Here. Page 1321, at the bottom:
It is a robust result of optimal tax theory that economies that are small in world capital markets should set a marginal effective rate of corporation tax- that is, a rate on the investment that just breaks even after tax- of zero.
That is essentially a production efficiency argument, an intertemporal analogue to an absence of trade taxes in developing countries. Small economies should trade at world prices for capital, just as they should for atemporal commodities. With the required after-tax return for capital fixed on world markets, the burden on any tax that a small economy imposes on capital must be shifted to immobile factors of production, most obviously labour, with a distortionary increase in the relative domestic cost of induced capital along the way.
Now don\’t forget, it\’s Ritchie, John Christiensen and Nigel Shacxston (Sahxston? Shackston?) who keep telling us that this tax incidence thing, this if you tax companies it\’ll end up being the poor bloody worker who really pays it, is rubbish. That\’s it\’s just a product of my fevered neo-liberal imagination. And yet here they are saying that this paper is:
We are very grateful to Tax Analysts for permission to republish one of the most important historical articles about tax competition,
So we have to ask ourselves, do they actually read the papers that they recommend? For this specific paper blows a huge hole in their entire campaign. It ain\’t companies that pay this tax: so their entire campaign to make companies pay more tax is nonsensical. If they do manage to get reporting requirements, or offshore rules, or \”moral behaviour by companies\” changed, those things they are campaigning for, then it\’ll just be the workers in those countries that have to pick up the bill, won\’t it?
And, recall, this isn\’t some product of my fevered neo-liberal imagination. This is actually from a paper that they recommend!
In short, what the fuck are they doing?
Worse for Murphy and his motley crew, the paper is recommending that small economies have a zero rate of corporation tax. But, um, Murphy’s gang decry economies which behave like this as ‘tax havens’. The article is arguing that for non-economic reasons, it is preferable to have non-zero corporation tax rates; but that of course completely blows up Murphy’s so-called ‘economic’ reasons for tackling the ‘problem’.
It is said that enough monkeys with typewriters, given time, will type the entire works of Shakespeare.
But first they have to practice……….
“what the fuck are they doing?”: posing, deah boy, posing.
(Yes, it is me.) This is a paper by two IMF economists who of course will have opinions about tax. Now why was it, Tim, that you failed to mention the thrust of the paper, though? Namely that tax competition harms developing countries more than it harms developed countries. Which is quite some conclusion.
Could it be that you prefer to pick out small afterthoughts and build the entire edifice of your blog around that, and hope that people won’t read the full article?
IMF economists are free to have their opinions about optimal tax rates. So you think that TJN should vet everything we point to, in order to ensure that every part of every document fits with whatever views we might hold – whereas you, by contrast, are free to do the opposite: pick out the afterthoughts and ignore the rest.
Interesting double standards. Not that you’d ever accuse anyone else of double standards, now would you?
Tim adds: It’s not a minor point though, is it? It’s a simple statement of economic orthodoxy: in small open economies corporation and capital taxation will be paid, in the end, by the workers.
This is the point which you, John and Ritchie consistently and insistently deny. You run around telling everyone that there’s this great big pot of money that can be tapped, almost “for free”, in the corporations, without mentioning that it’s the poor bastard on $100 a month who will actually end up paying for it in the form of lower wages.
Just to make myself absolutely clear: I’m all in favour of resource taxes, roylties on oil, copper and so on. This is taxation of Ricardian Rents, a good thing. I also agree that corporations are a convenient place to collect taxes from in the form of profit and capital taxes.
What I object to is your continued and continual refusal to discuss the implications of what every economist keeps insisting is true: that the incidence of the corporation tax is, in those small open economies, on the workers. Taxin the multi-nationals just isn’t free money: it lowers the workers’ wages. Not something we should really be trying to do in poor countries now, is it?
You’ve two ways out of this.
1) Deny tax incidence as an argument altogether. Ritchie does this. John C has, hilariously, on this very blog, claimed that it only occurs in closed economies. And you?
2) Agree with every tax economist on the planet (including such as Joe Stiglitz) and, well, unfortunately, there goes your campaign, your grants from the Ford Foundation and the like and, I suspect, your jobs.
First of all, why do you persistently ignore the main thrust of the paper that you pointed to our pointing to? Are you afraid of it?
