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The Daily Telegraph inferred on Monday Feb 27th that the 50p tax rate was bringing in less than expected since income tax receipts are not rising alongside other taxes. This is potential confirmation of the proposition I and others made last summer in a letter to the Financial Times. In the letter, we argued that such a tax would do more harm than good, damaging innovation and entrepreneurship and deterring mobile workers.
I was involved in canvassing economists to sign the letter and indeed appeared on various radio and television shows to support the argument. Now it appears that the evidence on our forward looking argument may well have been right.
Nonetheless the tax exists so what was the point of such a letter? Certainly not simply so that we could say ‘I told you so’ later. Rather we hoped to influence the terms of the public debate on these matters and make it possible to defend lower tax rates. Who knows, it might even be possible to defend bonuses!
Not everyone agrees that economists should write letters to the papers. Alan Manning, professor of economics at the London School of Economics, thinks that such letters are all about how many signatories a letter has rather than its content. So he thinks there should be few signatories, and that a letter must provide ‘serious evidence’. This seems to mean waiting until the damage has been done, rather than warning of potential for damage.
It is true of course that economists can hold themselves above the fray, never coming to a conclusion until the evidence is overwhelming – although I have never encountered an economic proposition with which reasonable economists all agreed. On the other hand, if an economics background and training is useful, it should be useful in the policy debate. And if a group of economists draw attention to a concern that they share, this seems to me to be a useful thing to do.
Professor Manning thinks that such letters undermine the reputation of economists. I’m not sure with what constituency since most people think our reputation is pretty low anyway. Perhaps engaging sensibly with sensible debates on which opinions can vary and evidence be ambiguous might be a way to raise it.
Bridget Rosewell, Managing Partner Volterra
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As has been noted by more plebeian commentators, your actual argument relies heavily on an assumption that tax evasion by the rich should be dealt with by the lowering of the relevant taxes. This argument does have some logic to it - albeit leaning heavily on `race to the bottom' fearmongering (all the rich people will go to offshore tax havens) which assumes away alternatives (close the tax havens) - but you entirely disregard the fact that the logic is entirely antithetical to the actions of the current government against benefit recipients. In that context, you are essentially arguing that the government should pursue those breaking the social contract (whether through tax evasion or false benefit claims) only if they are poor. To most observers this seems morally repugnant. And advancing morally repugnant arguments at the expense of the poor and marginalised is what I think has, quite rightly, done serious damage to economists' credibility over the years. Congratulations on continuing the tradition.
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