General Election Today

Today is the day of the general election in Britain. The nation will decide who it wants to lead it through the next four or five years through a democratic method developed over hundreds of years. The shame is however, that most of the people in the nation will probably not even bother to vote, and those that do will probably not understand the policies for which they are voting. Most of my friends are very modern liberal, even socialist. They believe in redistribution of wealth etc. I don’t wish to change their mind as their mind is theirs to change or keep the same as they see fit. I do think it is necessary to point out, however, that most people also do not know why they believe what they believe. People have heard that “welfare is a good thing” “the poor need our help” “it is unfair for the rich to steal money from the poor” etc. What they don’t realize is that this is all socialist propaganda, and it is eating into the hearts and minds of our nation. When Charles Kennedy announced his proposal for a 50% tax on £100,000 or above, there was agreement from a great amount of the population, why? The average wage is £25,000 (just below), which means that most people earn well below £100,000. Also, most of them believe that £100,000 is much more than anyone deserves to earn and so the money must be stolen from everyone else, right? Well a very brief look into economics will tell you otherwise.

The £100,000 earned by a top executive is not money that has been stolen from anyone. Really? So where does it come from if not from the poor? I hear you ask. Well, it comes from the money earned by the business from trade, i.e. when someone buys something from the company for which the executive works, there is a certain amount of money which goes to pay the wage of that executive. The price paid for the object is freely agreed between the buyer and seller, and once the money is in the company, it belongs to that company and it can do what it likes with that money, even if that means paying an employee £100,000. So on moral grounds the 50% tax on high earners is not right. But that’s not the end of the story. If a 50% tax were imposed, it would increase the benefit of avoiding tax (legally or illegally). This means that there would be less investment, and therefore fewer jobs would be created, money would be moved offshore to friendlier tax jurisdictions. In short, because of the effect shown by the Laffer curve* tax revenues would likely go down. So instead of funding extra public services, the Lib Dems would instead merely be punishing the successful for little or no benefit to anyone else.

I believe that the Labor party will once again win the general election and we will have more tax and spend for the next parliament. I just hope that people will finally begin to realize the true harm of these policies and begin to question their socialist ideals.

* The Laffer curve (created by Arthur Laffer) shows the effect that is often observed that tax increases often decrease revenues and decreases often lead to an increase in revenue. The curve is constructed through the theory that at 0% tax rate the tax revenue would be 0, and at 100% it would also be 0 as there is no point in earning anything. So in the middle there must be a maximum value of revenue. Given the history of revenue increases under tax reduction in this country it is reasonable to assume that we are operating on the right hand side of the curve and so a rise in tax rates would lead to a reduction in revenue.