Laffer Curve no longer funny in Britain

The British Treasury revealed that increasing the top tax rate from 40% to 50% “actually cost the UK £7 billion in lost tax revenue” (Telegraph).

The tax hike was put in place two years ago, just before the Labor Party was bounced by the voters. The effects were striking:

Almost two-thirds of the country’s million-pound earners disappeared from Britain after the introduction of the 50p top rate of tax, figures have disclosed.

In the 2009-10 tax year, more than 16,000 people declared an annual income of more than £1 million to HM Revenue and Customs.

This number fell to just 6,000 after Gordon Brown introduced the new 50p top rate of income tax shortly before the last general election.

…

It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes.

No. Really?

It is a fundamental axiom of microeconomics that if you tax something, you will get less of it. Macro-economists (to say nothing of accountants) never seem to understand.

This year, the Conservative-Liberal Democratic Coalition reduced the tax rate to 45%, and would you know it…

Since the announcement, the number of people declaring annual incomes of more than £1 million has risen to 10,000.

With any luck, the crew in Washington (or “crews”) will remember: when you tax something, you get less of it.

Cross-posted to Virginia Virtucon

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