I have often argued we need to tax the rich more – ever popular with Lib Dems and Labour. The way to do it is to lower the rates.
The Adam Smith Institute has just sent out the figures for the impact on capital gains tax collection from raising and lowering rates in the USA since the 1950s. Whenever the rate has been cut revenue has risen – often in the first year and normally in the second. In 1981 the US collected $28.5 billion with a tax rate of 24%. In 1982 they raised $26.95 billion with a lower 20% rate, only to see receipts soar to $37.85 bn the next year and as high as $97.33 billion in 1986.
In 1987 they raised the rate to 28%. Revenue plunged to $59.83 billion. They raised it again to 33%. Revenue briefly rose to $66.23 billion in 1988 then plunged again to $57.3billion, lower than when the rate was 28% and well below the levels when they had a 20% rate.
In 2002 they raised $55 billion with a 20% rate. In 2004 this soared to $78 billion by lowering the rate to 15%. In 2006 they were bringing in $110 billion at the 15% rate.
The Uk experience is similar. Lower rates increase the yield. Austria, Switzerland, Belgium and Luxembourg have a zero rate. The USA has a 15% rate and Japan a 10% rate. If the UK hikes its rate too much it will end up with less revenue, and make itself needlessly uncompetitive in a world where capital and talent is footloose.