Art Laffer, the creator of the Laffer Curve told Brexit leader Nigel Farage that the left has failed to learn the lessons of economic history and continues to believe increasing tax rates will increase tax receipts.
Reform UK party leader Nigel Farage spoke to Dr Arthur Laffer, the U.S. economist to advised President Ronald Reagan and who was recognised by President Donald Trump with a Presidential Medal of Freedom. Hailed as the “father of supply-side economics”, Laffer is best known for his eloquent demonstration of how raising tax levels beyond a certain point in an economy becomes counterproductive for the tax collector, as punitive taxes discourage economic activity and encourage evasion.
Evidently, this is a message that many on the left do not want to hear. But as Dr Laffer remarked during the GB News interview: “it ain’t rocket surgery, Nigel! … I hear people all over the place sprouting nonsense over there. I don’t give a darn what anyone’s opinion is. This is about facts, not how you feel!”.
Laffer told Farage that the United Kingdom had already experimented with high personal tax levels and found them disastrous. He said he agreed with left-wing lawmakers who say they want the very wealthy to pay their “fair share”, but explained they had failed to comprehend that if you want more actual money from the wealthy, the way to achieve it is to cut taxes to a level where they aren’t scared away, or incentivised to hire expensive tax lawyers.
The veteran economist, whose Laffer Curve celebrated its 50th birthday this year, told Farage: “…if we didn’t learn enough lessons from Gordon Brown increasing the highest tax rate from 40p to 50p and watch the whole economy collapse, people leaving the country, and all the tax evasion, avoidance, underground economy, and revenues coming down and the economy doing very badly. That was a perfect example”.
On the lesson the left failed to learn on optimal taxation to bleed the rich, Laffer said: “I would agree with them, but the way they pay more taxes is by lowering the tax rate on the rich, not by raising it. The rich people know how to get around taxes, they have the means to avoid or evade or otherwise not report taxable income.
“They can hire lawyers, accountants, deferred income specialists, they can move to different locations, they can change the compositon of their income, they can change the timing of their income. They have all these things. So if you lower the rate — they don’t want to do these things — so they’ll just pay their taxes fair and square… they stop using all these circumventions around the tax system and they pay their taxes fair and square”.
This is to the good of all, Laffer said, reminding: “…guess who gets the best benefit? The poor, the minorities, the disenfranchised. They’re the ones that do really well from a booming economy.”
As previously reported, the UK’s left-wing government has been badly struggling with the basic principles behind the Laffer Curve, with recent tax hikes costing the government money, rather than bringing in extra hoped-for funds. A tax raid on private schools was meant to raise £1.5 billion that the government hoped to plough into state schools, but instead triggered an exodus of families who were only just-about managing before the 20 per cent tax hit.
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