Higher top tax rate will slow economic performance

A new study from the Adam Smith Institute in the United Kingdom provides overwhelming evidence that class-warfare tax policy is grossly misguided and self-destructive, says Daniel J. Mitchell, a senior fellow with the Cato Institute.

The authors examine the likely impact of the 10-percentage point increase in the top income tax rate, which was imposed as an election-year stunt by former prime minister Gordon Brown and then kept in place by his successor, David Cameron.

They find that boosting the top tax rate to 50 per cent will slow economic performance.

And because of both macroeconomic and microeconomic responses, tax revenues over the next 10 years are likely to drop by the equivalent of more than $550 billion.

President Obama wants to impose similar policies in the United States and there is every reason to expect similarly poor results, says Mitchell.

Source: Daniel J. Mitchell, A Victory for the Laffer Curve, a Defeat for England's Economy, Cato-at-Liberty.org, April 4, 2011.

For text: http://www.cato-at-liberty.org/a-victory-for-the-laffer-curve-a-defeat-for-englands-economy/

For study: http://adamsmith.org/files/tax-paper-final%281%29.pdf

For more on Tax and Spending Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=25

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 12 April 2011