Thursday, October 19, 2006

Corporation Tax

Timmy points out an interesting piece of information from the Grauniad about the Tories' proposed tax changes.
  • Corporation tax cut from 30% to 25%

The package amounts to a cut of £12bn in personal taxation, £3bn off corporation tax, £3bn off stamp duty and shares and £3bn off other wealth taxes.

If 5% of Corporation Tax is £3 billion then the tax as a whole only raises £18 billion. I thought it was more like £50 billion?

Hell, if it's only £18 billion, abolish it alltogether. The costs to companies of trying to avoid it are higher than that.

Most importantly though, it is not the companies who pay the Corporation Tax: this is simply a convenient bank account to extort it from.

As Timmy wrote at TCS, it is, in fact, the workers who bear the greatest burden.
In the case of the corporate income tax we've also just been told who it is that really pays it and no, it isn't the company. Some of it is paid by the investors in the company, in the form of lower dividends or returns on their investment. But as a working paper [PDF] from the Congressional Budget Office tells us:
"Burdens are measured in a numerical example by substituting factor shares and output shares that are reasonable for the U.S. economy. Given those values, domestic labor bears slightly more than 70 percent of the burden of the corporate income tax."

Right, so whilst many Lefty types might scream and bitch about eeeevil corporations getting away with not paying tax, we are able to establish that it is, in fact, the humble toilers of the soil that are being screwed for the money (along with the shareholders, of course). So, naturally, we can rely on all good socialists to clamour for the abolition of CT now, then? Ha!

Now, if the Grauniad's figures are to be believed (and this is a very big "if" since it is not really renowned for such reliability), CT only nets the government £18 billion, or about 3% of the current government spending. But how to fill the gap (other than making all of those savings that successive governments are so good at identifying and so bad at actually implementing)?
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.

Timmy is talking about the US, of course: we only need to find 3%. Excpet that, if the workers are getting paid more, then the government will take a slice of that; and if the shareholders are getting paid more, then the government are also getting a slice of that too. So, actually, we probably won't need to find as much as £18 billion really.

Besides, government spending per annum has risen from about £350 billion in 1997 to roughly £580 billion now: an increase of just over 60%. We know that a great deal of our money is being wasted; after all, the NHS central computer project—from which the main contractor, Accenture, has recently walked away, writing off £260 million—has already consumed over £6 billion.

Fiscal churn—where the government takes money from people, processes it and then gives some of it back to those same people—accounts for at least £5 billion (and probably nearer £6 billion). See, we're over half-way there already!

If we now add in the amount of money that the MOD has recently wasted on procuring crap from EU countries, rather than finding the very best deal, then we have another £8.8 billion.

There you go, we've identified three pieces of disgraceful government waste which bring us up to a total of £19.8 billion! And we haven't even started on the quangos (such as this one which costs us £70 million a year and is so ignorant that it is counterproductive!); there are a goodly number of these, costing us poor taxpayers something in the order of £180 billion and probably more.
Even so, the Cabinet Office numbers are a serious understatement of what you or I might call a quango. For a start the numbers count some big groups of quangos as just one entity- eg well over 200 NHS trusts are counted as just one… er, why? And the so-called executive agencies are not counted, even though they enjoy a large degree of autonomy and some big budgets- the appalling Rural Payments Agency and the Highways Agency both fall into this category.

If you added the numbers up properly- difficult to do with current disclosure arrangements- we’d probably find twice as many actual quangos spending perhaps half of all public spending.

Just think of the tax cuts that we could afford with that lot.

So, we can easily find the money to fund—at the very least—our first year of CT abolition. And then? Well, it is simple: much like Estonia does, any profits re-invested into the company are untaxed. Any profits paid out in dividends are attached to the receiver's tax rate (which, in Estonia, is a Flat Tax rate of 24%). Thus, there exists a strong incentive to re-invest in a company (and its workers) rather than to plunder it for as much personal gain as possible.

What's not to like?

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