Saturday, 30 April 2011

Who pays corporation tax?

Corporation Tax is not fit for purpose. This new Briefing Note for the 2020 Tax Commission, written by Commissioner and Associate Professor of Economics at the ESCP Europe Business School Anthony J. Evans, measures the tax against four key criteria, and finds that it drives down wages; lowers returns for shareholders; and raises prices for consumers.

Matthew Sinclair, Director of the TaxPayers’ Alliance, said:

“Companies don’t pay taxes, people do, whether that means shareholders like pension funds or workers who get lower wages. High corporate taxes are such an economic disaster that cutting them significantly can leave ordinary workers hundreds of pounds a year better off and ultimately even produce more of a return for the public purse. The Government are right to see this as a real priority, and could be even more aggressive to cut taxes so everyone can see a light at the end of the tunnel after years of depressing economic news.”

Read more over at the TPA.

I'd be minded to abolish corporation tax altogether. My only reservation is that it could allow foreign companies to funnel profits out of the UK. If that is a legitimate concern, I expect there are other ways to address it.


  1. The Guardian (of all places) has published an interesting article entitled Tax property, not people, for a fairer society based on an OECD publication (available here:

    The premise is to abolish all taxes other than a Land Value Tax. This is based on the understanding that "taxes on land values are the least bad taxes because they do not depress or distort economic activity, ie wealth creation. Land value tax is easy to assess, cheap to collect and impossible to evade."

    Moreover, LVT is an entirely voluntary tax: you decide how much you are willing to pay and you choose a house or a flat within that price range.

    Unfortunately, the OECD propose keeping VAT as government [have a] need to influence consumer behaviour and sales taxes are another tool.

    The VAT induced government 'nudges' aside, LVT looks like a promising idea.

    Unfortunately, the vested interests will never allow it to happen.

  2. Hi Andy,

    Thanks for your comment and the link. Land Value Tax is a favourite of Georgists, some of whom have recently taken to commenting over at the Cobden Centre, e.g.

    I haven't yet read much about their ideas, but they seem a bit dubious to me. I'm part way through a critique that is thorough but dry:

    I hope to find time to publish my own thoughts on it in due course.

    I agree that Land Value Tax has a number of advantages over alternative forms of taxation. I'm not convinced that it has no distortive effects. Any tax on value will discourage the addition of value. In the case of land, it may discourage the draining of swamps and the planting of crops and gardens.

    I disagree that "LVT is an entirely voluntary tax". All existing property owners will have the tax imposed on them. VAT is closer to being a voluntary tax, since we can all moderate our consumption, though obviously I disagree with the OECD's suggestion that it is desirable for the government to influence consumer behaviour. Even income tax seems more voluntary than LVT, since you can respond to high marginal tax rates by reducing the work you do, whereas you cannot escape predatory taxes on land value.

    More generally, I don't think it makes sense to describe any tax as voluntary. If you cannot do a desired activity X without incurring a tax, then it's no consolation to say that you can choose not to do X, or to do less of it. Consider the highway robbers of legend. Nobody would argue that 'donations' to these thieves were voluntary because people *chose* to use the highways.

    If you haven't already read it, there's plenty of food for thought in Rothbard's "Can there be a 'just' tax?"

    As a minarchist (rather than an anarcho-capitalist) I'd be happy with LVT as the single tax provided it was sufficiently low (no more than council tax is today, preferably less). The main thing is to radically reduce the size and scope of government.

    But it's worth noting that LVT is risky precisely because it is difficult to avoid. The government may set a certain rate today, which people factor into their purchasing decisions. If they decide to raise the rates in the future, it could cause a great deal of suffering, especially for those on fixed incomes.

  3. Thanks for your views and the links, I'm going to read through them and see where they take my thinking.

    I wouldn't say with any great conviction that I have truly settled on where I sit within the schools of Libertarianism.

    I hope that by reading more and understanding more, I settle on a better founded personal philosophy.