@richardjmurphy: Wrong yet again

Is there no beginning to Ritchie\’s talents?

So, he decides to tell students in the uni magazine all about his clever new plan to finance student fees.

The suggestion I am making is that companies
should pay an additional tax to provide university education for all those
wishing to participate, and that they do so from payment of an additional
corporate tax payable only by large companies in the UK (the UK

corporate tax system is already split
so that large companies – basically
those making profits of more than
£1,500,000 a year). According
to the theory of tax incidence
companies do not actually pay tax
at all, but do only do so as agents for
their shareholders.
Since, however, the shareholders
of large companies are, almost
invariably, amongst the top 10% of
income earners the suggestion I am
making creates a progressive tax
alternative which meets the needs
of society, and which also reflects
the fact that large companies are
the biggest beneficiaries of students
trained by the state because they
employ more of them than anyone
else to enhance their own profits.

OK, someone has at least managed to get him to grok to the existence of tax incidence. That\’s good. but he\’s still getting it howlingly wrong, isn\’t he kiddies?

In a closed economy, yes, capital, meaning the shareholders, will bear the burden of corporation tax. But we don\’t have a closed economy, do we? We have an open economy. One with the free movement of capital. Which means that it isn\’t shareholders that carry the burden of corporation tax: at least most certainly they don\’t exclusively do so.

In fact, here in the UK, most estimates are that it\’s the workers who carry the majority of the burden. What\’s even more fun is that in theory (but unlikely to be so in practice currently) the burden upon the workers can be more than the amount raised in tax: yes, incidence can be over 100%.

No, not some neo-liberal: Joe Stiglitz.

So well done Ritchie. Even after someone\’s been shouting to you about tax incidence for years, insisting that you have to take account of it, you still get it wrong.

20 thoughts on “@richardjmurphy: Wrong yet again”

  1. Since, however, the shareholders of large companies are, almost invariably, amongst the top 10% of income earners…

    This claim is just begging to be falsified. I could believe the converse: the top 10% of earners are in all likelihood shareholders (one way or another) in the largest companies. But that they, and they alone, account for almost all the beneficial shareholdings? Extremely doubtful.

  2. Surely he’s also wrong that “the shareholders
    of large companies are, almost invariably, amongst the top 10% of income earners”

    Latest statistics for owners of quoted shares are:
    42% foreign;
    25% pension funds, annuity providers, etc.;
    23% other institutions;
    10% individuals.

    http://www.statistics.gov.uk/pdfdir/share0110.pdf

    The 42% foreign is, I guess, where a lot of the driver behind tax incidence comes from (we being a fairly open economy). Foreign investors will go elsewhere more readily, so investment into the UK declines, so businesses are starved of capital, become less productive, and ultimately lay off the workers.

    Only 10% are private investors. Yes many of them will be in the wealthiest 10% (although not “almost invariably” all), but they’re only a tiny part of the total.

    The rest are pension funds, unit trusts & other financial institutions, investing on behalf of & for the benefit of a much broader range of people.

  3. “Since, however, the shareholders
    of large companies are, almost
    invariably, amongst the top 10% of
    income earners ”
    Although Richard has already pointed out this is rubbish.
    It is so rubbish it must be repeated that it rubbish.

  4. What’s the connection between corporate profits and financing university educations?

    Every time this guy sees money, he wants to take it away. On whatever grounds.

    I also think that corporate profits should be additionally taxed for all those single-subject axes I have to grind.

    (not telling, some of them are very personal)

  5. Underneath the stupid, there’s a glimmer of a worthwhile point. Businesses do benefit a lot from state subsidized education in some areas. In a more Hayekian society, we might see businesses providing/subsidising higher education in return for a close connection with potential employees. We already see accounting firms sponsoring maths societies at Russell Group universities; this would be an extension of that. It could even save the true academics, by providing efficient and useful higher education to most, thereby relieving the pressure on the courses for future researches/academics, and allowing specialisation to function.

  6. “Businesses do benefit a lot from state subsidized education in some areas.”

    Pffft! The last graduate I hired had a piece of paper with “degree” written on it. I didn’t even bother to read the course transcript: it was of no interest whatsoever.

    My company receives no value from these toilet paper degrees, and I’m damned sure I’m not paying a premium for them to continue rolling the presses.

  7. Ay is right, a few years ago, before tuition fees were introduced a study was done showing that the likely impact of tuition fees would be higher graduate salaries (in the industries that actually require graduates). Under the new system, people will be encouraged to make rational economic decisions rather than go to university because the consensus says it is the better thing to do.

    I am guessing this is why the new system is so hated by the Left, because people taking responsibility for their own decisions without the state’s “help” is anathema to them.

  8. Ay: “Businesses do benefit a lot from state subsidized education in some areas.”

    But businesses don’t exist in the sense of people that have feelings and interests that can be benefited. The real beneficiaries are consumers of the goods and services created by employing these graduates (if of course the extra productivity gained by the education outweighs the cost of acquiring that education). And these are, to a first approximation, everyone. So if we are going to tax to provide this public education, then we should tax everyone.

    (As for businesses being involved in accreditation, they do have useful information about what should be taught, while lacking quite the same as the incentive of professional societies to restrict entry, though perhaps there are some counter-arguments I haven’t thought of).

  9. “and which also reflects
    the fact that large companies are
    the biggest beneficiaries of students
    trained by the state ”

    Wrong, the biggest beneficiaries of students’ education is the students themselves.

    And I think he’s also wrong about large companies being the biggest employer of graduates. Most graduates I know are not on graduate schemes. I suspect only 20% are.

  10. “Wrong, the biggest beneficiaries of students’ education is the students themselves.”

