We should dramatically increase the rate of income tax paid by the rich

We’ve tried implementing very high rates of income tax many times before. In fact, the top rate of income tax has usually been dramatically higher than it is now.[[http://www.truthandpolitics.org/top-rates.php]]The reason most market-based economies have rejected high rates of income tax is because they don’t work. They do not resolve problems of social unrest, do not create more equality and do not create a more stable society. In fact, according to the Bureau of Justice Statistics violent crime has been falling since 1994 and reached its lowest ever level in 2005.[[http://www.ojp.usdoj.gov/bjs/glance/viort.htm]]It has always been easy for people with money to make more of it, that’s why the rich get richer. We don’t solve the problem by making the rich poorer – we solve it by making the poor richer, by giving them every opportunity to enrich themselves and by levelling the opportunity playing field.

Even countries such as Sweden, long held as a bastion of the benefits of high taxes has its problems. A Swedish research paper from 2005 examined the efficiency of the public sector in 23 industrialised countries. Sweden comes absolute last on the list when the level of welfare provided is related to the level of taxation made. In the US New Hampshire is a good illustration that high taxes are not needed for good public services it has no income or sales tax, yet it has high-quality schools and excellent public services. Although New Hampshire spends about $1,000 a year less per resident on state and local government than the average state New Hampshire’s public schools have the fourth-highest test results in the US. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet has the second-lowest test scores.[[ Arthur B. Laffer, The Laffer Curve, Past, Present, and Future, The Heritage Foundation, 1st June 2004, http://www.heritage.org/research/taxes/bg1765.cfm#pgfId-1118367%5D%5D What tends to happen in countries with high income taxes is bureaucracy rises and when bureaucracy rises efficiency falls. The government is quite simply not as good at spending our money as we are and in order to solve social problems such as inequality it is spectacularly ineffective.

We need government for some things such as schools, roads, the police and so on. But the best government is a small government, one that protects people from harm and focuses on creating the most entrepreneurial, problem-solving society it can. Not by raising taxes to the roof.

It is a mistake to think that increasing taxes on the rich increases the net amount of taxable revenue brought into the state. New Jersey in the 1960s had no state income tax and no state sales tax, was a rapidly growing and running budget surpluses. This has now reversed: its income and sales taxes are among the highest in the US yet it suffers from perpetual deficits.[[Arthur B. Laffer, The Laffer Curve, Past, Present, and Future, The Heritage Foundation, 1st June 2004, http://www.heritage.org/research/taxes/bg1765.cfm#pgfId-1118367%5D%5D

Rich people have very good accountants and will always come up with ways to avoid what they consider to be an unfair burden. One obvious thing that happens is rich people move out of a country where they are being heavily taxed and into a country where the tax regime is less burdensome.

The latest example of this comes from the footballer Andre Arshavin who has said he wants to move from the UK to Spain because the UK has just increased it’s top rate of income tax to 50%. This was an increase of only 10% over the previous high rate – so can’t be considered ‘dramatic’ – yet it is high enough to cause this one very rich individual to consider taking his money elsewhere. And not only would the taxman lose all the taxable income he pays, but football fans across the country would also lose out on watching a very gifted individual ply his trade.

Rich people care about protecting their money and have the desire and the ability to continue to do so if tax rates are hiked up. However, rich people are not inherently unfair. They will pay a fair rate of tax, they will contribute to the society in which they live and they will benefit the rest of us provided the tax rate is not set so high as to force them to avoid it.

Rich people already pay a disproportionately large amount into the exchequer. Someone earning $250,000 a year and paying a top rate of 40% income tax contributes around $100,000 a year in taxes. This is significantly more than the poorer individual.

Moreover, they actually take less out of the state. Rich people often have private healthcare, so no burden on the state there. They’ll educate their children privately, at no cost to the state, they don’t need free legal care, free transport, free meals or any of the other services their taxes pay for.

Rich people also tend to spend a lot more money too. They’ll buy products or services from the country they live in, so providing more income for the state. Even if they buy products made overseas the sales taxes bring money into the exchequer.

