Richard Murphy launched a debate about the incidence of corporation tax and denied that there was such a thing as objectivity in economics/admitted that he used evidence selectively*.
Henry Law commented thusly:
The French physiocrats argued that the economic incidence of all taxes was ultimately on the economic rent of land**. The same conclusion follows from Ricardo’s Law of Rent. The latter law appears to hold objectively i.e. it can be observed in operation. There are a few other laws of economics that appear to be confirmable by observation.
The Murphmeister hit back with a novel counter-argument:
The physiocrats were wrong. And so are you.
* Delete according to prejudice.
** Strictly speaking, taxes are borne by the least elastic factor of production, which is by definition always land/location but also any other monopoly or near-monopoly right. Take personalised number plates for example. Some people are prepared to pay £lots extra for the right to have a certain combination of letters and digits, and that right only has value because the government will prevent anybody else from using that number. We can observe a crude relationship between how short a number is and how much it costs on the grey/free market.
Now, let's assume that DVLR imposes a tax on shorter numbers; for example two characters costs £500 extra a year, three characters is £400 extra and so on. what now happens to the resale value of a three character number plate on the grey/free market? Does it go up, stay the same or go down?
Perspective
14 minutes ago
20 comments:
Murphy is probably the worst "economist" on the planet.
Yup, the guy is funded by the 1%. Predictable. When reality is about to reveal itself from the Matrix, the "thinkers" paid by wealth and power move into overdrive.
My analysis here:
http://gco2e.blogspot.co.uk/2012/05/tax-injustice-network-does-not-believe.html
Some lovely self contradiction too, class economist double think: He denies economic rent exists but then says he supports an LVT!!! That would be just as bad as if it did exist and it was not collected as today
Also friendly suggestion. Be very careful when quoting the Physiocrats and Ricardo on rent. Both were correct as far as they took it. Smith and Mill too. But they refused to take the theory of rent off the land and into the city and and also into trade and exchange as a mode of production. And kept trade in the minds of people as a form of distribution of wealth only. Serious error. But if you look, ALL of them were funded by Sir John and his grace. So...
Look here for some stunning theory. It takes a couple of reads to get ones head round it. But if you can you will know even more than a Cambridge professor that you already do.
http://www.politicaleconomy.org/speII_4.htm
Nothing has changed. Its just intensified EVEN more. This is what Murphy cannot see really. Also Professor Hudson it seems sadly.
The nemesis of LVT.
SB
That means he is fully qualified to be one (:
Its a bit like on the hustings when they told me off for not answering their questions. I said thanks, does that mean I'm now qualified as a politican?
RS, let's not play the he-said-she-said game. But fact is, Adam Smith made it quite clear that urban land was a far more suitable subject for taxation than agricultural land, if only because the rents on urban land were far higher than on agricultural land; and were pure profit from the point of view of the owner, resulting in their entirety from "the good governance of the state".
What's interesting is that we can see perfectly well the direct effect of (say) London land prices and good governance. It is no coincidence that overseas wealth has been pouring into London land for the last 40+ years not because the UK economy has been particularly stellar but because people know they can store their wealth there fairly safely.
I had a really bizarre email conversation with Murphy recently, where I asked how he was planning on unilaterally enforcing unitary assessments on foreign entities that didn't have UK assets, to which he just kept repeating that we do it with VAT, we can do it with Corp. Tax, even after I pointed out that VAT is enforced on *buyers* not sellers (he tried to dispute that too). Nonplussed is a good word to describe my feelings after that exchange.
I find him quite disingenuous all round. I'm intrigued to know why the Renegade Economist is promoting his book, to the point that I'm seriously considering buying it...
Blue Eyes,
What's interesting is that we can see perfectly well the direct effect of (say) London land prices and good governance.
A few foreigners just doesn't make that much difference.
The big thing is how much power and wealth is now centralised by the state into London (and to a lesser extent, other cities).
Consider how much money has been spent on HS1, including hundreds of millions on making St Pancras look amazing. How much was spent renovating the Royal Opera House. How much was spent on The Millenium Dome? How much is being spent on The Olympics? How many billions are channeled from the rest of us into the London economy via the license fee?
All of this creates a ripple effect on London and the South East. The fakecharities are generally in London because they need to see government folk. So, the web design companies that do the pointless websites for fakecharities are often in or near London. The people who work on those websites live a little further out, and so forth.
Move parliament, Whitehall and cut the arts subsidies to London and the place would be like a ghost town within a decade.
B, there's a difference between rental values and capital values. You can't tweak rental values via the tax system or interest rates; but you can make capital values as high as you like.
F, be careful with Murphy, he is (or was) real life proper tax advisor doing tax returns and so on. On a day-to-day level, he knows his stuff, but he can't see the bigger picture:
"I pointed out that VAT is enforced on *buyers* not sellers (he tried to dispute that too)."
Well no, VAT is collected from sellers (whether they get it off buyers via the selling price is a moot point).
Which of course brings the debate full circle, if overseas sellers are so minded, they just don't pay the VAT and there is bugger all that HMRC can do about it, short of having old fashioned ad valorem duties on physical goods when they cross the border (not the absolute worst tax, if truth be told).
"but because people know they can store their wealth there fairly safely"
There's nothing new about this: the Tsar used to keep his gold in England, thinking (rightly as it turned out) that it was safer there than in Russia.
SB, good examples. But all that money/subsidy spent on London, its infrastructure and its inhabitants is what Adam Smith euphemistically called "the good governance of the state".