The tax incident argument is a nonsense. For so many reasons. It is a lobbying tool.
So, the tax falls on “workers” does it? Why, then, does this CBO paper state that “capital bears the majority of the corporate tax burden.” – http://www.cbo.gov/ftpdocs/115xx/doc11519/05-2010-Working_Paper-Corp_Tax_Incidence-Review_of_Gen_Eq_Estimates.pdf OK, under certain conditions, but theoretical constructs are also what you and many others base their claims on.
Second, you concede the point on taxing rents, that is good. And boy, it’s a biggie. You are therefore presumably in favour of land value taxes, as I am. In which case, why not write a blog in favour of land value taxes? I dare you.
I personally would assume that the burden of corporations falls on a variety of those involved – including the corporations themselves, as entities. (After all, they modify their behaviour accordingly – why would they, if they didn’t feel the burden.) Some falls on shareholders – the owners of capital – for sure. So you tax banks, and you rein in bankers’ bonuses, don’t you? Which is a good thing. You also, if you can tax them successfully, rein in oversize banks, which, in the light of all that’s happened is also a good thing.
I mean you say “workers” but you don’t mention who those workers are. When the “workers” at goldman sachs earn over half a million each, then I am not sure it’s such a bad thing that some of the tax “falls” on them (if it does.)
Now you wouldn’t want to admit it, would you, but a lot of wealthy folk shift their income into corporate categories to get at the lower tax rates. Then they hire shills to put forward incidence arguments, to drive the rates lower still.
So you see, your corporate incidence argument just isn’t right. The purpose of the argument, of course, is to drive down corporation tax rates, on capital gains taxes, and whatnot. And once that has happened, your friends will whisk all their money into those categories and make their taxes disappear. And the real “workers” who are cleaning toilets or fixing roads will then have to pay their taxes for them.
But let’s get back to the main thrust of that Mick Keen paper, shall we? Would you care to spell out why you are not engaging with that one? Do tell.
Tim adds: First line of the conclusion of that linked paper:
“This review suggests that the assumption of an open economy is not sufficient to conclude that
much of the burden of the corporate tax is shifted to labor. Indeed, assumptions of highly mobile capital
and highly substitutable products, internationally, are needed to ensure that the majority of the tax is
borne by labor.”
And where are we going to find highly mobile capital and highly substituitable products? Yup, in the poor, small and open economies. My point exactly.
LVT: The blog post (only one of many) is here:
” including the corporations themselves, as entities.”
This is impossible. Only people pay taxes.
And the main thrust of the Keen paper is that tax competition is bad for corporate tax revenues in those countries where there is tax competition. Well, D’oh!
But then, as we know, for the IMF has told us so, corporate taxes have higher deadweight costs than say property taxes. So it’s actually a good thing that countries are forced, through competition, to move taxation from mobile factors (like capital) to immobile like land. Hey, even Milton Friedman (to say nothing of Henry George) agreed with this one. That’s the part that Keen doesn’t address: he’s looking at whether corporation tax revenues fall as a result of competition and he’s right, they do. I’m asking a very different question: is it a good thing that the most damaging of taxes, corporation (and capital) tax, falls and other, less distorting, lower deadweight taxes make up the difference?
Yes, this is a good thing. Thus tax competition is a good thing.
Please note that none of this is about whether tax as a whole is a good or bad thing, nothing at all to do with whether the spending of the tax money will have beneficial effects. It’s purely and solely to do with what is the best way to raise the tax revenues desired. An LVT is absolutely the best, then other property taxes, then consumption taxes, then income, then capital and corporate, in decreasing order of desireability.
And yet you, John and Ritchie are flying around the world insisting that the very worst of those taxes must be increased.
OK, then you are asking one question, and I am asking another. Fair enough. And we simply disagree on whether corporation taxes are a good thing or not. I’ve demonstrated quite clearly here why your incidence argument doesn’t hold water. And your “this is impossible” argument is just sophistry. If companies change behaviour in response to taxes – which they do – then clearly taxes do fall on their shoulders, in very real and meaningful ways.
Tim adds: So you are indeed disagreeing with every economist who has studied corporate taxation, including at least one Noebel winner?
For example, companies change their behaviour in hte face of national insurance taxes. And yet we all agree that such are actually bourne by the workers, don’t we?