Thursday, 25 August 2011

You're 'avin' a Laffer....

I'm no economist, but I do know that the SNP's plans to compete within the UK on Corporation Tax are flawed, as I blogged here and as Richard Murphy blogged here. A separate Corporation Tax in Scotland is contrary to the interests of the UK, it doesn't create new jobs but it does cause distortions in the market and any claimed benefits are not certain and will take years to appear... if they ever do. 

Meanwhile the EU is moving towards harmonisation of business taxes, forcing Tax Pirate economies like the Irish to toe the line, and making the policy that the Nationalists want in a devolved UK, i.e.cutting business taxes in isolation, impossible to implement if they ever achieved their dream of "independent in Europe".
So it's already a dog's breakfast, a fact emphasised by John Swinney's incoherence when trying to defend it on Newsnicht. 

Nevertheless the bold John yesterday issued this press release.....and now he seems to have swallowed the whole right-wing Laffer Curve nonsense... y'know the bit where Tea Party Republicans claim that lowering taxes always increases government revenues...

"There is clear evidence from around the world of the benefits from lowering burdens on business....Lower corporation tax is a vital source of competitive advantage in an integrated global economy, helping to attract new businesses and highly-skilled jobs. ......Corporation Tax has a significant influence on increasing the size, competitive strength, productivity and ambition of Scotland's business base. Lower rates of corporation tax boost incentives to invest in human and physical capital, and research and development, increasing firms' profitability and the ability to compete.....cutting the headline tax rate would not necessarily reduce tax receipts."

Proponents of the Laffer Curve are always willing to admit that it is counter-intuitive (translation "illogical") to believe that cutting taxes increases the amount of tax revenues gathered, but even they will only claim that it works if a country is "over taxed" in the first place. Say what you want about the UK, but it's not a high tax country for business in the first place. Corporation Tax is only around 26% and there are plans to reduce it, so the theoretical gain from the Laffer analysis wouldn't happen here (even if you believed in Laffer, which most economists don't).

Frankly, what a so-called "left wing" party like the SNP pretends to be is doing calling up neo-liberal mumbo jumbo to support an already discredited policy proposal is beyond logic and consistency. But then logic and consistency never were a Nationalist strong points. 



  1. CH why do you call youself "cynical", but still swallow every pronouncement from the SNP Press machine? Doesn't compute...

    Also, BTW, don't you ever tire of ad hominem attacks.

    And, don't you ever just long to address the question...once, at least?

  2. There is nothing to address look at the man's history.

    Murphy has come in for considerable criticism for the methodology employed in his reports and frequent leaps of logic.

    What he wrote is his personal assertion and has no further creditability than his own self esteem. Economic 'Starkey' in other words. An odd tax here and there is no use to anyone as all taxes need to be considered that's logical, not cherry pick items to try and prove your in the right that's what sceptics do.

  3. CH, What do you think of the Laffer Curve?

    That's the question you're avoiding...

  4. I think it makes an interesting talking point but has no practical real-world application. We don't need an idealised graph to tell us that high taxes are a Bad Thing. David Hume and Adam Smith figured that out long ago.

    You're still wrong on what the EU's ambitions for corporation tax involve though. [E]ach Member State can then tax the profits of the companies in its State at the tax rate that they - each Member State - chooses, (just like today.)

    If you can get things like this so wrong, why should you be believed on anything else?

  5. I agree that Laffer is a theoretical model with no, as yet, practical application.

    But I'm not wrong on the EU's position on corporation tax, just current.

    You point me towards the officially agreed version of tax cooperation in the EU.

    I refer to the Merkel/Sarkozy statements of two weeks ago expressing a need for business tax integration and warning Ireland that, as a price of bail-out, it will not be allowed to continue with its competitive corporation tax rates.

    No doubt there could be a few hoops to jump through, and it may take a little time, but the official version will change and corporation tax competition will be outlawed in the EU.

    So an "independent" Scotland would not be able to begger its EU neighbours in the way the Nats seem to want to begger our UK partners.

    As for the Laffer nonsense: it is nonsense and John Swinney is an idiot if he thinks it justifies his popsition on business taxes in any way.