Rich people are not sources of money we can just tap whenever we feel like it. In fact, we should remember the parable of the man who killed the golden goose. If nurtured correctly the goose could have continued giving for many years. But greed took over and greed caused the source of income to dry up. Don’t be greedy.

You used the Gini coefficient to argue that income disparity causes social unrest and point to Columbia and Zimbabwe as examples of countries with a high Gini coefficient and high social unrest. However, Columbia is awash with drug money and the corruption and violence that accompanies it. And Zimbabwe is not an example of anything – other than what happens when you let a lunatic run the show that is. These countries do not prove your case. What America proves is that a country can have high income disparity and falling rates of violence. The period covered by the BJS details was also a period when income disparity grew hugely in America. If your theory is correct violence should also have increased. The fact it did not shows there is more than simple poverty at play here.

Pirates do not rob because they’re poor. They rob because they’re greedy. They don’t hold cargo ships to ransom in order they be able to feed their village. They get the huge fees and go and buy Toyota Landcruisers and AK47s and further terrorise their villages.

A more level economic playing-field in Afghanistan will not harm the Taliban’s recruiting strategy as long as American drone planes keep dropping bombs on wedding parties. The Taliban recruits because Afghani’s want their country back and want to avenge their dead. The element of people they get because a villager needs to sell a child to reduce his or her food burden is minimal.
Poverty is not the cause of violent crime. Poverty is an excuse used by greedy and violent individuals to play on the sympathies of the judge in order to get a reduced sentence. As a rule Western industrialised nations do not have people starve to death for lack of money. The only place this seems to happen is in countries such as North Korea where income disparity is minimal – apart from the very, very, few at the top.

Moreover when you charge that there is no link between low tax on the rich and falling crime rates the same charge might be thrown back at you. What does ‘pirate problem in Somalia’ have to do with high or low taxation? I am pretty sure that the pirates don’t pay any tax at all whether Somalia has a tax regime or not. If you are trying to blame the problem of piracy on the current liberal regime of reasonably low taxes on the rich then you are wrong. Piracy has always existed, and as it is something that is outside the law already taxes have very little impact. Getting ransom money does not change this as they are getting ransom money mostly for cargo and the ships they capture rather than the people, this is paid by companies rather than individuals.

Arguing that one economist is wrong by quoting one more economist will get us nowhere; it is like saying that the Pope is wrong and God does not exist because Richard Dawkings says he does not! There needs to be evidence to back it up. While pointing out that 65% might be the optimal amount you are admitting that the Laffer curve does exist. This leaves us with a debate about how much the rich should be taxed on their income. Where did Pecorino get that figure of 65%? Unfortunately I can’t find the report but I would imagine the USA. It seems very likely that this would be a figure that would change from culture to culture, though who knows what cultures would support higher and what lower. Although you argue that we are demanding trickledown economics; the poor can take the crumbs left by the rich you might note that nowhere in our argument did we mention the theory of trickle down precisely because it creates massive inequality to rely on it alone.

That we advocate not taxing the rich a ‘dramatic increase’ over what they are currently paying on their income tax does not mean that we are against taxes on the rich. Simply put there is a need to be more creative and find ways of taxing the rich that does not affect the rate of investments, or will force the rich to flee abroad. In other words we advocate taxes that would be regarded by the rich as fair, that they would be willing to pay. The most obvious is the ‘death tax’ that rich people seem to hate but is considerably fairer than income tax as any inheritance that is passed on is unearned wealth whereas in most cases people have earned their income. To be a bit more creative why not fund national healthcare by taxing the rich extortionate amounts on their private healthcare, if the cost of their treatment could pay for several poor people to have subsidised healthcare will the rich complain if they are still getting the best available, the chances are they will still be willing to pay for it. To a great extent public transport in the form of trains and planes are already paid for by the rich paying a lot for first class allowing the 2nd class or economy class tickets to be subsidised. The other possibility is imposing immense taxes on the things the rich want that are status symbols and are therefore willing to pay more for, and may even be happy to pay more as the more expensive they are the more of an aspiration they are and so the harder they are willing to work to get them; goods like luxury cars and designer clothes, services like expensive meals, and particularly their housing.

