The Laffer Curve in action

gadgetmind

"Rich businessmen pulling out of France as tax-hit looms"

http://www.google.com/hostednews/afp/article/ALeqM5jg7-2amBxcMCSnuakzflZLiClaWg?docId=CNG.d904d843baa98996116afd1f892a1784.281

One wonders how much tax income these higher taxes will cost them in the long run?

RJP33

Same as usual, they'll get a short term boost while people figure out what to do and then the damage will hit a couple of years down the line.

Worth noting, and the same here with capital gains, most people who earn that sort of money don't pay the top rate anyway.

CLAPTON

pity there are no facts what so ever.

the_flying_pig

Right, so as many as 4-500 people are moving because of the tax (let's assume that there's no-one moving, perhaps within France, for other reasons)? A very conservative estimate of the number of rich types who'll pay the tax must be 10,000. So we're talking about a 4-5% fall in the number of taxpayers? So for France to be on the right hand side of the income tax Laffer curve (which very obviously does exist, but the location of the peak rate is equally obviously a matter for conjecture) the increase in tax must be less than 4-5%, right?

gadgetmind

The problem is that while economists and business leaders agree that this knee-jerk politically-motivated decision will cause deep and lasting damage to the French economy, they'll all be arguing about exactly how deep and how long-lasting it actually was for decades after the short-term thinking behind it has passed.

French politicians are saying "it's only temporary" - sorry guys, once you've caused damage in this way, turning the tax off doesn't magically mend things.

As for how many it will affect, we must not forget to model for all those who work at business that will now move, and those who would have worked at businesses that would have been started in France but will now go elsewhere.

RJP33

the_flying_pig wrote: »

Right, so as many as 4-500 people are moving because of the tax (let's assume that there's no-one moving, perhaps within France, for other reasons)? A very conservative estimate of the number of rich types who'll pay the tax must be 10,000. So we're talking about a 4-5% fall in the number of taxpayers? So for France to be on the right hand side of the income tax Laffer curve (which very obviously does exist, but the location of the peak rate is equally obviously a matter for conjecture) the increase in tax must be less than 4-5%, right?

The ones who'll go out of their way to avoid it, by either migration, neew tax residency or enhanced legal avoidance will probably cost them more than the 5%.

They'll probably hit a take increase in the first year, but have diminishing returns after.

the_flying_pig

RJP33 wrote: »

....They'll probably hit a take increase in the first year, but have diminishing returns after.

diminishing, quite likely yes, but diminishing below what it was before the tax increase? if you're arguing this where's yer evidence?

RJP33 wrote: »

The ones who'll go out of their way to avoid it, by either migration, neew tax residency or enhanced legal avoidance will probably cost them more than the 5%...

"probably" - evidence for this?

the_flying_pig

gadgetmind wrote: »

...French politicians are saying "it's only temporary" - sorry guys, once you've caused damage in this way, turning the tax off doesn't magically mend things....

that seems like, well, a bit strange, maybe? that a tax increase now can do damage [if you believe this] but that a tax cut later can't do, er, the opposite of damage?

gadgetmind

the_flying_pig wrote: »

a tax cut later can't do, er, the opposite of damage?

It can do the opposite, but it takes a long long time.

Entrepreneurs are a proud breed, and tend to see themselves as creators of wealth and success for their country as much as for themselves. When their country then lashes out of them and forces them to up sticks, how much of a rush do you think they will be in to return?

If someone starts a new business outside of France, what incentive do you think France will have to offer to get them to relocate?

RJP33

the_flying_pig wrote: »

diminishing, quite likely yes, but diminishing below what it was before the tax increase? if you're arguing this where's yer evidence?

"probably" - evidence for this?

This is exactly what the Laffer curve is evidence for, it'll go up at first while people figure out how to avoid it, then the take may well decrease.

Likewise when the rate is lowered back the take may well increase, which has happened historically in this country.

the_flying_pig

RJP33 wrote: »

This is exactly what the Laffer curve is evidence for, it'll go up at first while people figure out how to avoid it, then the take may well decrease.

Likewise when the rate is lowered back the take may well increase, which has happened historically in this country.

the laffer curve is, well, it's just an application of the very, very, first thing you learn in economics, namely that demand curves slope downwards...

e.g. if you're selling, say, haircuts in the town centre then...

if you're charging 50p per cut then loads of people will come to have their hair cut by you... but you'll make very little money per cut.

similarly if you're charging £100 per cut you'll make loads of money per cut but hardly anyone will ask you to cut their hair...

you'll make most money by charging a price in the middle.

it does kind of annoy me to see this incredibly simple & obvious logic dressed up as a supposedly fancy theory to justify cutting taxes from their current or proposed level.