Ranting related to undervaluation of LSE6 Mar 2024 18:58
Do peeps know who Arthur Laffer is? He is the person behind the well know Laffer's curve whereby there is a certain marginal rate of taxation whereby if you increase it beyond this point, it raises no further revenue for the state because people would stop investing, working, or increase avoidance.
Interestingly, he shared the same view as me on Kwarteng as below:
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Perhaps it should be no surprise that Laffer praised the previously proposed Truss-Kwarteng tax cuts, even if the execution of their plan left something to be desired. As quoted in the Telegraph, Laffer says:
It was an excellent thing. The thing that was not excellent was that it didn’t get implemented. It’s amazing how tax cuts don’t work until they’re actually put into effect. If it had been tested, it would have worked wonderfully for Britain.
For Laffer, the Truss-Kwarteng approach could have been a success on par with the Thatcher tax cuts of the early 1980s, no less. “When she came to power in 1979, the top rate was 83%. By the end of her premiership, it was 40%.”
Total tax revenues were also far higher, although not at first. It takes a while for the “Laffer tailwind” to kick in, as it were. A similar dynamic was seen in the early Reagan years in the US, much as Laffer predicted.
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We need to have the guts and conviction to leave this tax and spend approach behind. Reward investors and workers and the economy will grow and everyone including the poor will be better off as a result. It is not by accident that Ireland is home to many big HQs and one of the highest GDP per capita in the world when their corp tax rate is 12.5%. AZN was right to relocate their factory there!
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