- It must start at the point (0, 0) since a tax rate of 0% generates no revenue.
- It must pass through the point (100, 0) since, as has been discussed, a 100% tax rate generates no revenue.
- It must lie above the x-axis since We know from our own experience that a 20% tax rate raises something.
- It never goes below the x-axis since the lowest revenue that can be generated is zero.
This, then, is what is known as the Laffer curve. Unfortunately, the one potentially useful fact that we cannot glean form this theoretical curve is at which value the tax revenue starts to fall. Note then this news article which quotes the Institute for Fiscal Studies who estimate that the 50p tax rate is costing £500 million per year as opposed to the Treasury estimate of an income of £2,700 million per year. By 'costing' they mean that overall tax revenue is down which means that this tax raising revenue has made the country worse off. Let me repeat that, we are worse off. How rubbish must our tax collection service be that it cannot identify this decrease? Or, assuming our leaders were well aware that this would not increase the tax take, is it possible to believe that this tax rate was introduced for any reason other than to satisfy the politics of envy?