Author Archives: Tim Worstall

Andrew says:
December 10 2019 at 11:35 am
This issue is a matter of substantial economic research, so with due deference to Prof Weeks, we don’t have to just take his word for it. What does the literature say? Certainly, when taxes on companies rise, then in the first instance, companies will just pay more tax on their profits, and the shareholders will suffer lower returns. But over time, shareholders will attempt to maintain a level of post-tax return on their capital, which will create pressures to decrease costs including wages paid to employees, and to increase prices charged to customers. So, down the line, who ultimately bears the tax? Answers on a postcard.

Reply
Richard Murphy says:
December 10 2019 at 11:58 am
Read Prof Kim Clausing

https://econpapers.repec.org/article/ntjjournl/v_3a66_3ay_3a2013_3ai_3a1_3ap_3a151-84.htm

The answer? Most likely shareholders

Concerning that Clausing paper, Snippa and I have discussed it before.

In wider terms, it is precisely the jurisdiction shopping that such
companies undertake that explains the lack of evidence of an impact
upon labour of the corporate income tax.

I just wanted to check that that is the implication that you are
making in this part of your conclusion?”

Her response?

“Thank you for your email. Yes, that is the implication.”

Alternatively of course we could just say he’s not doing economics but politics.

Difficult to take seriously someone who says this:

A 2016 IFS report shows that property tax raises relatively little revenue in Britain.

The OECD says that Britain raises more in taxation upon property than any other OECD nation. Some 11 or 12% of tax revenue raised as opposed to a 3 or 4% average. For rates are indeed a tax upon property and they do, together, raise some £60 billion a year or more.

Not believing this bloke also turns out to be wise:

The assertion that increases in the corporate income tax would be paid by employees is if anything less credible than the stockholder argument. Corporations cannot directly charge employees for the tax they pay. The mechanism that the IFS have in mind must be indirect, through wages levels, that higher corporate tax payments by reducing corporate profits reduce potential wage increases. This is unlikely to be important in the UK current context.

No, the argument has been around since 1899, from Seligman.

Capital added to labour is what increases productivity. Productive workers get paid more. If we reduce the amount of capital added to labour we get lower wages. Taxing profits reduces the after tax return to investing in adding capital to labour. Given that there is an average return to capital across taxing jurisdictions those who tax capital returns will see lower wages in that long run.

Across companies the relative bargaining power of employees and employers determines wage outcomes. Since the crash of 2008 private sector real wages have grown very slowly and remain below their pre-crash level. These were years during which the corporate tax rate fell from 28% to 19% (shown in a graph from Trading Economics). If as IFS believe higher corporate tax rates depress wage growth, then lower rates should have increased wage growth, for which there is no evidence. In the abstract, corporate profitability is one of many factors influencing wages changes. It does not appear as an important influence in the UK in recent years.

‘E’s entirely missing the actual argument, isn’t he?

Nice of Snippa to make it so clear for us:

Voting Anything But Conservative is a vote for the Green New Deal

Bojo it is then.