Monday, November 05, 2007

Abolish Corporation Tax

For over a year now, I have been referencing Tim Worstall's article at TechCentralStation which outlines that companies do not pay Corporation Tax—it is, in fact, the workers who bear the brunt of the cost, through lower wages. The trouble always was that the working paper referenced [PDF] in the article was purely US-centric, carried out, as it was, by the Congressional Budget Office.

Now, however, Timmy looks at another study at the ASI Blog.
Unfortunately, we've been slightly limited in that the empirical research into just who of those three groups does pay it has been very America specific. Until now, that is, with this paper [PDF] from earlier in the year. Looking at data from 10 countries and 23,000 companies:
Our central estimate is that 54 percent of any additional tax is passed on in lower wages, even in the short run...

That's not all:
In the longer run, a $1 rise in the tax liability results in a fall in total employee compensation in excess of $1.

That is, that for every pound taken from the companies in the taxation of their profits, the workers lose more than one pound in income.

This, of course, isn't what we want to happen at all and it most certainly isn't progressive in any sense of the word. So instead of worrying about having a common tax base (as the EU is doing), or whether the rate should be this little bit lower or higher, what allowances should be available and so on, wouldn't it be rather better simply to abolish the whole thing?

Well, quite.

As we can see from the Treasury figures that I dug up, Corporation Tax raised some £49.5 billion in 2006/07: this is about 8.4% of the £586.6 billion that our government spend in the same year. And how to make up the revenues?

Well, I'll quote Timmy's TCS article...
One final thought, there will be those who wonder how I would fill the revenue gap. No, I'll not make claims about the Laffer Curve, or increased dynamism, nor identify specific programs that should be cut, for after all, it is only 10% of federal revenue.

As O'Rourke's Law of Circumcision points out, you can take 10% off the top of absolutely anything.

Quite so: after all, the new TPA Bumper Book of Government Waste* has identified over £101 billion which has been pissed up the wall by the government over the last year or so...


* Buy it from my Amazon sidebar link and give your humble Devil some pennies!

1 comment:

Mark Wadsworth said...

Wrong. Wrong. Wrong.

The worst taxes, which actually put businesses out of business, are Value Added Tax and Employer's National Insurance. Get rid of those first. And which party is the only one proposing to do that?

Secondly, there is no corporation tax on reinvested profits (subject to a few stupid exceptions). Think about it.

Finally, there is a cunning counter-argument, that if you increase the corp tax rate, businesses will invest more, because it is better to spend the money than the roll up cash and pay tax.

So there.