A fundamental leftist error

And another leftist error!

Forgive me for returning to the Tobin Tax (Financial Transaction Tax) yet again — but it illustrates one of those fundamental leftist misconceptions that I have railed against for years.  I call it “the static model”.

It’s the assumption in economics that you can change one element of a complex system — the tax structure, say — and expect that nothing else changes.  Of course in the real world it isn’t like that.  But our left-liberal friends — like our Deputy Prime Minister, the Clegglet — fall into the trap again and again.

Take the 50% tax rate on incomes over £150k (sadly, this doesn’t include me, so no special pleading here!).  I don’t know the statistics, but as a “for instance”, say there were 200,000 people earning over £150k, with an average income of say £170k.  Then your leftist will say, OK, 200,000 times £20k (170 – 150, that is) times 10%.  Easy.  We’ll raise an extra £400 million.

Except of course you won’t.  Some high earners will work less, or cancel investment plans, or hire a smarter accountant.  Or they may move abroad, perhaps taking their business with them.

So we certainly won’t increase the revenue by anything like £400 million.  And for those who leave altogether, we lose not just the extra 10%, but all their income tax, and national insurance, and the VAT on purchases they would have made, and corporate tax on their businesses — for them and perhaps their employees.  It’s difficult to make a precise estimate, but it’s a fair bet that the 50% tax rate actually loses revenue for the Treasury,

The Tobin Tax has exactly the same problem.  As I have written elsewhere, the European Commission’s own cost/benefit analysis predicts it would reduce GDP by 1.7%, decimate the derivatives business, depress growth and cost nearly half a million jobs.   The Commission analysis recognises that the tax would cause individuals and businesses to move off-shore — but doesn’t include estimates for off-shoring in its analysis.  So just like the 50% tax example above, the Tobin tax would raise much less than they estimate — and taking account of off-shoring, could actually reduce total tax revenues.

Yet its proponents are still salivating over the the €50 billion that the static simple-arithmetic model suggests it would raise (four fifths from the City of London, of course).  When will they realise that killing the goose means no more golden eggs?

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1 Response to A fundamental leftist error

  1. Nicely said! All true.

    Now let me add in just one other ingredient. The Europeans are nationalist in the sense that they really believe in Europe as their country. It is not a pretence or some vague idea about the Commonwealth or United States of Europe. They really want a Soviet 1968 state. Because that reminds them of when they were young and attractive and didn’t have to pay for their gratifications.

    They are longing to take over London, just as they got into our fish stocks, our beef market and our farms. To them, it is just part of their DNA. And we, poor fools!, just allow them to do it!

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