Perhaps Mr Murphy could be encouraged to read and digest this article
Fair enough, but this bit is bollocks:
“Research also shows that corporate tax has a greater “deadweight cost” than both income and sales taxes…”
Corporation tax and income tax are the same thing! Sales Taxes are The Worst Taxes*, unless you are deliberately trying to discourage consumption of a particular thing, like fags’n’booze; or unless they are like a user charge, i.e. if fuel duties were all spent on roads, in which case, OK.
* Because a business suffers them by deduction from gross turnover, regardless of whether they are making a profit or not, i.e. VAT can put businesses out of business, unlike corporation tax which companies only pay if they are making profits.
Before you can tell whether corporate tax is a good idea, you need to understand who bears the cost and how it affects their behaviour. Once you do, it turns out that taxing companies is a bad idea.
first sentence good second sentence bad. he may then go on to say ‘research shows’ but he must be cherry picking his research. If by research he means ‘dubious theoretical modeling’ then so much the worse for him.
and I way that as a big fan of dubious theoretical modeling
“Corporation tax and income tax are the same thing!”
Funny, because I could swear last year my company filled out form CT600 without paying CT on its losses, whereas I had to fill out that damned self-assessment form. And pay tax.
“Because a business suffers them by deduction from gross turnover”
As far as a company is concerned, it’s a gross margin tax rather than gross turnover tax: the cheque cut to El Revenue is 17.5% of the difference between the selling price and the buying price (with exceptions, of course).
One of the aspects of corporation tax, which is not present in income tax or sales tax, is that it taxes foreign investors who would not otherwise be taxed.
Now, it is very interesting to consider whether it is appropriate to tax foreign investors, at all and at what rate. However, I can see that other UK taxpayers might not be too keen on paying extra tax, so that the dastardly foreigners can get off scot free, or alternatively so that the dastardly foreign governments get the tax in place of it going to the wonderful and beneficent UK government.
The issue is complicated by the fact that government seems to want to tax foreign investors (suddenly viewed as not so dastardly) at a lower rate than good solid UK citizens (and other residents), not least so that they invest in our country rather than elsewhere. This strikes me as not entirely a barmy idea.
There also seems to be a desire to have one corporation tax rate, irrespective of whether the benefiting shareholders are UK based or foreign (and dastardly). This leads to complications in the tax calculations and rules and, worse (at least in my opinion), that it obscures the issue of who is being taxed.
Sadly, I see there is one big disadvantage in corporation tax: it taxes the profits of the company rather than the distribution of those profits by dividend. Thus company investment (which is largely the difference between profits and dividends) is slugged, to the disadvantage of the national economy as well as the company.
However, even this slugging can be viewed as having some upside. This is because, at least to the best of my knowledge, foreign investors do not pay UK capital gains tax. Thus it is at least arguable that taxing profits rather than dividends is a sort of indirect tax on capital gains by foreign investors.
Unfortunately, this view does not take account of corporation tax also being a sort of tax, at the same level, on those (UK shareholders) who also pay capital gains tax.
If one believes that tax should be fair and reasonable, and also transparent in its operation, we should consider taxing capital gains at source (ie an automatic deduction by one’s broker when one sells, using knowledge of the purchase price). We should also consider taxing dividends directly, rather than corporate profits, and having shareholders register as to whether they are UK taxpayers or not (with perhaps differential tax rates on dividends for the two groups).
However, if one believes that the above might be a bit too complicated to operate, or believes that all taxation is, by definition, likely to be unfair, unreasonable and determined by whatever the government can get away with, …
Depends which “you” is being referred to. If the “you” is a working, tax-paying, law-abiding mug working in the private sector then indeed “you” will pick up the tab. If the “you” is a member of the best underclass money can buy (step forward the mothers, fathers and “uncles” of Shannon Matthews and Baby P) or in the public sector then the handouts – the free lunches – go on: “you” don’t pay.
“ie an automatic deduction by one’s broker when one sells, using knowledge of the purchase price”
And offsetting the losses would be done how?
“We should also consider taxing dividends directly”
The US does this. And taxes profits too. Yay, Double taxation! (Bush eliminated this stupidity, but predictably the Guardianistas called the reform a “tax break for the rich”).
