Ben Chu: Evidence is lacking that less tax means more growth

The standard argument against high income taxes on the rich is that these levies discourage the kind of entrepreneurial effort that creates jobs. Taxing the rich punitively thus makes us collectively poorer.

And opponents of high marginal taxes on the wealthy do not stop there. They also claim that tax cuts (including for the super wealthy) can make us all better off. In the 1970s, the American economist Arthur Laffer argued that tax cuts can increase growth (and tax revenues) by stimulating economic activity. The "Laffer curve", which supposedly demonstrates this effect, has been brandished ever since by advocates of tax cuts. This debate has been characterised more by assertion than evidence. Studies of various countries over time have not determined where the point arrives when the rate of marginal income tax becomes counter-productive. Scandinavian countries have dynamic economies but high marginal income tax rates.

And, despite the trenchant arguments of economists who have taken it upon themselves to lobby for the abolition of the 50p rate here in Britain, it is simply too early to say whether Labour's new top rate of income tax has failed to increase revenue and has undershot Treasury projections. We won't be able to say with any confidence one way or another until total receipts are in next year.