The Laffer Curve
From today’s City AM Forum (I can’t find the article online yet, so I had to copy type. Please forgive any typos.)
By Harry Phibbs, a journalist at ConHome:
Hammond’s virtue signalling on low wages is hypocritical
… There are alternatives the government could take that would help the low paid, and would also help reduce unemployment, rather than endangering jobs.
The first priority should be a sharp rise in the threshold for national insurance contributions.
Employees have to hand over 12 per cent of their earnings to the government on anything over £166 a week, so somebody on the national living wage working a 40 hour week has a significant tax bill [not to mention the 13.8% that the employer has to pay].
Raising the threshold would require the chancellor to find some savings in state spending. That’s more challenging than just imposing a requirement on someone else and claiming the credit for it. But it would not be impossible to achieve.
Another priority to address is the Universal Credit earnings taper rate. Changing this would help make it more rewarding to be in work, rather than on welfare.
Before the Universal Credit reforms, people who accepted work really did end up with less money. This is no longer the case, but the taper rate means that for each £1 earned, 63p in benefits is [sic] lost. That is simply too steep a taper. After all, the Laffer Curve applies to the poor as well as the rich, so reducing the taper would reward work just as tax cuts do.
There is something awfully hypocritical about Philip Hammond and the government decrying “unacceptable” levels of low pay by employers, then grabbing a chunk of a salary so that it is even lower when it finally gets to the employee.”
I’ve been saying all this for over a decade, but it’s reassuring when others say it. The 67% overall marginal rate on wages over £100,000 a year* seems too high too me, but far less troubling than the 80% or 90% overall tax/taper/withdrawal rates faced by people on wages up to £20,000.
* Do the maths, this is mentioned even less often.
Source: http://markwadsworth.blogspot.com/2019/06/the-laffer-curve.html
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