“the free lunches – go on: “you” don’t pay.”
The public sector employees still pay. It’s just that the rest of us are paying for them to pay, as it were.
Whyte’s article makes the point that ultimately, taxes are paid by people. Fairly obvious really, unless you are Richard Murphy, Polly T. or Wee Willy Hutton.
It takes a 100 men to do a job.
They are replaced by one man and a machine.
For the same production there are now 99 free lunches.
Of course one would hope they became productive elsewhere. Although we know this not the case!
“For the same production there are now 99 free lunches.”
Only if the machine makes sandwiches.
@ Kay Tie “[VAT is] a gross margin tax rather than gross turnover tax: the cheque cut to El Revenue is 17.5% of the difference between the selling price and the buying price (with exceptions, of course).”
We have had this debate before and you are falling one of the The Big Lies. Here are three explanations that debunk it:
a) HMRC collects 17.5% of the end turnover of the whole chain. Yes, if there is no vertical integration, each part of the chain just pays 17.5% on its markup, but what about a vertically integrated producer, that owns the forests, the mines, the factories, the lorries and the retail outlets? It’s the same amount of VAT either way, ergo it is a turnover tax.
b) The cheque to HMRC is 17.5% of turnover minus input VAT. So a company with £117,500 gross turnover hands over (say) £10,000 to HMRC and £7,500 to the supplier. Or any two other numbers that add up to £17,500.
c) Let’s imagine we scrapped this nonsense of VAT registered businesses charging other VAT registered businesses VAT, with the supplier paying the tax and the customer deducting it from its own liability. Instead, we could just exempt such business-to-business supplies, and have the retailer charging the full 17.5% to the non-VAT registered end-user (as they do in some countries). The total tax paid would be the same. So it’s a turnover tax on the retailer. The suppliers may think that they are VAT exempt but this is nonsense (go back to example of fully vertically integrated supplier).
@ Kay Tie “I could swear last year my company filled out form CT600 without paying CT on its losses, whereas I had to fill out that damned self-assessment form. And pay tax.”
Agreed. Part of the MW manifesto is that a company can ‘surrender’ losses to its shareholders (to offset against taxable income) and/or use the losses to reduce its PAYE liability. In that case, they would truly be the same thing; and companies would be treated the same as partnerships, whereby a partner can offset his share of the loss against other income.
“Part of the MW manifesto is that a company can ’surrender’ losses to its shareholders (to offset against taxable income) and/or use the losses to reduce its PAYE liability.”
That would be nice. At the moment, R&D tax credits sort of have the same effect, but it would be nice to extend it wider (and a damn sight simpler for everyone concerned).
R&D credits are totally dumb. All they amount to (mathematically) is a refund of Employer’s National Insurance on R&D staff salaries. Seeing as Employer’s NI is The Second Worst tax and also should be scrapped, there’d be no need for R&D nonsense.
Income Tax only hits domestic producers. Sales taxes hit ALL retail sales equally, but NOT exports.
Ergo, if we remove sales taxes and tax income and corporations more, then we harm both domestic AND export sales.
Income, corp or VAT, all affect the sale price, yet I would rather not tax to the detriment of domestic employers.
Rog, the last time we had a similar debate, John B replied to a comment similar to yours “Sales Taxes are a great idea … if you are an insane mercantilist.”
Surely, free trade = A Good Thing.
Ergo import duties = A Bad Thing.
If you see VAT as a proxy for import duties (which it is), then VAT = also A Bad Thing.
If other countries impose import duties on UK exports, well so be it.
What you are suggesting is, effectively, a tax system that favours, i.e. subsidises, exporters. What makes you think that any politician can Pick Winners and know exactly which things to susidise? Why should UK consumers and businesses pay higher taxes so that people in other countries get our stuff at a discount?
(continued page 94)
Ah … my memory has served me correctly. It was John B in reply to … er … you.
VAT uniformly applied to ALL GOODS SOLD is NOT an “import duty” no matter how you spin it. Income tax and no sales tax is, however, a tax on domestic employment ONLY.
