Tim W referred to this article recently, summarising thusly:
The whole paper is [interesting] actually as it’s an empirical study of who really does bear the burden [of corporation tax]... The (lefty) Nobel Laureate [Joe Stiglitz] says that it is at least possible that the corporate income tax diminishes the workers’ wages by more than the revenue raised. Something which, if true (and the references to that paper allow a lot more investigation), means that the corporate income tax is not progressive. It is actually regressive and thus we’d do well to abolish it really.
I left the following comment:
There’s an equal and opposite argument to say that as workers work for their net wages, that their entire income tax and National Insurance burden is borne by the employer.
So putting the two arguments (each of which only looks at half the equation) together, workers pay the shareholders’ corporation tax and VAT; and shareholders pay the workers’ income tax and National Insurance.
This is clearly nonsense.
As corporates are merely collections of indidivuals, and workers and customers are also all individuals, the commonsense and overriding rule must be that the entire tax burden (corporate or personal) is borne by individuals [whether as workers, shareholders or customers]; quite who suffers from the incidence of any particular specific tax is nigh impossible to say.
The only reasonable comparison you can make is by how much any particular tax reduces economic activity, or makes an activity (which would be viable in the absence of taxes) unviable.
There is a further theory, which looks at all sides of the equation, and concludes that in all probability, all taxes come out of rents (in the old-fashioned sense of the word, i.e. ground rent - I don't mean 'rents' as in quangos and bureaucrats siphoning off tax money for their own nefarious ends, these 'rents' clearly come out of taxes, natch).
According to the theory, while cutting taxes on income is in and of itself A Good Thing, if you do it, all that happens is that rents and property prices go up to soak up that extra income so our productive worker or entrepreneur doesn't actually end up much better off; he'd have made just as much profit by buying land and property before the tax cuts are anticipated at their old depressed prices and then cashing in on the higher future rents he can collect from workers and entrepreneurs who failed to 'get on the property ladder' in time. But that's a bit more advanced.
Forbidden Bible Verses — Genesis 42:18-28
5 hours ago
10 comments:
"Economies just consist of people and thingS. Governments and Companies are just convenient administrative fictions by which we better organise our lives"
I s'pose that in theory land and time are the only finite and therefore truly scarce resources available to man. At he moment most taxatio is on Time. Your life is being stolen by the State. We are all still (wage) slaves. Shifting as much taxation as possible onto 'land' would seem to release people from slavery. I guess if you carry on arguing this you end up with nom individual being permitted to 'own' land. That then leads to collective 'land' ownership and look what that did to agricultural production in Russia.
It's a conundrum. But, I'd still rather my life was not stolen by the state, or rather by the idle and feckless and useless whom the State bribes with my wealth.
L: "I guess if you carry on arguing this you end up with no individual being permitted to 'own' land. That then leads to collective 'land' ownership and look what that did to agricultural production in Russia."
I never said that private individuals or companies shouldn't be allowed to 'own' land i.e. have exclusive occupation of land and do on it whatever they think best; quite clearly it is a much better way of organising things, whether that land is then used for farming or residential or commercial or a nature reserve, than 'collectivisation'.
What I said was that in return for the right to exclusive occupation, you should pay a 'rent' back to society for the value of that privilege and legal protection to a scarce (and some might say artificially rationed) resource, which in shorthand we refer to as "Land Value Tax".
MW Sorry, badly phrased comment. I know that's what you said. I was trying to indicate a weary voice agreement with you.
My oppositionn tom CT is that by cutting received profits significantly it, probably at something like the root square, cuts money available for investment & this cuts the growth rate directly, which particularly cuts into the expansion of the most profitable industries. Over a decade or so even a 1 or 2% cut in growth costs the individual more than almost any credible tax increase.
Mark
1 - VAT takes a bigger amount because CT raises £51 million, VAT raises £84 billion. The comparison would therefore be with CT or 60% of VAT.
B - VAT doesn't push failing businesses over the edge, at least if their cash flow is worked out - this is the flip side of CT disproportionately hitting the most profitable businesses which have most room to grow. It is harsh survival of the fittest thing. Better in the long term, though not as politically sexy, to devote resources to growing new industries than to slow the decline of old ones.
C - But if a company know they will be keeping 87% of their profits rather than 62% they know their return will be greater & investors will thus be more willing to invest. My guess & it is only a guess, is that the investment differential will go up with the square of the tax change.
D - Accepted.
NC, it appears that you still overlook that VAT is a tax on GROSS PROFITS. The clue is in the name "value added".
A - VAT takes is about £80 billion; corporation tax is about £40 billion. VAT registered businesses pay about four times as much in VAT as in corporation tax (because only half of business activity is VAT-able).
Therefore for a VAT registered business, VAT takes about 53% of profits before VAT or corp tax; corp tax takes about 13%.
B - corporation tax does not hit growing businesses, because if they are reinvesting their income into R&D, staff training, plant and machinery etc they get a deduction for it. They only pay tax on income they do not reinvest or pay out as dividends.
Corporation tax is, as I explained, mainly paid by large or mature businesses; in particular by businesses that are not liable to VAT (in other words banks, insurance companies, residential construction, farming). These are all businesses that have been around for centuries. It's the more modern stuff (like manufacturing, computer software, video games, sushi restaurants etc) that get hampered by VAT.
And whether VAT pushes 'failing businesses' over the edge or discourages them from setting up in the first place comes to the same thing.
And as to 'cash flow', surely it can't be rocket science to ear-mark 28% of your accounts profits, after deducting salaries, interest, rent etc, as tax?
C - with VAT and corporation tax, VAT registered businesses have to hand over 66% of their pre-tax profits in tax. Non-VAT registered businesses only have to hand over 28% or so.
Were you to scrap corporation tax and retain VAT, VAT-exempt businesses (mainly banks etc) would pay 0% and VAT-registered businesses would still pay 53%.
As a flat-taxer, I'd prefer to scrap VAT. I think "everybody pays 28%" is better than "some pay 0% and some pay 53%", but you obviously disagree.
B - I don't think it matters much whether the growing business puts off its CT till it has grown, the amount paid out is the same & thus the reduction in value, whther measured in money not in the bank or share value comes out about the same.
A & C - I should declare an interest since I sell books (zero rated) for a living but I do actually think there is a case for partial zero rating so long as the boundaries are clear so that it doesn't affect competition within industries (whether Jaffa make cakes or biscuits being a counter example but rare). Some industries are more useful & basics are more important than luxuries. A major argument against differntiating any taxes is that it raises collection costs but there are no collection costs from zero rated businesses & not that many from policing the boundaries.
We would both like to see government's tax take greatly reduced from the 50%+ it is now & if it were halved we could compromise on removing both. Nonetheless it still seems to me CT is a tax that aims specifically at not only profits but the profits of those businesses most equipped to grow.
I also believe the experimental result in Ireland, despite its curent bubble, shows a quite spectacular result in a society which really only pulled out that stop & the one of allowing building.
NC: "basics are more important than luxuries"
Well yeah, but is that a reason to tax old-established and mature industries at lower rates (by exempting them from VAT) than new and potentially expanding ones?
Therefore, to bat your logic straight back at you "it still seems to me that VAT is a tax that aims specifically at not only profits but the profits of those businesses most equipped to grow."
That is a fair point - though I personally have both a aesthetic & financial attraction to books I will acknowledge it is difficult to justify not zero rating kindle when books are.
I would support zero rating for new technologies insofar as we can identify them in advance. I would enthusiastically support zero rating anything to do with space - but then again I have an aesthetic interest in that too.
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