So no I reject your premise that this is an ethical and philosophical argument as well as an economic one. “Do we want societies that exploit the less well off?” You can’t seriously think that we would say yes we do want exploitation? However the premise that a relatively low tax rate on the rich equals exploitation of the less well off is wrong. The creation of a welfare system and a high rate of tax on the rich are not intrinsically linked. Britain has a good welfare system and only taxes the rich 40% on income (with this maybe going up to 50% on those earning over £100k).

The Kennedy example shows that the overall amount of tax income received actually increased even as the top rate of tax was cut. Or in other words, if this process was reversed and the top rate of tax increased, the total amount of revenue the state would get would fall. This is the fundamental point the other side does not get. We’re not arguing that rich people should keep more of their money and the poor should take care of themselves. We are not arguing for winner-takes-all and if the losers are trampled to death by the rush of capitalists seeking to sell the feathers of the last Dodo on earth then so be it. We argue that the net benefit to society is greater if tax rates are not increased. Moreover, that the policy of increasing taxes whilst appealing to the poor, whilst having all the elements that make it a populist programme, is actually deeply counterproductive and likely to harm the very people it is designed to benefit.

The fact is that rich people will respond to an increased rate of income tax. To deny this will happen is to reveal a fundamental lack of understanding about human nature. No-one likes paying taxes and just because rich people have a few millions doesn’t make them less likely to care about losing a few hundred thousand. Rich people will move their money or their person out of the burdensome tax regime to a more favourable one. They will take their spending and their income generation away. Or at the very least they will come up with elaborate schemes to avoid paying tax which the state will find prohibitively expensive to police. As many things in life the solution to this problem is counterintuitive. We don’t prevent illness by staying surgically pristine, we get a little dirty so our immune system can build up. The best form of defence is attack. And the best way to get more money flowing into a country is to have taxes set at a rate which people are willing to pay.

P.S. Would it have made a difference to your argument if I had used Reagan’s tax reductions instead of Kennedy’s? During the period of Reagan introducing tax cuts federal revenues increased significantly Revenues from individual income taxes climbed from just over $244 billion in 1980 to nearly $467 billion in 1990. Inflation-adjusted this amounts to a 25 percent increase.[[ Peter B. Sperry, The Real Reagan Economic Record: Responsible and Successful Fiscal Policy, The Heritage Foundation, 1st March 2001, http://www.heritage.org/research/taxes/bg1414.cfm%5D%5D This was despite slashing the top rate of income tax from 70 percent to 28 percent.[[ William A. Niskanen, Reaganomics, in The Concise Encyclopaedia of Economics, http://www.econlib.org/library/Enc1/Reaganomics.html%5D%5D “greed is NOT good and there very much IS such a thing as society and it needs helping and one way is to dramatically increase tax because people don’t pay enough NOW.” Greed may not be good but it is in human nature, is to get rich still glorious? There is something called society, but society is not dependent on taxes, society still exists no matter what rate the rich pay. It would be much better for Society if as in the late 19th century there was low taxes (see response to ‘government’s role in financial crisis’ below)and an immense amount of philanthropy. The government taking money does not demonstrate society, its free giving would.

As mentioned above we do not support trickledown economics. That being said it is difficult to say that low rates of taxation on the rich were a total failure. From Reagan entering office in 1983 to the end of Clintons administration US GDP expanded 80%; 3.6% per year, making for a growth of GDP per person of 54%. Industrial production went up 78% in an era when all the manufacturing was supposedly going abroad. And total employment went up by 35 million.[[Peter B. Sperry, The Real Reagan Economic Record: Responsible and Successful Fiscal Policy, The Heritage Foundation, 1st March 2001, http://www.heritage.org/research/taxes/bg1414.cf%5D%5D Surprisingly despite the cuts in social security spending made by Reagan the US poverty rate fell by 1% during his presidency. This then rose by 1.8% under George HW Bush and fell again by 3.5% under Clinton.[[Elgie McFayden Jr., Contemporary United States Presidents: Impact on American Poverty, 4th January 2008, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1200182%5D%5D This means overall the poverty rate fell during the same period. So while overall Reaganomics have done nothing to change poverty either way they have made the economy as a whole richer, this seems worthwhile to me.