    Debatable. Plenty of new grads saddled with huge debt would have been better off sans degree but three years higher up the career ladder.

  11. Kay Tie, if the degree is of no value to the student then it will surely be of no value to their employer.

  12. It doesn’t matter whether or not businesses are the biggest beneficiaries of university education – they still shouldn’t be taxed to pay for it.

    That would tax all businesses, to pay for all degrees.

    What we want is a system where the businesses who benefit from university education pay for the university education that benefits them.

    To do that, we would want a system where students pay the market value to go to university (with easy loans so that people aren’t discouraged by purely cashflow reasons), and companies pay more for people with the education they want, so that those loans can be paid off.

    That way we get proper signalling of what education is actually beneficial. And it’s pretty much what we’re going to get.

  13. So it sounds as if we have it about right then.

    There is a price to be paid by those wishing to go to university. Some of the newer universities are charging the same as Oxford and Cambridge, clearly the pricing for these is unsustainable.

    They will rapidly lose students and go out of business unless the adjust their price.

    The Russell Group of universities effectively have a fee cap on them. In a truly free market, this would be uncapped. At this end of the market we would expect to see all available capacity taken up as prices readjust.

    The solution is obviously to remove the caps and let the market determine the price. Some students will get a good value education going to Leeds Metropolitan (formally Leeds Polytechnic) and paying tuition fees of around 3,500 – 4,000 per year.

    Those with more money, better support, sponsorship, bursaries, etc. will be able to afford the higher prices at Russell Group universities.

    Simples.

    The difficulty that we have is that stupidities such as insisting that 50% of people should go to University and placing a requirement that specific roles be restricted to graduates only (Nursing????) mean that there are too many people who do not have the aptitude for a university having to go to a university and leading to a fall in standards.

    What was wrong with an electrician doing a three year apprenticship in learning how to wire a plug than a BSC in Electrical and Electronic Engineering?

    The economics here have been thoroughly fucked over by politicians and their “Prizes for Everyone” mentality.

    I’m glad that I’m too old for all this bollocks. All I’ve got is 20-years experience building IT systems.

  14. John Galt – that looks about right.

    Of course there are two groups who are effectively subsidised by the current system:

    1) students at better universities (whose fees are held down by the cap); and

    2) staff at the less good ones (whose salaries are held up because the government’s meddling allows their employers to charge higher fees than one would expect).

    I wonder what proportion of protestors come from each group?

  15. The more I think about this, the more puzzled I am about Murphy.

    If you are writing an article, to be published under your own name, and you want to say that something is “almost invariably” true, surely if you had the slightest doubt about that you would spend a couple of minutes checking it.

    And surely it is broadly known that pension funds are big investors in the Stock Market, and that plenty of people outside the richest 10% are members of pension funds.

    I had no idea what the actual figures were, or where to find them, but 2 minutes on Google turned them up.

    But Murphy published it anyway.

    So is it that:

    a) he’s so ignorant about basic investment, facts that are not specialist knowledge but matters of general discussion, that he didn’t even think “oh, what about pension funds?” when he wrote that; or

    b) he’s so idle that he thought about it, but couldn’t be bothered spending a couple of minutes checking it; or

    c) he thought it might be false, but wrote it anyway because it suited his argument and he thought most of his readers would be too ignorant and idle to pick up on it?

  16. My company receives no value from these toilet paper degrees, and I’m damned sure I’m not paying a premium for them to continue rolling the presses.

    Thank you.

    I’ve taken on the role of reviewing the code by a guy working for me who has a “computing degree” at the moment. The stuff he doesn’t know is bad. Fundamental stuff like indexing tables. Things that I’d get a training company to teach a junior in their first 4 weeks.

    A decade ago, I didn’t meet graduates like that. They knew stuff right down to the bare metal of computing (and could then apply that as they needed it).

  17. So Much For Subtlety

    Richard – “c) he thought it might be false, but wrote it anyway because it suited his argument and he thought most of his readers would be too ignorant and idle to pick up on it?”

    I wouldn’t be surprised but that sounds a little too cognitively advanced for Richie. It is more likely to be:

    d) He is rewarded for bullshit. Whether he knows it is bullshit or not is beside the point. What he knows is that the more of this sort of unresearched, poorly thought crap he writes, the more he is rewarded. Like a rat pressing a lever for a pellet. So he goes on pressing that lever. Doing what it was that worked last time. In the reasonable expectation that it will work this time.

    All he has to do to maintain his equilibrium is persuade himself that people who know better than him are actually all Fascists in the pay of Big Oil or the Jews or something.

  18. So Much For Subtlety

    Kay Tie – “My company receives no value from these toilet paper degrees, and I’m damned sure I’m not paying a premium for them to continue rolling the presses.”

    I have recently had to deal with some students from a Russell Group University – a 19th century one I think as well. Not only couldn’t they reliably distinguish between “there” and “their” in their formal assessed work (and I don’t mean a few mistakes, I mean random guess work would have produced a better result), they could not properly use the Grocer’s apostrophe either. As in, the plural of university is apparently university’s.

    Which wouldn’t matter much except one of them said that it was really interesting hearing me and a friend talking about WW1 because she knew nothing about the War at all. I will give you three guesses what degree she had done.

    Toilet paper is, at least, useful for one function.

  19. Richard: Actually, (c) is highly unlikely. The article was in a magazine for academics, and I’m pretty certain that’s why he pays lip service to tax incidence: there was surely a danger that a real economist might read it and realise that Murphy is an idiot was too great to ignore.

    On the other hand, (a) is pretty much guaranteed. The general public doesn’t know much about the financial markets, and Our Murph is very general.

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