Polly On Taxation

Highly amusing column today.

He did talk firmly of "the need to create a stronger sense that residence and citizenship means responsibilities too". Did he mean the responsibilities of the hyper-rich and non-doms to pay taxes? Did the name "Sir" Philip Green pass his lips? Of course not.

Well of course not. Sir Phillip Green is not a non-dom. He is, at least as far as I know, a resident of the UK for tax purposes. His wife is not a resident of the UK, let alone a non-dom, so invoking either of their names on this point is ludicrous.

Instead he boasted of Labour\’s deep cuts in corporation tax, which now at 28% is among the lowest in the west.

Let\’s leave aside the well known point that corporation tax isn\’t in fact paid by the company, that it, in reality, depresses the wages of the workers. Let\’s instead just have a look at those rates: Table II 1

 

Australia   30,0
Austria   25,0
Belgiumb   33.99 (33.0)
Canada   22.1(21.0)
Czech Republic   24,0
Denmark   25,0
Finland   26,0
Francec   34,43
Germanyd   26.375 (25.0)
Greece   25,0
Hungarye   20,0 (16,0)
Iceland   18,0
Ireland   12,5
Italyf   33,0
Japan   30,0
Korea   25,0
Luxembourg   22.88 (22.0)
Mexico   28,0
Netherlands   25,5
New Zealanda   33,0
Norway   28,0
Polandg   19,0
Portugal   25,0
Slovak Republic   19,0
Spain   32,5
Sweden   28,0
Switzerlandh   8,5
Turkey   20,0
United Kingdoma   30,0
United Statesi   35,0

Even with the new 28% I can\’t quite see that this is "among the lowest in the west", unless we\’re talkiing about a rather large definition of "among".

He didn\’t remind them that business interest costs are off-set against corporation tax.

Well, of course not. Only an insane taxation system would try to stop that. Look Poll, we might be talking about the CBI, we might be talking about Gordon Brown, but even so there\’s no reason to believe that we\’re talking to complete and total idiots.

Intellectually Labour has capitulated, for a decade using the language of "tax burdens", boasting of income tax cuts while letting the wealthy pay less than low earners.

Come along now, not even you actually mean that. There is no way at all that the wealthy pay less than low earners. Even at the 10% taper relief rate somone cashing in a £ 1 million in stock pays £100,000. That is, as you will note, rather more than a cleaner on £6 an hour will pay over the course of a year (leaving aside the point that someone on that low wage might well, after benefits and tax credits, actually have a negative tax rate rather than a positive one).

A generation of voters has never heard the basic reasons why they pay tax, and why it is the most necessary and honourable part of citizenship. Why avoiding, let alone evading, it is dishonourable.

It is to laugh. Dishonourable to avoid (ie, legally order your affairs so as to reduce your tax bill) the depredations of the State? Err, have you told your boss this yet? You know, Alan Rusbridger who took a tax efficient £175,000 addition to his pension fund as a bonus?

When you describe an 8% rise for some and a cut for others as \’an 80% increase\’, you conveniently forget that CGT was 40% when we came to power. Now it is to be a mere 18%. That is still lower than the lowest income tax,

True enough, fair point. Of course, the lowest income tax rate was just doubled by Gordon Brown in the last Budget.

Now it is to be a mere 18%. That is still lower than the lowest income tax, and in the immortal words of one private equity boss, less tax than your cleaners pay. When you complain that 18% is too heavy a burden on risk, enterprise and the sweat of your entrepreneurial brows, tell me why you think a care assistant or a dinner lady should pay more tax than you?

As above, you\’re getting very confused between tax rates and tax amounts. The care assistant or dinner lady does not, in any way, pay more tax. They might pay a higher marginal tax rate, but they do not pay more in cash, nor do they pay more as a percentage of total income.

The truth is, Britain is still one of the least taxed of the countries with stable democracies and well-regulated economies.

!?!?! With the Government swallowing 45% of GDP? Please…

Top income tax rates are average in the OECD, capital gains tax among the lowest, property taxes virtually non-existent.

And that is simply quite glorious. Howlingly wonderful.

Components of taxation > Property tax (most recent) by country

#1 United Kingdom: 11.9%

So, err, when does The Guardian hire a fact checker for our Poll then?

Ooooh, and a glorious gotcha in the comments:

Does Ms Toynbee find it at all ironic that her salary for writing this is paid by The Scott Trust, an organisation established specifically to avoid the payment of inheritance taxes.

