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How joyous to see the Laffer Curve in the wild again

Summary:
A little reminder for those who insist that the Laffer Curve is just a product of an overactive - and neoliberal of course - mindset:NHS workers who have taken on extra shifts in the fight against coronavirus are at risk of sleepwalking into giant tax bills. Doctors and healthcare professionals working overtime during the pandemic could face eye-watering charges because of continuing issues with the “tapered” annual allowance for pensions.The contention of that Curve from Art Laffer is only that at some tax rates increasing the rate increases revenue collections, at some other set of tax rates an increase in the rate reduces revenue. Simply because some people will look at what they have left after the tax and decide to go fishing rather than to work. Thus, if we find people not working

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A little reminder for those who insist that the Laffer Curve is just a product of an overactive - and neoliberal of course - mindset:

NHS workers who have taken on extra shifts in the fight against coronavirus are at risk of sleepwalking into giant tax bills.

Doctors and healthcare professionals working overtime during the pandemic could face eye-watering charges because of continuing issues with the “tapered” annual allowance for pensions.

The contention of that Curve from Art Laffer is only that at some tax rates increasing the rate increases revenue collections, at some other set of tax rates an increase in the rate reduces revenue. Simply because some people will look at what they have left after the tax and decide to go fishing rather than to work. Thus, if we find people not working because of the tax rate we can be sure that the original contention - that tax rates can be above maximum revenue collection - is true:

Higher-earning NHS staff have been burned by hefty duties, forcing some GPs to cut down their working hours or retire early.

Dr David Stevens, 57, a full-time clinician whose name has been changed, said he had no choice but to turn down extra shifts out of fear of a big tax penalty.

Dr Stevens, who earns £110,000 a year, said: “I’m up to my neck in Covid-19 cases but the size of my tax bill is what keeps me awake at night.”

There we have it. There is only a certain amount of money to be shaken out of the people who work for a living before they stop doing so. This also, clearly enough, places an upper limit upon how much government we can have without making ourselves poorer.

Having proven that the concept is true we must go on to consider whether we’re already at this limit or not. And, given that we are already seeing the withdrawal of labour due to those tax rates, we must conclude that we’ve already got more than the optimal amount of government. Not something that surprises us of course but nice to be able to see the proof alive and well out there in the wild of our economy.

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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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