I know, I know, again.
We\’ve got Richard Murphy in one corner arguing that this is all bunkum. Companies should pay more tax because, well, companies should pay more tax apparently.
Today\’s contestant in the other corner is the Institute for Fiscal Studies. Non-partisan, highly informed, generally considered to be some of the best neutral analysers of the UK\’s tax system.
On the subject of corporation tax and its incidence:
The first chapter of the consultation document repeats the government’s objectives for corporate tax reform, which are to promote “competitiveness and fairness” (paragraph 1.4). Before turning to the more substantial parts of the consultation, it is useful to consider the meaning of these terms.
“Fairness” has been defined as “ensuring that individual businesses pay their fair share of tax in relation to their commercial profits and compete on a level playing field”.5 Unfortunately the government does not say what it means by “their fair share” of tax. Nor is it clear whether competing “on a level playing field” refers to competition between UK firms operating in different industries, or between UK and foreign firms operating in the same industry.
In fact, notions of “equity” or “fairness” have little meaning in the context of business taxation. Corporation tax may be borne partly by customers in the form of higher product prices; partly by workers in the form of lower wages; and is borne by shareholders in the form of lower post-tax profits only to the extent that it is not shifted onto customers or workers in one of these ways. This is likely to vary substantially across different sectors of the economy, depending on the extent of international trade and the mobility of employees and capital used by the business. There is no simple link between the share of profits paid in corporation tax and the impact of the tax on the owners of the business. The government’s distributional objectives can be achieved more easily using other elements of the overall tax and benefit system.
So they\’ve certainly bought into this idea of tax incidence. I still wonder why Murphy keeps rejecting it? Is it simply that such a glimpse of reality doesn\’t fit his narrative?