![]() ![]() The Thatcher government cut the top rate of income tax from 83% to 60% in 1979 and then to 40% by 1990, while corporate tax was reduced from 52% to 35% over the same timeline. However, the two leaders took different approaches to fiscal matters. This sounds like common sense, which is why the idea has been so influential.īoth President Ronald Reagan and Prime Minister Margaret Thatcher listened to Laffer’s advice and presided over tax cuts. ![]() The basic idea of the Laffer curve is that there is an optimal tax rate at which revenue will be maximised with minimal negative impact on the economy. His arguments are mainly focused on income taxes, but the same logic can be applied to corporate tax. It would be a radically simple tax system with one low rate for personal income with room for just one sales tax. Laffer ends up arguing that the best levy is a flat rate of around 10% to 13%. Laffer argues any rate above 50% is prohibitive on economic growth, but the lower tax range below this point is where the optimal level of tax can be found. Higher tax rates hold back the economy, so lower tax rates must unleash prosperity. “It’s not left wing, it’s not right wing, it’s economics,” Laffer is fond of saying in interviews. It’s an argument for moderation and caution in tax policy. One extreme is asking too little, but the other is asking too much. This bell curve shows that tax revenues reach zero when rates are set at either 0% or 100%. We can thank US economist Arthur Laffer for making this assumption popular with the so-called 'Laffer' curve. These demands to either keep taxes low or cut rates further are all based on the assumption that lower taxes will generate greater economic growth and increase revenue as a result. However, the government shows no sign of backing down. Former Prime Ministers Boris Johnson and Liz Truss have reiterated their calls on the government to cancel its plan to raise corporate tax from 19% to 25%. If these plans are confirmed, Biden will likely face criticism from Republicans that tax hikes will hurt the US economy and not raise tax revenue.Īt the same time, the UK government is due to make its spring budget statement next Wednesday, March 15. US President Joe Biden is set to make his budget proposal on Thursday, March 9, and he's already hinted at higher taxes.
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