Skip to main content

Dividing up the pie

Madsen Pirrie on the Adam Smith institute blog makes an interesting point about why the Conservatives are making a fundamental mistake when they talk about economics. It is a mistake that many Lib Dems make too- the idea that the economy is a fixed pie, so that any tax cut must be paid for either by spending cuts or by higher taxes elsewhere.

Although I often find the ASI's commitment to tax cuts above all else to be impractical politics, it is worth pointing out that sometimes tax cuts can lead to an increase in overall tax revenue. This is the theory behind the Laffer curve, which seems to have received substantial confirmation in the results of taxation policies in Estonia, Slovakia, Romania and other countries that have followed a flat and low tax agenda.

One thing that can not be argued is that complicated tax systems become very expensive- a fiscal drag that can have very significant consequences. Therefore whatever the political agenda- flatter taxes, higher taxes, strongly progressive taxes- the key to the success of any of these policies is going to have to be simple taxes. A fact that was lost on Gordon "tax credit disaster" Brown some years ago.

Comments

Edis said…
One problem for me with the Laffer Curve is that the name irresistably reminds me of Laffan's Plain as in the Corps of Royal Engineers song:

"For we're marching on to Laffan's Plain, To Laffan's Plain, to Laffan's Plain,
Yes we're marching on to Laffan's Plain Where they don't know mud from shit."

Come to think about it "not knowing mud from shit" is a good summary of New Labour economic policy...
4:50 pm
Edis said…
One problem for me with the Laffer Curve is that the name irresistably reminds me of Laffam's Plain as in the Corps of Royal Engineers song:

"For we're marching on to Laffan's Plain, To Laffan's Plain, to Laffan's Plain,
Yes we're marching on to Laffan's Plain Where they don't know mud from shit."

Come to think about it "not knowing mud from shit" is a good summary of New Labour economic policy...
4:50 pm
Anonymous said…
"Therefore whatever the political agenda- flatter taxes, higher taxes, strongly progressive taxes- the key to the success of any of these policies is going to have to be simple taxes."

This is exactly right. Even starting out from the simple assumption that the total tax-take remains level initially, simplifying the system makes it easier to collect a greater percentage of the money owed, and costs less to administer. So, next year, the option to reduce tax levels without any fall in expenditure is workable.
9:16 pm
Post a Comment

Popular posts from this blog

Waiting for the Barbarians

What are we waiting for, assembled in the forum? The barbarians are due here today. Why isn’t anything going on in the senate? Why are the senators sitting there without legislating? Because the barbarians are coming today. What’s the point of senators making laws now? Once the barbarians are here, they’ll do the legislating. Why did our emperor get up so early, and why is he sitting enthroned at the city’s main gate, in state, wearing the crown? Because the barbarians are coming today and the emperor’s waiting to receive their leader. He’s even got a scroll to give him, loaded with titles, with imposing names. Why have our two consuls and praetors come out today wearing their embroidered, their scarlet togas? Why have they put on bracelets with so many amethysts, rings sparkling with magnificent emeralds? Why are they carrying elegant canes beautifully worked in silver and gold? Because the barbarians are coming today and things like that dazzle the barbarians. Why don’t our distingui...
Post a Comment
Read more

Liberal Democrats v Conservatives: the battle in the blogosphere

It is probably fair to say that the advent of Nick Clegg, the new leader of the Liberal Democrats, has not been greeted with unalloyed joy by our Conservative opponents. Indeed, it would hardly be wrong to say that the past few weeks has seen some "pretty robust" debate between Conservative and Liberal Democrat bloggers. Even the Queen Mum of blogging, the generally genial Iain Dale seems to have been featuring as many stories as he can to try to show Liberal Democrats in as poor a light as possible. Neither, to be fair, has the traffic been all one way: I have "fisked' Mr. Cameron's rather half-baked proposals on health, and attacked several of the Conservative positions that have emerged from the fog of their policy making process. Most Liberal Democrats have attacked the Conservatives probably with more vigour even than the distrusted, discredited Labour government. So what lies behind this sharper debate, this emerging war in the blogosphere? Partly- in my ...
20 comments
Read more

Lib Dem v. Tory (Round 2)

The Liberal Democrats stand for a distinct political ideology. It is an ideology built around both socially and economically liberal precepts. In as far as our ruling Labour government can be said to have an ideology at all, it coincides with Liberalism only incidentally. Labour stands for pragmatism, and where it does not there is still a core of values that are collectivist and not individual. Sometimes people are prepared to claim the moral high ground for policies of social solidarity and redistribution of wealth. Liberals may argue in favour of equality of opportunity, we can not argue in favour- as Socialists do- of "and equal society". The reason is simple: Socialism does not work. If one places equality above freedom, then eventually we get tyranny. This is why, while we may argue in favour of a more equal society as being a stronger society, the tools that we may use to gain -in our view- socially desirable outcomes must rest upon freedom above all else. As PJ O'...
14 comments
Read more