Wednesday, September 07, 2011

The Paterson Curve

Move over Laffer curve, there's a new graph shaped taxation related narrative device in town. Given that people are writing letters to the FT about the 50% tax rate I thought I'd attempt to come up with a way of saying why it's ok to tax the rich provided we don't tax them too excessively. So people, witness The Paterson Curve!

Obviously our great wealth creators need decent rewards so that they go and do their thang, but I figure that there must be a some upper limit where it doesn't matter how big the rewards are, there's just no more productivity forthcoming. Will the prospect of ├╝ber richness really be much of a carrot to the merely super rich? As a result I've decided to stick that reasoning into a nice little curvy graph.

And so, because by my reckoning, we're at a point on the Paterson Curve where there's little extra to be gained from increasing levels of reward, I reckon it's perfectly OK for us to keep the 50% rate.

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