In which I get angry with Left Foot Forward

A comment left there:

It’s meretricious shit like this that gives you lefties a bad name you know.

You say:

“There is a highly progressive element to any proposed STT, as a large part of the burden of an STT would fall on owners of traded securities. High-income individuals possess a “disproportionate share of financial assets, and would be ones to initially suffer from a fall in taxed securities prices”.”

The IMF does say something like that in its first paragraph on incidence. It says this:

“A large part of the burden of an STT would fall on owners of traded securities, at the time the
tax was introduced, as the value of stocks, bonds and derivatives subject to the STT fell by the
present value of the expected future STT liabilities on those securities. Like any tax on capital
income, the distribution of this effect would likely be highly progressive: High-income
individuals possess a disproportionate share of financial assets, and so would suffer from the
initial fall in taxed securities prices.”

However, read the next two paras and see what else they say:

“In the longer run, market forces would work to equalize the after-tax return to capital in the
taxed and untaxed capital markets. The increase in the cost of capital to firms issuing taxed
securities would reduce their demand for capital relative to firms whose finance was untaxed; or,
firms would finance more of their investment from untaxed sources, such as bank loans. The
lower supply of taxed securities and the increased demand for untaxed forms of capital would
lower the yield (or raise the price) on taxed securities and raise the yield (or lower the price) on
untaxed capital until their after-tax price equalized.171 This effect would, of course, be the same
for any tax initially imposed on capital income.
How much overall investment would fall as a result of the STT would depend on the relative
elasticities of capital supply and demand. In a small, open economy, the after-tax return on
capital is determined on the world market. In response to imposition of the STT, capital would
flow out until its after-tax return was restored to the world market level. In the long run, capital
owners would therefore not bear the burden of the STT; it would fall on workers, who as a
result of the smaller capital stock would be less productive and receive lower wages. If, however,
the capital supply is less than perfectly elastic, the STT will lower the return on capital, and
capital owners will share the burden of the tax with workers.172?

So, we’re right. It will be the public, the workers in the form of lower wages, who will pay this tax (after that oh so pleasurable initial jolt of progressivity).

This is “rebuffing the criticism” offered by Tim Worstall (freelance journalist) is it?

Jeebus, the IMF has just blown a great gaping hole in your entire argument: that it’ll be the rich bastards who pay this tax. It just won’t be, as Giles and I have been saying all along.

Honesty on your part would have led you to quote that point from the IMF report: it’s obviously way too much to expect you to ever utter the words “You know, that Worstall bloke, he was right on this, wasn’t he?”

3 thoughts on “In which I get angry with Left Foot Forward”

  1. While the criticsm you make is sound, I still can’t get past the point that tax incidence doesn’t matter if it is progressive and, by implication capital related tax incidence somehow isn’t real.

  2. Wot’s STT?

    “Securities transactions tax” to distinguish it from FTT…”financial” and CTT….”currency”.

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