A dramatic rise in tax rates on the rich is not a creative idea, it has both been tried and failed before (UK 1970s) and is the usual response to high wages or some people being unable to keep up in the capitalist world. To be creative we need to move away from the idea that statist policies can solve poverty and reduce inequalities. Microfinance has been one of the most successful ways of reducing poverty over the last decade. Microfinance essentially brings capitalism to the poorest. It is they themselves who know how to get out of poverty not the bureaucrats in the state machinery. Essentially microfinance provides loans to those who otherwise would not have access to capital. “Unless the poor can borrow, they are likely to remain trapped in poverty. The people who have been able to borrow have often seen their incomes rise and their future transformed. And, overwhelmingly, they have repaid their loans.”[[http://www.ifad.org/media/pack/microfinance.htm]] Obviously not everything goes the right way, if someone fails to use their loan wisely they are potentially in an even worse situation than they started. In Bangladesh some 21 per cent of Mr Yunus’ (the founder of microfinance) Grameen Bank’s microcredit programme members raise themselves from poverty within four years of joining the bank.[[Paritosh Srivastava, Microcredit Reducing Poverty and Empowering Communities, UN Chronicle Online, http://www.un.org/Pubs/chronicle/2005/issue3/0305p45.html%5D%5D The market can work even for the poorest people so long as there is some credit made available.

Unfortunately you know as well as we do that someone will undercut the rest. While I do not believe that greed is good it is undeniable that it exists. The Monaco example given by us in our initial arguments almost immediately demonstrates it, an island of low taxes in the middle of high tax Europe that thousands of the richest run to. Essentially because a country can make so much extra out of poaching the rich from other countries even if at low tax rates a country will do it making all those who raised taxes worse off. If the top 10 Britons in Monaco have assets of £13.5 billion and get taxed 1% on those assets (I realise that this is different from income but for the sake of using something which I have figures on will stick with it, the end result is the same) then Monaco raises £135million and at the same time deprives (lets hypothetically assume Britain would be taxing 2%) Britain of £270 Million. How do you persuade Monaco that it is not worth their while undercutting. Force might be an option, but this is not very helpful for your social agenda and things get more difficult if it is a powerful country such as the USA that does the undercutting. There would essentially be a race for the bottom among countries that want these rich (either for the taxes they bring or the spending they do) that leads to the effectively 0% tax that can be found today.

I’m going to sidestep the point slightly and argue in terms of a generalisation rather than the specific context of the credit crunch in 2009. Small government does deliver for developing nations, it may be the only way to deliver. Welfare and social justice has to wait.

Almost all countries have developed based upon low taxes, the option to raise taxes and create a welfare state only really exists once a country has joined the rich nations, it no longer needs to undercut the rich nations as it has reached the highest stage of production; the goods and services that add most value. During the fastest period of British growth during the industrial revolution there was no income tax. It was abolished in 1816 after the end of the Napoleonic wars meant that spending on the military could drop. It was not reintroduced until 1842.[[http://www.economicexpert.com/a/Income:tax.htm]] This was introduced at seven pence in the pound on incomes over £150.[[John Morley, The Life of Richard Cobden,(London, 1903) http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=1742&chapter=90515&layout=html&Itemid=27%5D%5D Since there were 12 pence in a shilling and 20 shillings in a pound this comes out as a massive 2.9%! by 1860 Britain’s share of world manufacturing production was 19.9%. She was responsible for a fifth of world commerce and two fifths of trade in manufactured goods.[[Paul Kennedy, The Rise and Fall of the Great Powers, (London, 1989), pp.194-5.]]

