Is there any reason to believe taxes can usefully be raised further?

The following chart is taken from How Should Britain’s Government Spending and Tax Burdens be Measured? by David B Smith, IEA, Jun 2009:

It seems to show an upper limit to the tax which can be extracted from the economy: about 40% of GDP. Further, there has been little change in taxation either way since the 70s, from this point of view.

So, is there any reason to believe taxes can usefully be raised further?

Not from this evidence. It seems that government spending in excess of 40% of GDP must inevitably be covered by debt and debasement. More in due course.

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Comments & Responses

2 Responses so far.

  1. Lola says:

    40% tax / GDP ration is actually 80% tax ‘rate’. In other words the costs of living ex-tax are 100%, That’s what it costs each citzen to live. Then tax is applied in excess of that. That makes 40% tax a lie – it is really 80%. And there’s your problem as to why the UK is going progressively bust…

  2. John says:

    A real world demonstration of the Laffer Curve in action, I guess. This does not mean that Government should be aiming to keep tax take at 40% of GDP or that it is a maximum tax take in cash terms – just that tax take over 40% of GDP damages the economy so badly that the tax receipts start to fall.

    The real implication is that any tax rate lower than 40% of GDP is better for the economy and probably the lower the better. Lower taxes would allow more room for growth to occur and create room for the “Big Society”.