In laying out a radical vision for post-Brexit Britain, Boris Johnson has declared his commitment to tax cuts. Writing in the Daily Telegraph this week, he called for sweeping, slashes to income tax, corporation tax, capital gains tax and stamp duty in order to create a “dynamic” economy that “rewards strivers and innovators.”
This attracted criticism. But wait! Inequality is rising! (Actually it isn’t). Tax breaks benefit the wealthiest! (They don’t). The rich aren’t paying their fair share! (They are). Now is the time to splurge on spending to achieve greater justice! Well, no. Time for some myth-busting.
Tax cuts done properly benefit all. Increasing the personal allowance in the UK, as the coalition government did, has benefited everyone, especially the lowest earners, and incentivised work. Britain, far from being the rigged, exploitative, law-of-the-jungle hellscape of the socialist imagination, now has the largest tax burden in four decades, with the top 1% of earners paying as much in tax as the bottom 50%, and with 90% of all income tax paid by the top half.
The idea that there is loads of extra untapped money to squeeze from the fat cats simply isn’t true; when you hike taxes you end up losing, not gaining revenue. As anyone who has seen Disney’s Robin Hood knows, you can’t keep squeezing forever; when you damage incentives to work and incessantly raid companies’ profits, eventually you’ll find that people stop bothering, and all of a sudden – poof! – your taxes stop coming in, just as King John couldn’t find a single coin left in Nottingham.
But why shouldn’t those rich companies be paying their due? Well, since corporation tax was cut to 19%, revenues from that levy have gone up by 26% – in short, if you want corporations to pay more money to the Exchequer, you need to cut their rates so they can make more.
We should be looking to the US. Not to the machismo of Donald Trump as an example, but to the booming economy they’re witnessing under Republican tax plans. Daniel Finkelstein, writing in the Times yesterday, blasted Boris’s appeal to the ‘Laffer Curve argument’ (the idea that cutting tax generates more cash), but his argument is entirely hypothetical – simply, that we don’t know for a fact where the optimum rate is. But look at the evidence before us. Nancy Pelosi (the Democratic leader in the House of Representatives) said that GOP tax cuts would ‘explode the deficit’. In fact, revenues from income tax are up 9% and the economy is booming. Republican tax cuts are not a ‘giveaway to the rich’ – they are driving up GDP growth and wages and slashing unemployment.
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If you want to boost jobs and raise the standard of living of the poorest, you need to maintain a light touch and let the market do what it does best. Labour’s message of economic resentment and ideological class warfare might be attractive in the short term but in the end it’s the rational, low-tax approach that Britain needs.