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		The case for lower taxes Lincolnshire Echo - January 25 2004 I'm amazed how often in politics you come across some simple idea that seems obvious. Yet it turns out to be wrong. Some examples. "You can eliminate poverty and achieve equality by taxing rich people and giving the money to poor people". This has been tried over and over again, in all kinds of variations, and it always fails. In communist Russia you ended up with mostly poor people, and just a handful of rich apparatchiks with daschas in the country and big black Zil limousines. At the other end of the scale, Blair's soft socialism in the UK since 1997 has actually seen the gap between rich and poor get wider, despite all Gordon Brown's higher taxes and complex benefit schemes. Or take foreign aid. It's obvious we can help poor countries by giving them money, isn't it? Yet we've poured money into Africa for decades, and in many areas poverty gets worse. It's like pouring pound coins into a bottomless pit. The fact is that without a degree of stability, without functioning institutions, money just runs away to waste. And if you talk to the leaders and ministers of developing countries, as I sometimes have the privilege to do, many will say "Never mind the aid -- just give us fair trade terms and we will earn our way to prosperity". Yet we deny them access to our markets (for example through the EU's Common Agricultural Policy), fail to buy their goods, condemn them to poverty, and then wonder why they seem to need aid. Gordon Brown has come up with a new take on aid. Let's cancel their debts, he says, and then they'll be able to afford schools'n'hospitals. But unless debt relief is very carefully controlled, it is just a paper transaction, a line on a balance sheet. Certainly it reduces the obligation on the poor country to make interest payments, but there's no guarantee that the money saved will go on public services. It may be used to reduce remaining debt, or to buy weapons and feed soldiers, or to top up a dictator's Swiss bank account. But the biggest "Obvious but false" story around today is what I call "Labour's Zero-Sum Tax Fallacy". Many commentators (and even some Conservatives) seem to have swallowed it whole. When we plan to reduce tax rates, Labour demands "Which schools'n'hospitals will you close?". It seems so obvious, doesn't it? Lower tax rates mean less revenue, and that means less spending on public services. Obvious, but dead wrong. Because the economy is dynamic. When you change tax rates, you change tax-payers' behaviour too. For a start, lower tax rates reduce both the opportunity and the incentive for tax avoidance. Better to spend your time earning more money with lower taxes, than spend time working out clever tax dodges. So revenue increases. If people pay less tax, and keep more of their money, they have more incentive to work. At the margin, some unemployed people will get back into jobs, saving on benefit payments. If people keep more of their money, it becomes easier to accumulate private capital. People may spend more (and so pay more VAT), but they may choose to invest their savings in a new business. Low tax rates encourage entrepreneurship. And low taxes attract inward investment to the country. On all these counts, low tax rates promote economic growth and prosperity and employ-ment, which in turn (and counter-intuitively), can actually increase revenues, generating more funds for schools'n'hospitals. And conversely, Labour's tax hikes will actually be counter-productive. Sounds too good to be true? You might be forgiven for thinking so. But experience in dozens of countries, over decades, proves that it works. Under Thatcher and Lawson in the UK, under Reagan in the USA, in several Eastern European countries, we see low tax rates generating growth and prosperity and higher tax revenues. So when we Conservatives promise lower taxes and more spending on schools'n'hospitals, it's not pie-in-the-sky. It's practical politics. Lower taxes are not electoral window-dressing. They're an economic and moral imperative.