Let us now praise (some) rich men and women, the rare few who understand that philanthropy is no substitute for tax. First honours go to Warren Buffett calling on the rich to pay their fair share of tax and rejoin society. \”My friends and I have been coddled long enough by a billionaire-friendly Congress. It\’s time for our government to get serious about shared sacrifice,\” he wrote in the New York Times, indignant at being taxed half what his office employees pay.
He\’s not taxed half what his office employees pay. He\’s taxed at half the rate that his employees pay.
And this rate difference is made up of two things: social security (ie, our own national insurance) and corporate taxation.
SS has a cap on it, just as employees\’ NI does. The reason being that it\’s supposed to be (more in the breach than reality but still) an insurance payment. And there\’s a cap to the payouts. You don\’t get more NHS treatment if you\’re rich and have paid more NI (or more Medicare if you\’ve paid SS), you don\’t get a higher pension etc. So, given that the payout is capped, so are the premiums.
If you want to change that, just fine: fold NI (or SS) into income tax. The reason no one does that is because it will show quite how high income tax is now: marginal rates of 40% odd on people working part time on the minimum wage for example.
On corporation tax why don\’t we use Richard Murphy to explain it?
We all agree that companies don\’t pay it: tax always, in the end, comes out of the pocket of some person somewhere. And no, corporate personality does not mean that they are a person in this sense.
The argument is always whose pocket that corporation tax comes out of. I tend to argue that in an open economy like ours it\’s the workers, in the form of lower wages, who ultimately pay it. There\’s good research to show I\’m right too.
Murph argues to the contrary. It is shareholders, in the form of lower dividends, share prices and capital gains who pay it ultimately.
Gauke like me believes there is tax incidence – corporation tax is paid by someone else than a company at the end of the day. He however hides behind the convenient claims of the Oxford Centre for Business Taxation that the charge falls on labour (an argument contrived on the basis of exceptionally dubious and bluntly biased analysis that only looked at the consequence of corporation tax increases and not decreases – which is what Gauke is delivering). The reality is as I say – that tax cuts deliver wealth to shareholders and no one else.
In other words, they said they would give up $3.2 billion in taxes, voluntarily – and the shareholders took a hit to the tune of just about the same amount, before sanity, and the share price, were restored.
Can one conclude from this that the shareholders, conscious that they wouldn’t be able to palm the burden those extra taxes off onto workers, clearly recognise here that they are the ones to bear the burden of this tax?
Mr. Shaxson again:
Gauke’s claim of a “consensus among economists” that the burden of corporation taxes falls on employees and not on capital owners, is false. The US Congressional Budget Office said last week that it was “unclear” how much of the corporation tax burden fell on employees; earlier, it said that capital bore most or all of the corporate tax burden. The Institute for Taxation and Economic Policy (ITEP) in Washington said this month that the incidence of corporate tax fell mostly on capital owners, not employees. It added that corporate income tax was among the most progressive taxes, because stock ownership was heavily concentrated among the wealthiest taxpayers. This is an especially precious tax.
So, the claim is that shareholders in corporations really pay the corporation or corporate income tax. Let us, just for the sake of argument, accept that point for a moment.
Well, Warren Buffett\’s tax rates isn\’t 17.4% then is it? He\’s carrying the burden of the 35% (statutory) rate as well as the 17.4% in income tax and payroll taxes, isn\’t he? Some 44, 45% then?
Which leads us to a rather joyous argument: either Warren Buffett is paying much more than that 17.4% or the incidence of the corporate income tax falls on the workers. The one position you cannot hold is that shareholders carry the burden and that his tax rate doesn\’t include that burden.
So, Mssrs. Shaxson and Murphy, which is it?