Human Events Blog

The British tax misadventure: higher taxes, less revenue

It’s the same tired old story we’ve seen played out so many times before, as Big Government fails around the globe: British politicians raised taxes to 50 percent on the Evil Rich, and they simply found ways to avoid paying it, so revenues went down.  The government is standing there with a stupid expression of shock plastered on its face, wondering where all that lovely tax revenue disappeared to.

From the UK Telegraph:

The Treasury received £10.35 billion in income tax payments from those paying by self-assessment last month, a drop of £509 million compared with January 2011. Most other taxes produced higher revenues over the same period.

Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.

The self-assessment returns from January, when most income tax is paid by the better-off, have been eagerly awaited by the Treasury and government ministers as they provide the first evidence of the success, or failure, of the 50p rate. It is the first year following the introduction of the 50p rate which had been expected to boost tax revenues from self-assessment by more than £1billion.

They cranked up the tax rates, and figured they’d rake in an extra billion pounds.  Instead, they lost 509 million pounds.  (That’s almost $800 million dollars in U.S. currency.)  The tax reporting deadlines were rearranged a bit, so the final tally of revenue lost could end up being a bit lower, but it’s still an absolute disaster.

Francesca Lagerberg, head of tax at Grant Thornton, an accountancy firm, said: “My guess is that because the 50 per cent rate was flagged up in advance many taxpayers, particularly those with their own businesses, decided to extract dividends ahead of the change. It highlights the fact that high tax rates don’t always deliver high tax revenues.”

There’s the lesson socialists absolutely refuse to learn, but the rest of us should take it to heart: tax increases absolutely never bring in the amount of revenue that was promised.  The British misadventure is one of the purest and swiftest illustrations of the point I’ve ever seen.  And it’s only been one month.  Wait until their economy begins to contract because of all that sheltered income.

Also unsurprisingly, “the Liberal Democrats have insisted that it must stay because it is important to demonstrate that the rich are paying their fair share.”  Liberal Democrats in the United States feel exactly the same way.  Remember, during the 2008 campaign, that Barack Obama gave us a taste of his economic wisdom by saying that even if increased capital gains taxes resulted in lower revenue, he’d still raise those taxes, because “fairness” demanded it.  This is the kind of blinkered lunacy that always results when the tax code becomes an exercise in punitive moralizing, rather than the most efficient possible method of funding a minimal government.  Those who deny the Laffer Curve are doomed to fall off it, wearing puzzled expressions as they tumble into the fiscal abyss.

The British are also complaining that “low interest rates and quantitative easing have pushed down returns on savings and pensions.”  Well, how about that!  Obama wants to push down returns on savings and pensions for Americans, too!

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