Just because there is no tax domestically on exports does not mean that the other country will not apply import or VAT taxes of their own, as you say, so why talk about “subsidy” – that is the kind linguistic inversion used by the Left. You CANNOT subsidise something because you do not tax it, just as the term “tax cut bribe” is fallacious – you cannot bribe someone with their own money.
What you are saying is “ignore the effect of third party import duties as long as we get our pound of flesh first”.
As to John B, well, if you want/need him on your side, God help you.
His influence might be why you just said this:
“Why should UK consumers and businesses pay higher taxes so that people in other countries get our stuff at a discount?”
Another leftie style logic inversion and hatstand to boot. Has it not occurred to you that people will have a living? If our stuff is sold abroad at a lower price – it is not a “discount” (more inversion) – they will be tempted to buy more. A virtuous circle.
No, what Mark wants is to have an employment tax on all our companies, while not taxing imports AT ALL. Brilliant.
Rog, wrong. You just bash this stuff out without thinking about it.
Let’s assume that there is a single flat corporation tax/income tax of 31%, no VAT, no higher rate tax on dividends, no import duties.
And if we end up with excessive imports, then GBP will fall accordingly until we get back into balance.
Retailer can sell product A, let’s say candles for £1 each. He can buy them from a UK factory for 50p each, or from China for 25p each. So he decides to buy them from China. His mark-up is thus 75p, on which he pays 25p tax. If he buys them from the UK, his mark up is 50p, on which he pays 15p tax.
So even a flat tax would act like a 10p surcharge on the imported candles.
And a tax break IS a subsidy (because for a given total tax revenue, others have to pay higher rates), in the same way as means testing is taxation. Just because politicians and Daily Mail or indeed Guardian readers say otherwise is irrelevant.
I’m not sure whether you know much about the UK tax system, but you look up ‘R&D tax credits’ and tell me – is that a subsidy or a tax break?
And are you saying that import duties are A Good Idea?
I agree with him about the downside of increasing tax on businesses. But there is one thing he fails to mention.
When the tax leads to lower dividends for shareholders, and higher prices for customers, the link back to the greed of the treasury doesn’t loom large in people’s minds. The useless creeps in Westminster get to fleece us, and we blame corporate greed for the price of a jar of marmalade.
Shame you did not address the issues, but came up with a specious (bashed out?) example.
You make the error in thinking that a 75% margin can survive an afternoon. It won’t. The candle seller will sell the China candles for 75p, 50p or less – i.e. margin remains about the same somewhere between %age and absolute – as someone else will undercut them until they do. You also forget the tax revenue from the UK production, such as the income tax of the employees of the company. The 25p cost of import just leaves the UK. Gone.
Yes, cheaper imports make us wealthier, but IF AND ONLY IF we can export at equal or greater value of high value products and services.
I would rather keep our export price down as part of a low tax regime for production than waiting for our balance of payments to drag our currency down. That is just defeatist and a downward spiral in production and employment. Having a strong £ due to a surplus in balance of payments is a nice problem to have. All sorts of nice solutions to that in a country will a vast Government debt millstone.
As to your questions, an R&D tax credit is messy and a potential distortion. If you perform R&D, surely you are liable for less tax anyway.
As to the question on import duties, no, not in favour of explicit import duties.
You also keep trying to say that I am suggesting we subsidise our exporters – UTTER poppycock. We have NO control over the tax regimes abroad. We tax ALL companies based in the UK the same way (very low). We tax ALL products sold in the UK at the same rate. Where is the “subsidy”?
@ Rog, I am always happy to address ‘issues’.
I have made it quite clear that I am a flat-taxer (the lower the rate better, but for a given total required revenue, the flatter the better, and the fewer exemptions the better), I am against random taxes like VAT or Employer’s NIC that double the rate of tax that certain economic activities must bear, I am against subsidies and against import duties.
It’s not clear to me what you are proposing.
The main reason why we import manufactured stuff from e.g. China is because their wages are so much lower. There is bugger all you can do about that.
If you want a low rate, how about a zero rate on personal income?
VAT is hardly “random”. NIC I want to see the back of, so is not relevant.
As to Chinese wages, never said I wanted to “do” anything about them.
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