Not surprisingly given its government structure there was no federal income tax during the period of catch-up in the US at the end of the 19th century and start of the 20th. US Income taxes were raised during the civil war (similar to the UK during the Napoleonic wars, the expense of war needs ‘extraordinary’ taxation) but were ended in 1872. Income tax was reintroduced in 1894 at 2% for incomes over $4,000, it was however declared unconstitutional by the supreme court in Pollock v. Farm Loan and Trust Co.[[http://www.tax.org/Museum/1866-1900.htm]] It was not until 1913 that income tax was accepted at 1% on incomes over $3000.[[http://www.tax.org/Museum/1901-1932.htm]] If looking at the period between 1850 and 1999 it was between 1850 and 1900 economic growth expanded fastest. US GDP grew from $98,374mil in 1870 to $517,383mil in 1913.[[http://en.wikipedia.org/wiki/List_of_regions_by_past_GDP_(PPP)#1870]] Living conditions of the masses also improved at their fastest rate between 1850 and 1900. It was the increasing intervention of the state during the twentieth century that slowed this increases/improvement. Similarly in the post war period the early 1950s experienced the fastest growth and this was the period before the ‘Great Society’ caused large increases in welfare provision.[[Carlos Sabillon, Manufacturing, Technology and Economic Growth, (M.E. Sharpe, 2000) p.161-3.]]

Compared to these two previous examples China’s tax rates are very progressive and high with a sliding rate from 5% up to 45% on wages over 100k yuan per month(about $14,600)[[http://www.chinatax.gov.cn/n6669073/n6669088/6888498.html]] At the same time as China has turned to runaway capitalism China’s poverty headcount rate fell from 65% of the population in 1981 to 4% in 2007; more than half a billion people were lifted out of poverty.[[World Bank report urges broadening of China’s poverty reduction agenda, 8th April 2009. Obviously in all these cases there are other factors such as tariffs and changing technology however it is impossible to argue that low tax rates on the rich has hurt poverty reduction.

yes send them f*** packing. the middle class needs money to. Middle class people need that money to buy things we need.

Any system designed to be for all groups of society (classes or whatever) has to have the legitimacy of all groups. If there is sufficient reason for people to think they’re being unfairly treated then they will resort to the ancient principle of thinking an unjust law or tax rate is no legitimate and adopt a “screw you guys, I’m not paying and I’ll do my best to avoid paying” attitude. Or alternatively, progressive people who may be rich but contribute a lot more will do what former Democrat-leaning actors union member, turned Conservative Republican President of the United States, Ronald Reagan did and go on a Goldwater Republican-style backlash against the whole system which brings things back to square one in terms of income disparity and social welfare.

Admittedly the US is a different country from the People’s Republic of China but you guys have still got people like basketball star Yao Ming (and I’m not trying to questions the man’s character) but increase the taxes and you might inspire the same patriotic loyalty from other people in contributing to society or paying their taxes. In short if people don’t think that the system is legitimate for them then they’ll try and make the system legitimate for them which may not be necessarily in favour of poor people. After all commerce is one of the foundations of legitimacy according to Adam Smith ‘commerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals’.[[Adam Smith, The Wealth of Nations, Andrew Skinner ed., (Harmondsworth, 1982), p.508.]]

Progressive taxes are a disincentive for people to stay in a country, they will simply head to a country where taxes are lower. The combination of low tax for business and high salaried executives has been a particularly strong combination in attracting people to the banking industry in the UK.

