fees which has seen four times more pupils withdrawn by cash-strapped households than ministers predicted and countless school closures – another case of more taxation destroying ambition and enterprise, hitting revenues overall. Back in the early 1980s, inspired by Laffer and Reagan, Margaret Thatcher's Tories lowered tax rates, setting Britain on a path to recovery. David Cameron and Theresa May's governments gradually cut corporation tax (CT) from 28pc in 2010 to 19pc by 2017, with CT revenues hitting 2.7pc of GDP by 2019, up from 2.1pc a decade earlier when the tax rate was much higher. Taxation is complicated – the historical and contemporary examples above are subject to other factors, too. But evidence of many decades shows that countries where the state is relatively small grow faster and are more prosperous, with those consistently spending beyond their means collapsing into crisis. The Beatles and the Kinks didn't leave the UK for tax purposes, unlike the Rolling Stones. But their songs captured the national mood, speaking for the silent majority, a mood that prevails today. Taxation is far too high – and raising tax rates even more will only compound Britain's fiscal and commercial weakness.
Bloomberg
23-06-2025
- Business
- Bloomberg
What Mike Tyson and the Bond Market Can Teach Trump on Debt
'Everyone has a plan, till they get punched in the face,' the former heavyweight champion and ear gourmand Mike Tyson once said. Swapping the boxing ring for the government arena, everyone has a plan for whittling down America's debt, until they get punched by the bond market. President Donald Trump's own plan for managing the debt can be boiled down to something like this. On the spending side, make drastic cuts to the government workforce and pare back programs such as Medicaid and clean energy subsidies that don't align with his political priorities. On the revenue side, extend the tax cuts from his first term, with money collected from higher tariffs filling in most of the gap. Following the logic of the infamous Laffer curve, tax cuts will stimulate the economy, so that government income rises even as rates fall.
Bloomberg
21-06-2025
- Business
- Bloomberg
Why Taxing the UK's Rich Less May Make Sense
The Laffer Curve does exist. You may not want it to, but it does. The UK's political class is in the process of learning this lesson. One of the first things Chancellor of the Exchequer Rachel Reeves did was to make the global assets of those living in the UK but domiciled elsewhere for tax purposes (the 'non-doms') subject to UK inheritance tax. Those people have responded to that incentive exactly as one might expect. They are leaving. Exact numbers aren't available, but many financial advisers will tell you of their fast-vanishing high-net worth clients—heading for the United Arab Emirates, Italy, Spain, Switzerland, Malta and maybe even the US (there are some 70,000 applications for information on the new ' gold Trump card ' visa, apparently). Henley and Partners, a global relocation company, backs this up. It reports that inquiries on how to become a resident elsewhere were three times higher in the first three months of 2025 than the same period in 2024.
Express Tribune
18-06-2025
- Business
- Express Tribune
Juice industry seeks tax reduction
The Fruit Juice Council — a body representing the formal juice industry – has demanded the government to reduce the FED rate on the juice industry to 15%. The current 20% FED (on top of existing 18% GST) has stalled the juice industry's growth and in FY2024-25 the government's revenue projections fell short of its own expectations. This indicates that the juice industry has hit the Laffer Curve (where the taxation is so high that it results in sharp decline of sales, ultimately affecting government revenue). In line with local regulations, fruit drinks have minimum 5% fruit content, nectars have 25%- 50% fruit content and pure juices have 100% fruit content.
Business Recorder
18-06-2025
- Business
- Business Recorder
Presentations to NA, Senate panels: Juice industry urges govt to lower FED to 15pc
ISLAMABAD: The Fruit Juice Council (formally juice industry) Tuesday urged upon two parliamentary panels to reduce 20 percent Federal Excise Duty (FED) to 15 percent on the juice industry to generate higher revenues during 2025-26. According to two different presentations given to National Assembly Standing Committee on Finance and Senate Standing Committee on Finance here on Tuesday at Parliament House, the budget proposes that the reduction in price on account of chilling charges be lowered from 10% to no more than 5% of the price. This will increase the burden on the manufacturers even more. Instead of reducing the FED on fruit juices, the fruit juice and beverage industry has been burdened further. The FJC strongly urges the government to reverse this budget proposal. The Fruit Juice Council, a body representing the formal juice industry, believes that the government should reduce the FED rate of 20% imposed on the juice industry to 15%, if it wants a higher revenue than the outgoing financial year. The current 20% FED (on top of existing 18% GST) has stalled the juice industry's growth and in FY2024-25 the government's revenue projections fell short of its own expectations. This indicates that the juice industry has hit the Laffer Curve (where the taxation is so high that it results in sharp decline of sales, ultimately affecting government revenue). In line with local regulations, fruit drinks have minimum 5% fruit content, nectars have 25%-50% fruit content and pure juices have 100% fruit content. Fruit-based juices are a healthier option since they contain the goodness of fruits. Punjab and Sindh Food Authorities allow the sale of fruit-based juices in educational institutions while restricting sales of any other beverages. Copyright Business Recorder, 2025
