16 2 mins 9 yrs

It’s really basic stuff but it still manages to avoid the majority of the political class. If you increase taxes, you stifle economic growth;

The 50p higher rate of income tax is “damaging the economy” and delaying the recovery from recession, more than 500 entrepreneurs and business owners warn today. The bosses of small and medium sized firms across the country say the levy has meant they have not expanded their firms and taken on more workers. They accuse George Osborne, the Chancellor, of putting “populist politics before sound economics”. Calling for it to be scrapped, they add that the ongoing imposition of the 50p higher rate of tax has left “wealth creators” in a “very awkward position”.

At the moment,the political left is seeking to stifle economic growth – after all, were the UK economy to impr0ve that would give Labour huge problems in getting back into power. So they support higher taxes, in the name of fairness. They think it right that the State can grab 50% of your income. They think it right to impose draconian employment legislation on private business.Then they wonder why there are so few jobs being created.

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16 thoughts on “HIGH TAXES KILL GROWTH…

  1. It’s really basic stuff but it still manages to avoid the majority of the political class. If you increase taxes, you stifle economic growth;

    So what. Growth, that is actual growth, has not really existed for around a decade. All we have had is a massive redistribution of wealth. Upwards!

    They think it right to impose draconian employment legislation on private business.Then they wonder why there are so few jobs being created.

    Corporate profits are pretty much at their highest level ever. Yet job creation is slow. This claim is borderline myth.

    And lets not forget. The periods of highest growth in the modern era, again actual growth, were periods where the tax rates were considerably higher than now. Also, studies have shown that fairer tax systems produce healthier economies and higher rates of growth.

  2. daytripper –

    Not really. We have had actual growth although the there has been a concurrent process of taxing some wealth upwards. Alot is also taxed snd sent down.

    Yes, corporate profits are high, in part because firms were forced into becoming more efficient from 2008, in part because central bank money is washing through the economy. With great volatility. Unemployment is always a lagging indicator, existing during an upturn and, anyway, it’s no surprise that firms are not keen to take on alot of new staff with so much economic volatility.

    The greatest period of economic growth in the modern period happened in Great Britain in the two centuries to 1900. The US isn’t far behind in the 18th-Century. In both instances hardly anyone paid taxes.

    If “fairer” (ehem) tax regimes produce healthier economies then the UK is well set. Our tax system is the most “progressive” around.

  3. High taxes do harm growth, but boy oh boy there are many exceptions to that rule

    Germany is a high tax country overall, but the advantages of a good workforce and great infrastructure lets them deal with it just fine. They’re rich and they will remain rich.

    London is a high tax and super high cost of living area but it remains a financial powerhouse. Which is your country’s biggest asset, in case some of yiz didn’t know it.

    NYC has very high taxes by US standards and is expensive to live in, but it is much more prosperous than Florida, which has zero state income tax and which is way cheaper.

    So yes, taxes are an impediment to growth as a general rule, and they should be no higher than necessary. We agree on that?

  4. The 50p rate would not be necessary if it wasn’t for the massive tax scams pulled off by the likes of Barclays Bank:

    “Barclays was accused by HM Revenue and Customs of designing and using two schemes that were intended to avoid substantial amounts of tax. The government has taken the unusual step of introducing retrospective legislation to end such “aggressive tax avoidance” by financial institutions.”

  5. Peter –

    The 50p rate is simply not necessary.

    And fair play to Barclays for a gallant attempt to fight off an aggressive, violent looter.

  6. The greatest period of economic growth in the modern period happened in Great Britain in the two centuries to 1900. The US isn’t far behind in the 18th-Century. In both instances hardly anyone paid taxes.

    Understood. But I think we can agree that this growth, as is the case now, was for the benefit of a tiny clique. It took plenty of social struggle to enable you and I to see the benefits of such growth. Infact, as is clear from British imperial history as understood (in the Mid 18 C) from Roman imperial history, when large global economies act selfishly and benefit the few over the many it spells ultimate doom for the economy and empire.

    [Taxes] should be no higher than necessary. We agree on that?

    Simply yes. But, as you demonstrate high taxes are no impediment to growth. Germany invests its taxes back onto education which provides a good workforce and roads etc which provides a good infrastructure.

    The anglo-saxon attitude is to demand all these same benefits (plus more, like a huge army) but without the contributions.

    London is a high tax and super high cost of living area but it remains a financial powerhouse. Which is your country’s biggest asset, in case some of yiz didn’t know it.

    A powerhouse that regularly refuses to pay its taxes and continually needs bailing out.

