Britain could be wealthy and great again, but is held back by being grossly overtaxed, famed economist Art Laffer, the creator of the Laffer Curve, has warned the UK’s new left-wing Prime Minister Andy Burnham.
Arthur Laffer, the American economist who advised Ronald Reagan, Margaret Thatcher, and now President Donald Trump and who is perhaps best known generally for his Laffer Curve theory that there is a maximum effective tax rate in any economy, beyond which government takings actually fall even as demands rise, has warned the British government it’s on the wrong side of that gradient.
Noting that the British government has already scared away many high earners — and many of those “wonderful people” to the United States — Laffer said rationalising the tax code and cutting several unjust and unwise taxes could see people flood back, and foster a return to greatness for moribund Britain. Laffer told The Times: “Britain should be great again… and it’s all taxes and regulations that have been just killing you. It’s so sad because you have the potential to be rich and prosperous and just at the same time. And you’re missing these opportunities.”
Among the suggestions are cutting the top rate of income tax, before later rationalising the tax code with flat taxes without reams of rules and regulations for carve-outs and exemptions, abolishing “immoral” death taxes, and abolishing property transaction taxes that force people to stay where they already live or else pay a significant financial penalty.
On cutting and simplifying income tax, Laffer suggested to Britain’s new Andy Burnham government to cut the top rate on earnings above £125k ($170k) a year from 45 to 35 per cent. He told the paper:
You would welcome back all your wealthy expats that left… You’ve lost all these wonderful people, I mean, we have tons of Brits… I would make [flat tax] statistically revenue neutral with no deductions, no exemptions, no exclusions, no write-offs, no omissions, no credits, none of that garbage… Why do you want to hire lawyers, accountants, deferred income specialists, favour grabbers, lobbyists to sort out your taxes? I watch you guys go through all sorts of machinations — just make it simple.
On Britain’s inheritance or death tax, which Laffer called “the most immoral tax I’ve ever seen”, the economist called it an outright brake on economic activity as it discouraged workers from doing more to make more for their families. Calling for abolition, he is reported to have said: “There should be no death tax whatsoever. It’s disrespectful to future generations… I don’t want a new car and new stuff. I love my children and I love giving them money. But if you have a death tax like that, you stop all of us from being productive and working in the labour force and making [young people’s] lives better.”
The United Kingdom also levies stamp duty on the public, meaning moving home is taxed, and quite heavily. This can tie workers to a particular place, suppressing movement for economic opportunities and further limiting Britain’s potential for dynamic growth. While Laffer didn’t mention the social side effects, the tax is also much criticised in the UK for jamming up the housing market by discouraging illiquid older homeowners from downsizing, which would otherwise free up family-size housing stock for the next generation and help retirees live in more manageable properties. The economist said stamp duty should be abolished altogether.
In offering this relatively radical advice, Laffer was complimentary about Britain’s new left-wing Prime Minister Andy Burnham, suggesting there was the possibility that some of these ideas might be listened to. He told The Times: “I’m hopeful about Burnham. He speaks very well and he seems to like the country. I know of Healey, together they have smarts. They have political skills and they have the knowledge to do the right thing”.
Yet Burnham has been tipped to be getting ready to increase the top rate of tax, not slash it, and while cutting tax on high earners may be fiscally sound, it is politically difficult for a left-wing leader. And despite Laffer decrying the notion of a wealth tax as “the most destructive tax”, Burnham is being heavily lobbied to introduce one of those, too.
Britain’s high taxes, which are at the highest levels since the end of the Second World War, have been a preoccupation for Laffer for some time. Breitbart News reported last year when the economist pleaded with would-be next British Prime Minister Nigel Farage of the sovereigntist Reform UK party to give the country a tax cut should he get into power. As stated then:
Laffer told Farage that the United Kingdom had already experimented with high personal tax levels and found them disastrous. He said he agreed with left-wing lawmakers who say they want the very wealthy to pay their “fair share”, but explained they had failed to comprehend that if you want more actual money from the wealthy, the way to achieve it is to cut taxes to a level where they aren’t scared away, or incentivised to hire expensive tax lawyers.
The veteran economist, whose Laffer Curve celebrated its 50th birthday this year, told Farage: “…if we didn’t learn enough lessons from Gordon Brown increasing the highest tax rate from 40p to 50p and watch the whole economy collapse, people leaving the country, and all the tax evasion, avoidance, underground economy, and revenues coming down and the economy doing very badly. That was a perfect example”.
On the lesson the left failed to learn on optimal taxation to bleed the rich, Laffer said: “I would agree with them, but the way they pay more taxes is by lowering the tax rate on the rich, not by raising it. The rich people know how to get around taxes, they have the means to avoid or evade or otherwise not report taxable income.
“They can hire lawyers, accountants, deferred income specialists, they can move to different locations, they can change the compositon of their income, they can change the timing of their income. They have all these things. So if you lower the rate — they don’t want to do these things — so they’ll just pay their taxes fair and square… they stop using all these circumventions around the tax system and they pay their taxes fair and square”.
This is to the good of all, Laffer said, reminding: “…guess who gets the best benefit? The poor, the minorities, the disenfranchised. They’re the ones that do really well from a booming economy.”