The Laffer Curve
The Laffer Curve is a theory built on the incentive effects of lower taxation which suggests that total tax revenue coming into the government may increase at a lower tax rate. As the tax rate further increases, the marginal revenue from lower taxes may tend to fall at an increasing rate up to optimal tax revenues, at tax rate X. After this point, any increase in the tax rate prompts people to work less, or to do more to avoid the tax, thereby reducing total revenue as the opportunity cost of paying the tax rises. Hypothetically at a 100 percent tax rate, nobody would have any incentive to work at all, since the Government collects everything people earn. Laffer’s ultimate prediction is if you cut taxes you can increase tax revenues and create a virtuous circle. | |
| Author: Geoff Riley, Eton College, September 2006 |
http://www.bbc.co.uk/programmes/b014gcmm#synopsis -
1. The morality of income tax
Should some of the richest people in society pay less income tax? There are around 300,000 people in Britain who earn more than £150,000 a year. By most people's measurement that's a lot of money, and since April 2010 it's been taxed at 50%. In recent weeks there's been a growing lobby calling for that tax rate to be cut. It's argued that the utilitarian argument for the 50% tax - that it raises more money to help cut the deficit - is at best marginal, at worst totally false and immoral. The arguments, for and against are almost exclusively moral. The one side regards the growing gap between the poorest and the wealthiest in society as intrinsically immoral in itself, as well as deeply damaging to society as a whole; the 50% tax imposed on high earners is a small and justified step in rectifying this. And, they argue, even if it costs more than it raises, it sends out a powerful signal of how society should be ordered. The other side sees this not only as the politics of envy - as a tax on success that drives out endeavour and wealth creators - but also that an interesting moral watershed is crossed when the state earns more from your week's work than you do. Morally, does it matter how rich the rich are? Or should our real concern be how poor the poor are? The morality of income tax is the Moral Maze.
Combative, provocative and engaging debate chaired by Michael Buerk with Claire Fox, Clifford Longley, Kenan Malik and Michael Portillo.
Producer: Phil Pegum.
http://www.bbc.co.uk/news/10263711
