Wednesday, 18 June 2014

Economic Myths: corporation tax

A Faux Lib stretches his legs at City AM:

Corporation tax is one of the worst on the books and it should be abolished as soon as possible.

No, in terms of deadweight losses, VAT and NIC, which between them raise £200 billion are infinitely worse than corporation tax, which raises £43 billion. So that's an unsubstantiated and incorrect statement of fact (i.e. a lie), which he emphasises by following it up with the word "should"

Corporations can hand over the cash, but they can’t bear the ultimate burden of tax, because they are legal constructs. In the end, the burden of corporation tax must fall on some combination of consumers (through higher prices), workers (through lower wages), or investors (through lower capital values or returns). There is no consensus among economists but, on average, empirical studies point to about 60 per cent coming out of wages. The other 40 per cent hits investors, meaning pension funds as well as the rich.

Quite possibly true, but so what? You can apply the same logic to VAT and NIC. He chucks in the Poor Widow Bogey (pension funds) and 'the rich' as an afterthought. Very few taxes are specifically on 'the rich', it's just that they have more income than everybody else, so inevitably they pay more income tax than everybody else.

But if we are really concerned about taxing the rich, we have better tools.

Yes, Land Value Tax. It's not so much that this hits 'the rich' per se, but it prevents concentration of unearned income and wealth, so with LVT there are fewer obscenely rich people to worry about; those who become rich with LVT in place have truly earned it.

Taxing investors reduces investment…

Corporation tax is not a tax on 'investors', he's contradicting himself now. He just explained that companies don't actually pay it, and it is companies which do the investing; shareholders just buy and sell shares and get dividends. It is only the original subscribers to the company who can be described as investors.

And it is not a tax on 'investment', not by a million miles it isn't, because by and large companies pay for investment out of pre-tax profits; a company which reinvests all its profits would pay little or nothing in corporation tax. Yes there are stupid quirks and timing differences, but the point stands and this applies to most corporation tax systems world-wide.

And what is 'investment'? If is when somebody has some spare money (profits) and decides to give it to other people to create stuff for him. Whether they design a new production line, software, new advertising campaign or a shop refurbishment, it's all ultimately labour - other people's efforts. So it is taxes on labour (NIC, income tax, red tape) which add about two-thirds to the cost of investments and reduce it accordingly. If you are a VAT-exempt business, the cost of investment is doubled.

… and if there’s one thing economists can agree it is that investment means higher productivity and living standards for future generations. Cutting corporation tax on small businesses is a start, but it would be better to get rid of it altogether.

Twat. Investment means higher living standards today for all the people doing the work to create the investments. And as I have shown, even scrapping corporation tax entirely would have little impact on the level of investment, especially if it were offset with correspondingly higher PAYE and VAT.


ThomasBHall said...

Any reason you don't comment on these articles? I just left a couple of hits nicked from here to call out the BS for passing readers...

Mark Wadsworth said...

TBH, I left a comment this morning but I think I am on their naughty list, same as Ben, so they don't get published.

I can't see yours either.

ThomasBHall said...

Oddly, I appear to be on the naughty step now as well! I left another comment remaking how it was strange my earlier comment had gone, and lo! my 2nd comment was "awaiting moderation" (where my previous one was published immediately...