No Polly, no

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.

Nick Shaxson:

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?

17 thoughts on “No Polly, no”

  1. I’m kinda getting bored of the whole quoting Buffett thing (e.g. today’s Polly piece). I accept your point Tim about the effective rate, and I also accept your point about revealed preference, but in a sense these are details.

    Polly et al are being indulged in a basic category error: It is fine for someone to turn to the state and say “Hey – *I’ve* got too much money. Take some more and spend it on whatever *you* think.” It is *not* fine for someone to say “Hey – *he* has too much money. Take some more and spend it on whatever *I* think.”

  2. Yes, but that not what we mean!!!! He’s got loads of money and we want it!!! Its in the spirit of the tax law (or something – we’ll make that bit up later).

    Of course Warren could just send a large cheque to the IRS if he liked………………….

  3. Is there good reason to think that incidence must be much the same for different firms operating in different markets (including labour and capital markets)?

  4. She’s having a little pop at you in the comments, Tim. Did you see?

    “@WestRuntonWeasel Yes, anyone can volunteer to pay extra taxes, as Tim Worstall always points out about any of us who advocate fairer taxes for the better paid, especially on wealth and property. But that requires the saintliness of a Ghandi. The point about tax is that it is the most communitarian thing we all do together. The spirit of I-will-if-you-will is what makes tax acceptable – We all do it, fairly, together – and we should be far angrier about those who avoid the spirit of tax rules, – let alone those who evade illegally – as it breaks that spirit and makes others reluctant to pay.”

    (I was glad to see one or two brave souls daring to mention her own wealth – and the tax-avoidance of the Guardian itself.)

  5. Why should Buffet pay any social security taxes at all? He’s rich enough not to need to be insured by the US govt, and he’s past retirement age, having paid into the pot for many years.

  6. Tom, what a strange little arguement she is building. A progressive tax rate is evidently *not* communitarian. Rather it is about the identification and selection of small segments of society, and then forcing them to behave differently (pay a higher rate of tax). That same behaviour is not then required of the rest of the community.

  7. “The point about tax is that it is the most communitarian thing we all do together.”

    Speaks volumes about the woman.

    The rest of us play sport, join clubs, get involved with our religious organisations, get involved in charties and voluntary work, and meet up in the pub or the playground with the kids.

    For her, the idea of communitarian is to write the cheque and STFU.

  8. Its more proof of what I suggested in the Guardian & Tax thread – a lot of people don’t really ‘get’ the concept of percentages.

    The question I would like asked to anyone demanding ‘the rich’ pay ‘their fair share’ is that they first define a) what ‘rich’ is (in numerical terms) and b) what ‘a fair share’ is (as a percentage of total income).

    I want these people to have to state outright what the maximum amount of someone’s income they consider it is fair for the State to take by force.

  9. Surreptitious Evil

    DocBud,

    We’d call it the “Toynbee tax”. And set the take at some socially progressive rate.

  10. But this lunacy always stalls at the point where Polly demonstrates the superiority of her morality by volunteering more of her own money to the Tax man.

    Go on, Pol, sell your Tuscan villa and give him the money. The money could hire half a dozen nurses, or help disadvantaged kids, or pay for an immigrant’s flat; rather than supporting your backside in the Italian sun.

    As I said to the idiot French boyfriend of a friend of mine the other day, as he started banging on about humanity being a curse on the face of the planet, and how we should reduce the population in the corrupt West, blah, blah, blah…

    I said, ‘You first”.

  11. A commendable letter in the today’s Times repeats this quote from Hayek: “That a majority, merely because it is a majority, should be entitled to apply to a minority a rule which does not apply to itself is an infringement of a principle much more fundamental than democracy itself, a principle on which the justification of democracy rests”.

    Some people might argue that treating certain minorities differently yields a net benefit to society, but I wish those who do would at least abandon the idea that doing so has anything to do with treating people equally or fairly.

  12. I’m really beginning to suspect that your typical leftist actually does not understad that 15% of $100 million is quite a bit more than 25% of $50,000.

    Also, it occurred to me recently that taxing Warren Buffet is just plain bad policy. He has a marginal savings rate of 100% over a very wide margin, so there’s essentially no sane tax rate that could be applied to his income in a way that would reduce his personal consumption expenditures.

    Any taxes levied against Warren Buffett simply reduce the amount of money he has available to invest productively, pulling money straight out of the economy’s capital stock. Taxing Warren Buffett is eating the seed corn, pure and simple.

  13. Brandon:

    You are correct but have not considered the most likely explanation for the seeming great generosity of Mr. Buffett (and many others of the very wealthy and especially of the various not-for-profit foundations, charitable trusts, etc.

    The greatest threat to the profits and relative
    success of the already-established and wealthy is the constant threat posed by innovators and entrepreneuial newcomers. The newcomers’ (because they are newcomers) largest hurdle in their striving for growth is the difficulty inherent in the process of accumulating capital from the profits generated by their success.

    Higher tax rates, for already-established firms
    (and individuals) may reduce their absolute incomes but go a long way toward assuring their relative positions (even assuring, that if such a competitor is publicly-held, they and others like them can influence the upstart’s marketplace behavior simply by owning more of its shares than the innovator himself can afford).

Leave a Reply

Your email address will not be published. Required fields are marked *