Sometimes the peak of the Laffer Curve is a 0% tax rate

As we’ve been pointing out for decades now there really is a Laffer Curve. A tax can be at such a rate that reducing it will increase tax revenues. As we’ve also been pointing out for decades this rate will be different for different taxes - and also reliant upon the surrounding society and legal/government structure.

Sometimes that peak of that Laffer Curve is a very low rate indeed. One of us wrote a paper that pointed out that even the European Union itself thought that a financial transactions tax of 0.01% was above that curve peak. Too high a rate to be revenue maximising even at 0.01%.

Dan Neidle is doing the public debate a favour by pointing out that stamp duty on shares is above that Laffer peak. We can go through varied IFS and CPS papers and find that the revenue maximising rate is, in fact, 0%. For the tax raises the cost of capital to companies, lowers pension returns, by so much that revenue from other taxes would rise to more than cover abolition.

So, let’s do that. Let’s abolish a tax that not only doesn’t, on net, raise any money it actively makes us poorer as it does so.

As Dan says, perhaps on that only Nixon can go to China basis we could have something useful from a Labour budget?

Tim Worstall