Letter: Taxing effects of hard work

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The Independent Online
Sir: Professor the Lord Desai, formerly Labour's spokesman on economic affairs in the Lords, writes (Letters, 25 January) that taxation 'is not high relative to spending', and that 'as a nation, we overconsume . . . it is time we consumed less'. I know of many Tories who also believe that we should consume less - less social security, health, education, transport, and so on.

On Lord Desai's earlier 'clarification' of the 'confusion' in the debate on the level of taxation, he claims that 'there is no evidence either in economic research or in real life for this incentive effect' from cutting high marginal tax rates. May I suggest he reads the paper by Professor Patrick Minford and myself (Oxford Economic Papers 43, 1991) in which we used the General Household Survey to demonstrate statistically that higher tax rates had a sharp adverse effect on work effort.

In fact, the evidence for this is contained in Lord Desai's own letter. He says that the burden of taxation 'should not have disincentive effects, as for example the present system does for those at the margin of choosing to take a job or stay on the dole'. To misquote J K Galbraith: 'Why is it that those at the bottom of the income scale need to have their marginal tax rates cut to make them work, but those at the top don't?'

Yours faithfully,

PAUL ASHTON

Eastbourne, East Sussex

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