  7. High taxes are -not necessarily- an impediment to growth.

    If you have great services ( German schools, NYC public transport ) folks are willing to pay tax for it. But there is a limit. If taxes are paid for waste, there is no reason for anyone to want to pay for that.

  8. And keep in mind

    The Chinese and others are rapidly gaining the industrial skills to compete with the Germanys of this world. Everybody is in competition with everyone else for low skilled and high skilled work.

    Unnecessary tax burdens will kill you. Necessary taxes are another story.

  9. daytripper –

    “It took plenty of social struggle to enable you and I to see the benefits of such growth.”

    Most of all it took that economic growth. Yes, many social/philanthropical/charitable campaigns flourished during the 18th-Century, but they were as a consequence itself of economic growth and the relatively small and benign State which existed at the time.

    Such changes, whether (say) social or environmental, can and will only happen when civil society can afford them. If the economic wealth does not exist to implement an idea, it will not happen. If the State does not allow civil society to breathe freely to implement ideas, they will not happen.

    When the focus of life is simply food and water and being alive in the morning you will not see social campaigns for comprehensive education or catalytic convertors. Those can and will only happen when wealth grows to a sufficient level to allow them to happen, for productivity to allow us time to think about ideas, for the economic breathing room to implement ideas and for the economic base to bear the cost of implementing them.

    In short, such campaigns didn’t flourish in the 13th-Century because most people were too busy growing and chewing on turnips. Capital accumulation, mechanisation, productivity gains and economic growth all had to happen first.

    The prescription remains the same: if you shrink government back to a level it cannot interfere too much in life, wealth will accumulate and civil society will take of the rest.

  10. “Germany invests its taxes back onto education which provides a good workforce and roads etc which provides a good infrastructure.”

    This is completely irrelevent to macroeconomic performance.

    Germany has remained competitve in the last 15 years because German wages have fallen significanlt. It’s the dirty little secret which many don’t want to acknowledge, but ignoring it won’t make it go away.

    The German post-war “Wirtschaftswunder” (economic miracle) did not happen for nebulous reasons such as a German work ethic or sensible nature. There are specific reasons for it. The most significant was a fat bloke with a cigar called called Ludwig Erhard who, from 1949 to 1963 was either Minister for Economics or Chacellor.

    Fortunately for West Germany, he was a free-marketeer and influenced by Austrian School men. He ignored the British and American economic advisors around him, removed price controls, cut the credit and money supply and economic miracle was waved in.

  11. The German ( or Japanese ) work ethic and pride in their products is not a nebulous thing.

    It’s why people pay whatever they need to pay for a Mercedes or Lexus or a Siemens turbine when there are cheaper alternatives everywhere.

    Price and money isn’t everything. Value is.

  12. Do we really know if there is a cause and effect relationship between taxes and economic growth? One could make the argument that the more you tax business owners the more they have to work to maintain their income thus contributing to economic growth. In the US there does not appear to be any historic correlation between tax rates and periods of economic growth. The argument that lower taxes on business owners causes economic growth lacks merit and is probably just an excuse not to contribute to the society which enabled business owners to flourish.

  13. New Yorker –

    You could make that argument, but you’d be hopelessly wrong.

    There is a direct correlation between low tax rates and growth in America. The 19th-Century was the period of greatest growth. Hardly anyone paid tax. Immediately after WW2 tax rates were slashed massively as millions of men were demobbed. Keynesians predicted catastrophe and massive unemployment. The actual result was the post-war boom.

    You can contrast America (and West Germany) with post-war Britain. The former were low tax, free-ish market countries. Both experienced spectacular growth.

    Britain remained an ultra high tax country, much of commerce, industry and civil functions were collectivised, price controls remained for years and (consequently) rationing remained for more than a decade while American and German housewives were stocking up their fridges and freezers.

    By the 1970s Britain was a bankrupt, socialist basket case. It’s a direct and valid period when we can compare economies. The verdict of history is clear.

  14. I would have thought that the best way to encourage growth was or is to de-regulate and let the market play its part.

  15. Pete Moore

    If we are discussing personal income tax and growth there is no correlation between law tax rates and economic growth. US taxes were very high historically in the 1950s plus capital gains were taxed. Where did you get the idea that taxes were “slashed massively” during that period? It is just not true. Since WWII there is no correlation between tax rates and periods of economic growth. Effectively there was no income tax in the 19th century in the US and it is not applicable to the argument.

    As to the British economy, I doubt taxes were a major factor, rather some of the other things you cite are probably more responsible.

    I don’t think a cause and effect argument for low taxes (or high taxes) spurring economic growth has any merit logically or historically.

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