2
$\begingroup$

In a quote in this report in the Daily Express Jacob Rees-Mogg asserts that:

Cutting corporation tax from 28 percent down to 19 percent led to about a 50 percent increase in corporation tax revenues and an increase in corporation tax as a percentage of GDP.

Is this true? Was corporation tax reduced like this, and did it lead to such an increase in revenue?

$\endgroup$
1
  • $\begingroup$ That is the idea behind the so called Laffer curve but it's definitely not supported in the case of the UK. See for example here. Also, if it were so good, I wonder why the sterling lost so mich value and why the BoE had to calm the markets and buy gilts. Also, the IMF warned about this policy.... $\endgroup$
    – Alex
    Nov 20, 2022 at 16:13

1 Answer 1

2
$\begingroup$

The tax rate in US was cut from 28% to 19% over period of 7 years from 2010 to 2017 (HMS Treasury).

Regarding the corporate tax revenue being increased by 50% there is missing information to be able to answer the question. For example, over which years are we doing the comparison?

If we compare 2009 with 2018 (that is year before the process started and year after it ended) there was about 47.11%, which is close to 50%, increase in corporate tax revenues according to OECD. However, if you want to just compare change from the year 2017 then it was nowhere near 50%. The article you link does not really have enough detail to say over what period was this 50% increase supposed to happen, so it depends on you whether you want to go with charitable interpretation or not.

Regarding causality, that is whether the cut was itself causally link to the increase in revenue matters are more complicated. There is research that shows that cutting corporate taxes boosts economic growth and that in turn has to also boost tax revenue (e.g. see Cloyne et al. 2022). Nonetheless at the same time it would be stretch to claim that all changes in government revenue over period of 7 years come from this change to tax rates. There is no research that looks at this question and this particular policy, to my best knowledge, so it is not possible to answer that conclusively, but I think any reasonable economist would find it extremely implausible that the growth in UK corporate taxes can be attributed to this single cause and nothing else.

$\endgroup$
1
  • 1
    $\begingroup$ The tax base also changed significantly in that period. $\endgroup$
    – Alex
    Nov 20, 2022 at 16:20

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.