12 June 2013
It is good to read Dave Watson, UNISON’s Scottish Organiser, taking the SNP to task over their opportunist policy on Corporation Tax cuts for business.
The SNP are facing the UK government with the challenge “Any tax rate you come up with , we‘ll always go 3 per cent lower”.
These, however, are not the kind of decisions that can be made like rival supermarkets competing with each other for customers.
These are decisions that affect how much money is available from the taxation of companies to pay for our lifeblood public services such as health, education, and pensions.
If corporation tax is cut significantly, the money to pay for these services that we all need and use has to be found from somewhere else.
Alternatively , less money would be spent on them, with a reduction in their quality and capacity.
Dave Watson says, “ There is a rich irony in Alex Salmond wanting to adopt Osborne economics as they are clearly both supporters of the Laffer Curve.”
The Laffer Curve refers to the theory that lowering taxation on the rich reaps an increase in revenue for the Exchequer.
Ben Jackson writing in Renewal refers to David Torrance’s biography of Alex Salmond, in which the First Minister shows strong support for the low level of taxes on business that the Irish Republic favours. :
“Salmond hypothesised that Irish levels of corporate tax would actually increase Scottish tax revenues.
“ In support of this proposition, he brandished the Laffer Curve, the traditional recourse of the neo-liberal right when faced with awkward questions about the revenue implications of tax cuts”
The Laffer in question is Arthur Laffer, a member of Ronald Reagan’s US administration as one of his economic advisers.
His theory has been discredited at both the theoretical level and in people’s experience.
The Reagan administration that began in 1981 had a phased cut in the marginal higher rate of income tax from 70 per cent to 28 per cent for the richest, and a drop to 20 per cent in capital gains tax.
As a result the top 1 per cent super rich increased their total income in the 1980s by 1 trillion dollars.
The “trickle down” from the spending of the wealthiest to the middle and working classes that was supposed to accompany these tax cuts didn’t .
Far from tax cuts for the rich increasing government revenue, it resulted in the US budget deficit doubling and government debt tripling to over 2 trillion dollars .
The deficit was funded by borrowing from abroad to make up from the shortfall in government income resulting from substantial tax cuts.
The US went from being the world’s largest creditor nation to the world’s largest debtor nation.
This is why when Bill Clinton ran for President he reminded voters of what these years of Laffer curve economics had meant for them .
He said that the period “exalted private gain over public obligation, special interests over the common good, wealth and fame over work and family.
“The 1980s ushered in a Gilded Age of greed and selfishness, of irresponsibility and excess, and of neglect.”
So, on a much smaller scale than in the US, what would be the effect of Laffer Curve economics in Scotland?
Tax Research UK has already described the Scottish Government as “living in La-LA- Laffer Land”
This was in response to John Swinney, the Finance Minister’s statement that :
“There is clear evidence from around the world of the benefits from lowering burdens on business . Lower corporation tax is a vital source of competitive advantage in an integrated global economy.
Tax Research replied : “ Tax cuts in the UK always mean less tax.
“And more corporate profit – none of which would stay in Scotland you can be sure.
“It’s time they woke up and saw the reality of the harm they’re really proposing to the ordinary people who will suffer cuts in education, health care, pensions and other essential services as a result.”
Dave Watson of UNISON , writing in the Red Paper Collective, describes the Nationalists ‘ policies thus :
“Their economic policy, including taxation, is firmly of the political right.
“Their plan is to keep the pound within a Sterling zone, together with various business friendly polices including a Corporation Tax cut to give Scotland a ‘fiscal edge’.
“I would argue Scotland needs and wants high quality, generally universal public services, funded by progressive taxation and businesses that pay their taxes.
“However, you can’t have Scandinavian services on US tax rates.
‘Scandimerica’ is fantasy economics.”
The SNP expanded Mr Salmond’s vision of an independence at the weekend after Scotland’s 1-0 victory over Croatia with a promise that all of Scotland’s international football games would be screened on free-to-air TV in an independent Scotland.
But we still wait for his detailed explanation of the economic consequences for Scots of Scotland leaving the rest of the UK, and the consequences of his low tax Scotland for the provision of public services after independence.