Tuesday , February 18 2020
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How nice of the NHS to prove the Laffer Curve

Summary:
Out there further to our left we often enough see the insistence that the Laffer Curve simply does not exist. That there is no tax rate which causes people to reduce their supply of labour to the market, therefore there is no tax rate above which revenue collected actually falls.So we should be grateful to the National Health Service for disabusing everyone of this notion: Changes to pension rules mean that once workers earn more than £110,000 they face more stringent taxes on their contributions. Under the NHS scheme, in which contributions are calculated automatically and are outside the control of beneficiaries, senior consultants have been landed with unexpected tax bills of tens of thousands of pounds. As doctors turned down extra shifts to avoid breaching the limit, the problem was

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Out there further to our left we often enough see the insistence that the Laffer Curve simply does not exist. That there is no tax rate which causes people to reduce their supply of labour to the market, therefore there is no tax rate above which revenue collected actually falls.

So we should be grateful to the National Health Service for disabusing everyone of this notion:

Changes to pension rules mean that once workers earn more than £110,000 they face more stringent taxes on their contributions. Under the NHS scheme, in which contributions are calculated automatically and are outside the control of beneficiaries, senior consultants have been landed with unexpected tax bills of tens of thousands of pounds.

As doctors turned down extra shifts to avoid breaching the limit, the problem was said to have led to cancelled operations and lengthening NHS waits. A&E performance hit a record low last month, with one in five patients waiting more than four hours.

Excellent, we have now proved - as in shown to be true, not just tested - the contention that tax rates can be high enough that they lead to the withdrawal of labour.

True, we now need rather more work on exactly where that peak of the curve is (our best evidence, from varied independent empirical and theoretical sources is in the 50 to 55% of income range - note, not income tax, but taxes upon income so income tax plus national insurance or social security taxation and yes, all, nominally paid by employee or employer) but we can now relax on having to prove the base contention itself.

After all, the NHS is the Very Wonder of the World, all looking to it as that shining beacon on the hill. We should all be lauding the manner in which that Jerusalem we’ve built illuminates this slough of despond, no?

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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