First: raising a particular tax rate or lowering a particular tax rate, even quite substantially, makes extremely little difference to the amount of actual money that the government ends up collecting. This is because Britain is now at the top of the Laffer Curve. Raising a particular tax rate increases what the government gets from that particular tax, but spreads a ripple of disappointed indolence and enforced inactivity throughout the economy, which lowers the yields from all the other taxes. Lower a particular tax rate, and the yield from that tax falls, but a ripple of enthusiasm and activity spreads through the economy, and the yield from all the other taxes rises.
British politics arrived at this state in the late 1970s and has been in this state ever since.
Labourites are now saying that the sums associated with Conservative promise to cut inheritance tax do not add up. Yes they do. How will this cut be paid for? By the increased yield from all the other taxes. (By the way, I know that this “cut” would not be “real” in the sense that it has already been preceded by a massive increase due to house price rises. In other words, it would be real, just as the previous but slightly less obvious increase was real.)
Insofar as Chancellor Gordon Brown has already pushed Britain beyond the top of the Laffer Curve, a cut in a particular tax rate may even increase government revenue.
Other Labourites (i.e. The Government) are also now revealing that they semi-understand all this. The Conservative cut in inheritance tax would be evil, would not work, etc., but they will now do their own (this reminds me of the Soviet response to Star Wars. It is mad. It will not work. We will do it too.)
Second: When pollsters ask voters whether they would like better public services in exchange for a tax increase, they quite often say:yes. The voters imagine only a small tax increase to themselves, and a definite increase in the services that they themselves will get. Okay? Okay. (A lot depends on the exact wording of the question.)
But, when a politician running for office says that he will put up taxes and supply better public services, only the first process is certain and the voters know it. The question in the previous paragraph about increased taxes and better services is not the question that the voters will actually be asked. The question they will actually be asked is: do you want a definite tax increase, and the almost certainly empty promise of better services which are unlikely to benefit you in particular anyway even if by some magical process such improvements do occur? Okay? Not okay.
By the same token, tax cuts are very popular with those who are paying the tax in question. These persons will definitely benefit, if only a little, and provided only that the tax cut occurs as promised. Will the particular public services that these persons get deteriorate? Probably, but only because these services will probably deteriorate anyway.