The rich are the most mobile group of people. If taxes on the poor are increased they have little choice but to pay, or else sooner or later be caught by the taxman. They are unlikely to leave, as they lack the knowledge, expertise or money to go elsewhere. However the rich can. They can also afford to cut their taxes through creative accounting. Within the US from 1998 to 2007, more than 1,100 people every day moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas.[[Stephen Moore, Soak the Rich, Lose the rich, The Wall Street Journal, 18th May 2009, http://online.wsj.com/article/SB124260067214828295.html%5D%5D
This does not just occur within countries but also internationally. Even in Britain where the tax rate for the rich is not particularly high by European standards, and new labour is “intensely relaxed about people getting filthy rich”[[Roger Cohen, The filthy rich are different from you and me, International Herald Tribune, 1st July 2007, http://select.nytimes.com/iht/2007/07/01/opinion/02cohen.html?_r=1%5D%5D there are a lot of rich people who commute to tax havens. Rich Britons such as retailer Philip Green and the Easyjet founder Stelios Haji-Ioannou along with hundreds of directors and bankers give their address as Monaco.

Due to a tax loophole non-residents can spend 90 days a year in Britain, plus the day of travel out and the day of travel back. This means they can fly in to Britain on Monday morning, work four days, fly out on Thursday night, and do this for most weeks in the year without breaking the rules. If the loophole was closed these rich people would leave entirely, as it is increasingly easy to run a business from outside the country using the internet and mobile phones.[[David Leigh, The tax haven that today’s super rich City commuters call home, The Guardian, 10th July 2006, http://www.guardian.co.uk/business/2006/jul/10/frontpagenews.uknews%5D%5D

Hitting the rich with tax increases will also hit the poor and middle classes more than it does the rich themselves. The rich have often become rich by being financially savvy and are likely to cut back expenditure to balance their budgets. This is likely to result in them sacking their maids, butlers, gardeners, pool cleaners, personal assistants, chauffeurs etc. It makes much more difference to the person fired because the millionaire is trying to balance the books to compensate for the increase in taxes than it does to the millionaire him/herself.[[Grant Carbone, Taxing the rich hurts the middle class, The Huffington Post, 4th November 2008, http://www.huffingtonpost.com/grant-cardone/taxing-the-rich-hurts-the_b_140895.html%5D%5D

Abraham Lincoln said: “You cannot strengthen the weak by weakening the strong. You cannot help the wage earner by pulling down the wage payer. You cannot help the poor by destroying the rich. You cannot help men permanently by doing for them what they could and should do for themselves.”[[http://thinkexist.com/quotation/you-cannot-strengthen-the-weak-by-weakening-the/821892.html]]

Investment like people is mobile, and with globalisation becoming more global. There has been a particular trend of outsourcing jobs and investment over the last few decades. As tax is a cost to the rich businessmen it is likely to create more outsourcing. The rich are the wealth creators of the country, the innovators, inventors and investors, scare them away and they will no longer invest in the country. Most of them are hard working and because they are mobile will be very sensitive to tax changes.[[Harry Phibbs, Piling taxes on the rich will hit the wrong people – and raise diddly squat, MailOnline, 24th March 2009, http://www.dailymail.co.uk/debate/article-1164123/HARRY-PHIBBS-Piling-taxes-rich-hit-wrong-people–raise-diddly-squat.html%5D%5D

Overall the level of taxation has an inverse relationship to the level of economic growth. This is because the investors do not feel as rewarded for their investment if they cannot gain most of the profit, they want to know why the government which has often done very little to help them should gain the benefit of their investments through taxation when the economy is already gaining through higher number of jobs. The higher the tax rate the higher the rate of return investors will require for their investments and the less they will pay for a given investment. In the US from 1997 to 2007 the non-income tax states had 21% job growth compared to 11% job growth in the high income tax states. Also Personal income grew by 84% in the non-income tax states, versus 64% in the high income tax states. This is most severe where there is a progressive taxation regime i.e. higher taxes on the rich than on the poor. According to a Joint Economic Committee of Congress report in 1982 “Income taxes levied on individuals and corporations are particularly detrimental to growth… Progressive taxation not only lowers the rate of economic growth compared with proportional or regressive taxation, but in the process hurts the very persons that progressive taxes are designed to help: The poor.”[[Arthur B. Laffer, Stephen Moore & Jonathan Williams, Rich States, Poor States, American Legislative Exchange Council, (Washington, 2009), pp.34-36, http://www.alec.org/am/pdf/tax/09RSPS/26969_REPORT_full.pdf%5D%5D

