Those Laffer Curves seem to be coming home to roost

Unlike England’s footie, economics is coming home.

Labour’s non-dom plan could raise no extra funds, officials fear

Cost of super-rich leaving UK may exceed money raked in by new system, say Treasury sources

Oh.

Keir Starmer’s promised tax crackdown on non-doms could yield no extra funds for the Treasury, leaving a £1bn hole in the government’s planned spending for schools and hospitals.

Labour planned to use the money raised from wealthy individuals who are registered overseas for tax purposes to invest in ailing public services.

But the Guardian understands that Treasury officials fear estimates due to be released by the government’s spending watchdog may suggest the policy will fail to raise any money because of the impact of the super-rich non-domiciles leaving the UK.

Gosh, so the plans of the mice have ganged agley, have they? As Herr Hayek was known to remark, planning is difficult.

At which point your standard reminder. Every tax has a Laffer Curve. There’s a point at which the bite being taken changes behaviour. This is just the first lesson in all economics - incentives matter. At some point people will slow their work. Stop working. Take less risk. Go fishing. Talk to their own wives (shudder). Leave the country. Something. What that point is will depend upon the tax, the surrounding environment, the other attractions of it and so on.

The European Union itself famously proved that a Financial Transactions Tax at 0.01% was above the revenue maximisation point. The IFS has shown that stamp duty on shares at anything above 0.0% is above that revenue maximising point. And here we’ve the claim at least that taxing non-doms as if they’re locals is over that peak of the Laffer Curve.

We can’t shore up the system either, not with non-doms. The whole point is that they already get charged local taxes, in full, on local assets and incomes. It’s only their foreign stuff that doesn’t get taxed in the UK. And there really is no way that we can tax foreigners on foreign assets or incomes if the foreigners return to living in foreign.

The Laffer Curve(s) exist and they’re important. It really is possible to try to tax so much that you collect less revenue.

Ho well, back to the drawing board, eh?

On that drawing board there does need to be this thought. If charging non-doms the amount that they would have to pay if they were dom is over the top of that curve then is the amount of tax we charge to doms already also over that peak? Inquiring minds would like to know and we’re really rather sure the answer is “Yes”.