I don\’t believe it. Ritchie *still* doesn\’t get tax incidence

Secondly although the lovers of neoliberal economics say that if it were to be eliminated the incidence would all be on consumers with the very greatest of respect that is utter nonsense.

That statement is utter nonsense, yes: but because that\’s not what we neoliberals say at all.

What we do say is that the current incidence of the current coproation tax is largely or wholly being bourne by workers at the moment in the form of lower wages. The smaller and more open the economy is the more of it is carried by the workers. There are reasonable (if at the extreme end of the range of estimates) estimates that say that 100% or more of the current UK corporation tax is carried by the workers in that form of lower wages.

So our claim is not that if the tax were eliminated the incidence would therefore fall on consumers. It is, rather, that urrently the burden is on workers so why not abolish the tax and

a) Simply tax the workers directly, given that they are already paying

or

b) Try another, different tax so as to actually tax the returns to capital that you are trying to tax.

It assumes that all those undertaking it are monopolists and consumer pressure has no influence on pricing.

The argument neither assumes nor requires either of those things.

We need only two assumptions for the tax incidence argument to work.

1) That there is a \”natural\” or average risk free rate of return to capital across the world.

2) That capital is free to move across tax jurisdiction boundaries.

Thus, if one tax jurisdiction increases the tax on returns to capital then that post tax risk free rate in that economy falls. Which will lead to less such investment in the future. Given that average wages are determined by average productivity and that productivity is determined in part by how much capital is available to be employed alongside the labour of each worker, therefore productivity in the future will be lower than it would have been without the tax on capital. And lower future average productivity will mean lower average wages in the future.

There are only two ways out of this.

y) Have one single global tax level on returns to capital

and/or

z) Have a closed economy in which capital is not mobile.

I don\’t think anyone is really ready for solution y as yet and solution z leads to such notable economic successes as North Korea.

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