Tax has a similar effect on the stock market, if the rich are being taxed more on their income they will have less to invest on the stock market. Moreover if returns from investments (capital gains) are counted as income then the higher the tax rate the fewer investment opportunities there will be that meet the new required higher level of return.[[Daniel Obrycki, Rafael Resendes, Tax the Rich, Starve the Poor, Real Clear Markets, 24th January 2008, http://www.realclearmarkets.com/articles/2008/01/tax_the_rich_starve_the_poor_1.html%5D%5D There will therefore be less trading and investing and companies stock will be worth less, which in turn reduces the amount of capital in the country reducing investment.

Overall as higher taxes equals less investment which in turn equals lower economic growth then the consequences of raising taxes are negative. This lower growth will mean less jobs so more are out of work, while those in jobs get lower pay increases. There is less building of infrastructure such as roads and railways, less choice in services such as banking and education, and less exciting new innovations such as debatewise!

Increases in taxation (whether overall or of a segment of the population, in this case the rich) does not necessarily lead to greater tax returns for the state. This is because the results in changes in tax depends not only on the obvious arithmetic of what the change should result in but also depends on the actual economic effects of the tax change. This fits in very closely with the previous two points about a reduction of investment and flight of the rich overseas. The economic effect depends on the effect of the tax change on incentives to work, invest, and innovate which as mentioned above will be damaged by a dramatic increase in taxes for the rich. Therefore raising the tax rate lowers the tax base.

The laffer curve is shaped like a U on its side. Obviously at a tax rate of 0% the government will raise no taxes. However once the tax rate is 100% the government will also collect no taxes because the government would be taking everything there is no incentive to work at all as the government is taking everything. At some point in the middle is the ideal point where the government gets most tax revenue because it has struck the perfect balance of incentives to work thereby increasing the tax base and actually taking the money. However the laffer curve does not tell us where this point is as this is infinitely changeable depending upon the tax system, culture, the economic climate etc.

However we can be pretty certain that a ‘dramatic increase’ called for by the defenders of the proposal would put taxes of the rich into the ‘prohibitive range’ where tax revenue actually decreases with an increase in the rate. Adam Smith compares the government raising taxes in such a situation to: “a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.”

There have been several examples of the laffer curve in action, particularly notable are the tax cuts by Kennedy in the USA in the 1960s. The 1964 tax cut reduced the top marginal personal income tax rate from 91 percent to 70 percent by 1965. In the four years after the cut tax revenue adjusted for inflation grew 8.6% per year compared to the 2.1% it had been growing at before. Not only did tax revenue increase despite the tax cut it increased at a much faster rate.[[Arthur B. Laffer, The Laffer Curve, Past, Present, and Future, The Heritage Foundation, 1st June 2004, http://www.heritage.org/research/taxes/bg1765.cfm#pgfId-1118367%5D%5D

A tax on the value of land is extremely progressive but does not suffer the drawbacks of high income tax. Because land can not be hidden a tax on it can not be evaded. Because land is fixed in place it can not leave the country to base itself in a low-tax nation the way money and people can. Because the tax is paid out of Rental income rather than Capital or Labor income (I use these 3 terms as Adam Smith did) it does not discourage work or investment (the “Laffer curve” issue).
Land tax also has firmer ethical foundations than income tax, eg: Land rents can only be collected by individuals because the state records and enforces land titles. Land values go up with population growth and government expenditure on infrastructure such as roads, not anything to do with the efforts of the landlord (which are capital improvements, not extra Land). Ownership of goods is founded on the idea that a thing belongs initially to its maker and may then be traded freely, but Land was not made by anyone.

Many philosophers and economists have said the same: Locke, Paine, and Mill for a start.

Since a land tax can achieve all that a high income tax can without the negative effects, a high income tax can not be the best option.