From the point of view of Cadogan & Westminster this is what is called "the absolutely fucking excellent governance of the state".
TS, are you saying that the flood of foreign capital into London land is because of the Millennium Dome?
Well no, VAT is collected from sellers (whether they get it off buyers via the selling price is a moot point).
Not really moot at all. There isn't even any tax to pay until the buyer buys. The system only works as it does because sellers have the legal right to charge it on (or else why can't I pay a bill ex VAT and then argue in court that it's the seller's responsibility?). What *is* moot is that HMRC decided to collect VAT by forcibly drafting the sellers as collectors.
Which of course brings the debate full circle, if overseas sellers are so minded, they just don't pay the VAT and there is bugger all that HMRC can do about it, short of having old fashioned ad valorem duties on physical goods when they cross the border (not the absolute worst tax, if truth be told).
Ironically enough, that's how VAT on goods works outside the EU. Rather than try and charge the foreign company (which I agree is utterly futile), HMRC makes the courier responsible for collection from the buyer. Makes sense really, as VAT is pretty much an import duty anyway. Still don't see how it would work for Corp Tax.
F: "Still don't see how it would work for Corp Tax."
Easiest thing in the world. It's called "withholding tax", i.e. if dodgy business wants to shift profits offshore, it pays management charges or interest or whatever (to another company controlled by dodgy business).
So what most countries do, including the UK, is to say that if you pay £100 for management charges etc to dodgy offshore company, you have to deduct £20 withholding tax and pay it to HMRC first, so dogy offshore only gets £80 net. This is exactly the same system as when the bank credits interest to your deposit account net of 20% income tax.
Sorry if I've muddled things, but that's not the scenario I was discussing with Murphy.
This is specifically concerning charging corporation tax to totally foreign companies (ie no UK personnel or assets) that exports to the UK. Under Murphy's unitary assessment rules, up to a third of their profits (depending on the proportion of their sales that are to the UK) should be liable to UK Corp Tax. I don't see how UK gov can get that money by unilateral means. Murphy reckons it's trivial, and doesn't grasp my question.
I could understand if there were UK operations (which seems to be what you're talking about), but where there is nothing within UK territory, I have no idea how it could work.
Your 'witholding tax' makes sense where a UK company is trying to shift something out, but that's not the situ I was considering.
Incidentally, the genesis of that discussion was a Murphy post about Amazon. Do they not pay 'witholding tax'? If not, why not?
F, correct, with Amazon and a lot of these internet companies, there is little or no UK presence and so very difficult to collect tax, unless they charge import duty of have currency controls.
The whole point should be, what resource of the U.K. are they consuming and thus be relevant to tax?
I can't see any reason apart from the bank robber's quote that that was where the money was...
"VAT is collected from sellers (whether they get it off buyers via the selling price is a moot point)"
I might be missing something here.
Are not (almost) all sellers also buyers?
A chap who chops down a tree that he already owns pays no VAT in the process. Once he sells it to a furniture maker he charges VAT, but he then pays that VAT in his next quarterly return. For him VAT is a profit because he can get 0.001% interest from his bank for up to three months.
The furniture manufacturer pays VAT on the purchase price of the wood and reclaims that VAT in his next VAT return whether or not he has made it into something else and whether or not anything he has made has been sold.
Once he sells tables to a wholesaler or retailer they become buyers before they are sellers of the same product and they can reclaim the VAT they spent acquiring the items even if they have not sold them by the time they submit their next VAT return.
VAT is a drag on enterprise because it increases the final cost to a buyer who cannot reclaim the VAT. For those in the chain who can reclaim it, VAT can cause cash flow problems but it is not a cost in any other way. That's why trade sellers often quote prices exclusive of VAT.
For a business making quarterly returns, the VAT it pays out is a loss for up to three months until it is reclaimed in the next quarterly return, but the VAT received on sales is a profit for up to three months until it has to be paid when the next quarterly return is submitted. If the business is profitable, the VAT received on sales is more than the VAT paid on purchases so the exercise creates a small profit.
Or am I wrong? Are any of the sellers in this chain stuck in perpetuity with the cost of VAT whether or not they make a sale?
TFB, surely you know perfectly well that VAT is a tax on the gross profits of a business? The lunatics who rule us have persuaded the idiots among us that it is a harmless tax on "consumption" which does not affect "production", that does not make it true.
Actually, VAT acts as a significant barrier to entry to small, new and marginal businesses, and depresses the economy quite significantly.
The real question is, are you an idiot who will happily spend his life spouting the lies and propaganda that the politicians have spoon fed you or are you prepared to think for yourself?
Or am I wrong? Are any of the sellers in this chain stuck in perpetuity with the cost of VAT whether or not they make a sale?
They're stuck with not making sales to anyone now priced out, or with effectively paying some of the VAT themselves if they reduce the price to restore volume.
F, I've spent five years blogging and being terribly polite to the occasional Home-Owner-Ist and government shill who drops in here (like TFB) but I can't be bothered any more.
Fact is, TFB is lying and he knows it, he admits that "VAT is a drag on enterprise" - but that is the largest part of the real cost to the real economy, the chances are that the economy is depressed by as much as the VAT collected (it has the highest deadweight costs of any taxes), i.e. GDP is about 5% lower than it otherwise would be.
These Homeys are like the Terminator - you cannot argue with them, bargain with them or reason with them. They will not stop until they have killed everybody.
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