The Laffer curve is often cited as a reason not to raise taxes. I think this is a disingenuous argument that rather misses the point. Let me explain...
For those of you who don't know, the Laffer curve is a theory that says that there is a level of tax that maximises revenue. If you raise the tax rate too high, people will be more inclined to avoid the tax, whether by using off-shore arrangements in the case of VAT, by becoming self employed and paying dividends in the case of NI and income tax, or even simply by working less (as each hour worked is worth less to the individual as the government's take rises - there comes a point when it's not worth the bother).
Further to the above, it has been suggested that the new 50% rate of tax will not increase tax revenue as it is too high - people will work less, employ accountants to avoid the tax or leave the country to avoid paying it (and the people being taxed are those most able to do these things).
I think that this misses the point. The whole idea behind taxes is that there are some things that we can't buy efficiently as individuals. Taxes are levied so that government can provide us with the things that only government can provide, while inconveniencing us as little as possible (in an ideal world).
If this maxim were followed, the total size of government would be much much smaller, and thus much less tax would be required to fund it. The Laffer curve is irrelevant because the purpose of taxation is not to raise as much money as possible, but to provide essentials only, and so we should never get anywhere near the point where we suffer from diminishing returns.
Consider the damage done to our economy by the government taking fully 50% of the fruits of our productive labour and pissing them up the wall...
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