John Christensen: not an economist

I\’ve had this argument with John Christensen before on my blog.

The government\’s pursuit of tax competitiveness, where countries vie with each other to offer lower corporate tax rates, puts Christensen\’s hackles right up. \”It\’s just a race to the bottom, a beggar-your-neighbour return to the protectionist policies of the 1930s, but these days it\’s not around trade tariffs, but around subsidising multinational corporations through the tax systems.

\”It\’s no coincidence that when this government came into power almost the first thing it did was raise VAT rates so that ordinary people would pay more tax and then cut corporate tax rates.

\”What\’s happening here is that the tax burden is being shifted from capital on to ordinary people.\”

In an open economy it\’s not capital which pays the corporation tax. It\’s the workers in the form of lower wages.

Thus his entire contention is wrong.

When I upbraided him about this he came back with: Ah, but that only works in a closed economy. Which is of course entirely the wrong way around. In a closed economy capital will pay corporation tax. In an open one, labour.

Which is something of a problem, don\’t you think? That when we\’ve got a campaigner trying to change the taxation system for the entire business world, said campaigner is ignorant of the basic economics of the very thing he\’s trying to reform?

Getting the ill-informed to design something rarely works all that well.

4 comments on “John Christensen: not an economist

  1. He’s also fundamentally wrong in his assertion that a government failing to impose tax levels as high as he considers correct amounts to a subsidy.

  2. Such people don’t base their arguments on facts, they do so on a) emotion, and b) the fact they they ‘know’ they are on the side of the angels, so whatever they propose must be the morally correct proposition.

    Thus if a Leftist policy (say the Robin Hood tax) is actually implemented and proves to be a disaster, then its not their fault because they meant well.

  3. In an open economy it’s not capital which pays the corporation tax. It’s the workers in the form of lower wages.

    If you keep repeating that contention without the qualifications, you forfeit your right to that superior tone.

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