Laffer Curve economics fail again

In both of my recent Red Paper contributions I have been critical of the SNP’s adoption of Laffer Curve economics. This is the theory that by cutting, in their case Corporation Tax, overall tax revenues will increase. 

The term “Laffer curve” was reportedly coined by a writer for The Wall Street Journal after a 1974 afternoon meeting with Arthur Laffer, Dick Cheney and Donald Rumsfeld. With supply side economics it inspired Reaganomics. You would have thought none of these names would be people a respectable left of centre political party would want to be associated with!

The other big supporter of Laffer Curve economics is George Osborne – again not someone normally associated with SNP thinking. He also has focused on Corporation Tax and as a result the UK rate has been falling heavily from 28% in 2010 to 23% by 2013.

The Independent ran a story last week, ‘Britain’s missing billions’ following the publication of the latest UK public finance figures. They said:

“Yesterday’s public finance figures were a tale of two countries: the public paid more and corporations paid less. Last month Treasury receipts from VAT and income tax – which we all pay – rose by 6.4 per cent relative to October 2011. But corporation tax receipts – levied on the profits of the largest firms in the land – fell by 10 per cent on the same month a year earlier. In October companies poured £7.8bn into the state’s coffers, down from the £8.7bn they handed over last year. And this shortfall was not just a monthly aberration. Since George Osborne delivered his Budget in March companies have paid £24.9bn in corporation tax, 9.8 per cent less than the £27.6bn they handed over in the same period of last year.”

Tax justice expert Richard Murphy sums it up well:

“So much for the Laffer curve then. As I’ve always said: we’re already on the upward sloping part of the Laffer curve. That means cutting rates means less tax. And as night follows day, that’ s what is happening. So much for Laffer. So much for the right wing advocates of Laffer. So much for George Osborne. Now shall we have some plain common sense on this issue in future?”

I have never understood either the economics or the politics of the SNP’s adherence to Laffer Curve economics. However, I do understand that it doesn’t work and the latest UK figures demonstrate that, yet again.

3 thoughts on “Laffer Curve economics fail again

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