The Daily Telegraph, 22 December, Professor Patrick Minford
Wisdom can be found in unexpected places, as is demonstrated by the recent forecast report of the Scottish Fiscal Commission on the SNP government’s finances and tax policies, which says that the rises in top Scottish tax rates just announced will bring in only modest amounts.
“Behavioural responses”, it outlines, will cause big reductions largely offsetting the gains calculated on “static” assumptions of no taxpayer response. The new 48pc top rate, it says, will bring in virtually nothing at all.
This use of “dynamic costing” is a most welcome contribution from Scotland’s equivalent of the Office for Budget Responsibility (OBR).
It reminds us of the debate on the Laffer Curve triggered by Nigel Lawson’s famous Budget of 1988, when he abolished the 60pc top rate of income tax.
The late chancellor argued that it actually reduced tax revenues, owing to its effects on the labour supply of those paying it; they reduced effort, switched activities to lower tax areas, left the country or otherwise found legal ways to avoid the tax.
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