 

10 comments on “Polly On Taxation

  1. “Let’s leave aside the well known point that corporation tax isn’t in fact paid by the company, that it, in reality, depresses the wages of the workers.”

    well-known among crazy libertoonian hacks, perhaps.

    in practice, like all restrictions/taxes on companies, it will partly raise the price paid by consumers, partly reduce the profits attributable to shareholders, and partly reduce the wages paid to workers…

    Tim adds: Yes, as I said, it will depress the wages of the workers. And as a paper I blogged on just recently (at the ASI) showed, in the long term, a £ raised in corporation tax reduces wages by more than a £.

    I’m also not quite sure what is crazy libertoon about saying “depresses the wages of the workers” when you, presumably no crazy libertoon, say “partly reduce the wages paid to workers”. Are reducing and depressing not near synonyms?

  2. Increasing prices reduces the return to labour as well of course – just not necessarily the same labour as produced the item rising in price. It is far less likely to reduce the return to capital as that is measured as opportunity cost against other investments and would soon cause any company passing on such costs in the form of lower returns to shareholders to have no shareholders at all!

  3. No, what you’re doing there is confusing Econ 101 with real life. In real life, shareholders consistently hold shares in companies whose return on capital is lower than that which would be obtained if they sold up other investments.

    It’s noticeable even for quoted companies – while for family-owned companies, it’s near-universal.

  4. @ Tim – your quote made 2 true statements (corporation tax is not paid by the company because it’s just a convenient fictional entity, and there is likely to be some negative impact on workers’ wages), but joined them to createa false implication (100% of corporation tax rises will be made up out of workers’ wages).

    And I’m sceptical of that paper’s conclusions… I’ll read it when I get the chance.

  5. Tim, your figure for Germany is misleading – the cunning Germans split it up into 25% corp tax plus up to another 15% ‘trade tax’ on top, calculated on the same profits (but with add backs for interest).

    Also, corp tax is not the worst tax, the worst taxes are VAT (a turnover tax, from the point of view of economic incidence, increases price, reduces profits and depresses output) and Employer’s National Insurance (depresses wages and employment levels far more directly that corp tax).

    Further, you only pay corp tax if you are making profits – unless you do something daft, corp tax doesn’t put you out of business.

    As opposed to VAT and Er’s NI that you have to pay whether you are profitable or not, so easily sending low-margin/labour intensive businesses into losses and hence shutting them down.

    Finally, by and large, there is no corp tax on REINVESTED (as apposed to retained) profits, if you REINVEST the money in training, market research, staff training and so on, you get a tax deduction for it – you don’t pay tax on the money that you reinvest.

    Prof Mezian Lasfer has a cunning argument that HIGHER corp tax rates lead to MORE reinvestment and MORE employment, on teh basis that it is better to use the profits to expand (tax free )that it is to leave it in the bank and give half to the Treasury.

    Tim adds: I understand the logic of corporation tax increasing reinvestment in the situation you describe. However, this rather assumes that we want increased investment by extant firms, rather than increased investment in new firms. And that isn’t, by any means, an assumption that I’m happy to make.

  6. Is it just me or do left leaning commentators in almost every European country claim their taxes are among the lowest in the western world. Something’s gotta give here. The continuation of the communist party in Germany claims they have amongst the lowest personnel taxes in the West all the while conveniently forgetting that a employee pays 20 to 30% in health care, pension, unemployment tax, solidarity tax before they even start counting the income tax.

  7. ” Tim adds: … this rather assumes that we want increased investment by extant firms, rather than increased investment in new firms. And that isn’t, by any means, an assumption that I’m happy to make.”

    Woah! I am completely indifferent whether it is existing or new firms that are expanding or contracting to fit in with the markets, that’s up to them to decide what’s best for them.

    In any event, VAT and Er’s NI are real killers for new start-ups; but they can be pretty indifferent about corporation tax for the first year or two until they start making profits, and they then have nine months from end of first year of net profits (after deducting losses b/f) to make the first payment.

  8. “Alan Rusbridger who took a tax efficient £175,000 addition to his pension fund as a bonus”

    All this does is delay paying tax on the money until he takes it at a later date. Which is no different to your pension. Why is this a problem?

    Tim adds: The only reason it’s a problem is that Polly T has just denounced those who practice tax avoidance: ie, her own boss.

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