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@richardjmurphy *still* doesn\’t get friggin\’ tax incidence

Dear Lord this is pitiful:

Now, at the meeting at the Social Market Foundation I attended this week HMRC director Judith Knott confirmed that HMRC have accepted another key element of right wing tax dogma – which is that companies can’t pay tax and only people do. She explicitly questioned as a result why we have a corporation tax.

Well it’s an interesting idea. So let’s explore it for a moment.

First, imagine there wasn’t a Marks & Spencer when you went into a store marked M&S. That’s what you’re being asked to believe. You’re being told M & S and all other companies are just make believe. You’re told they’re just a bunch of shareholders. Except that’s not true. You don’t contract with the shareholders. You do contract with M&S. And you do that because there would be no M&S without there being a limited liability company. No one would have taken the risk of creating M&S but for that limited liability. So not only is it not true there is no M&S, the reality is that the company called M&S facilitated something no person would have done. It’s real therefore. The claim that company is just an agent for its shareholders is wrong; it’s something much more than that, and its limited liability form has an impact for beyond anything that the shareholders would do, so it is an entity in its own right, and not a mere agent. That makes it taxable in its own right. It has profits all of its own, not due to anyone else that should be taxed – and the existence of retained reserves in almost all companies is sure indication of that fact. Denying this – as Judith Knott did – is simply an excuse not to tax a form of capital that has been captured by the management of these companies for their own gain.

Second, no one knows who a company represents. Most of the time a company has no idea who owns it. Some people own the shares in companies for fractions of seconds. How would we attribute profit to them to be taxed? Others hold their shares through other companies. How far do we have to go to find a person? Others record their ownership in tax havens to seek to avoid or evade tax. Why should we encourage them to do so? And how do we tax ownership where no person can be identified as having ownership rights – as in a discretionary trust? The argument that only people are taxed is simple to roll out – and impossible to apply. Knott should know that and yet she offered this glib explanation when there is in fact one excellent reason why we must tax companies – which is that they are by far the cheapest and most effective agent to tax to ensure that their owners, whoever, wherever and whatever they might be, are taxed to at least some degree on the income they derive from the company.

Knott would, presumably, rather lose the income to tax havens or tax avoidance: that’s the only reasonable interpretation of her adopting this trite argument that looks good on a blackboard at the Oxford Centre for Business Taxation and whose real world application is to encourage tax abuse, the shifting of the tax burden from capital to labour and from rich to poor and which will mightily increases the income and wealth gaps; all of them aims I am sure Oxford’s Centre is delighted to share. You would not consistently fail to point out the flaws in the argument if you didn’t believe in those consequences that have to flow from promoting it if that was not the case.

Look, I\’m sorry, but Edwin Seligman published on this in 1899 at which point all economists went \”Oh yes, how obvious\”.

The argument just isn\’t about whether a corporate structure exists or not, nor whether there is a legal ability to tax such a corporate structure.

As I have explained innumerable times over the years Ritchie is just being pigheaded in his refusal to understand the actual argument.

All taxes, by definition, mean that someone\’s pocket gets lighter. The study of tax incidence is \”whose?\”.

We do this all the time: do onsumers really pay VAT? What about income tax, is that really on wages (largely, yes)? How about employers\’ NI? Does that come off the wages of the employee or off the profits of the employer? Now I know that Ritchie agrees with the general view on that NI because he\’s said so. It depends upon hte various elasticities and the general iew is that some to all of employers\’ NI actually comes off the worker in the form of lower wages.

All we\’re doing in looking at the tax incidence of corporation tax is trying to work out whose pocket get lightened by it? Sure, we can see the money leaving the company but so can we with employers\’ NI? What happens next is what we\’re trying to work out.

And again, we\’ve got a general view. The more mobile capital is the more it is the workers in the form of lower wages who pay it. The less mobile capital is the more it is the shareholders in the form of lower returns. All of this isn\’t in doubt, it\’s, as above, one of those things economists have looked at and gone \”Oh Yes, obviously!\”.

We can have lovely arguments about how much, what the elasticities are: even Adam Smith pointed out that even in a world of perfect theoretical capital mobility we won\’t in fact have perfect capital mobility (this is where the one and only mention of \”invisible hand\” in Wealth of Nations comes in).

And do you know what really bugs the shit out of me? If Ritchie actually understood al of this it would be something helpful to his own arguments. He\’s said often enough that he thinks that capital is too mobile. That it ought to be more constrained. And tax incidence is actually a great argument for him to be using: look, we want to constrain capital mobility so that we can tax capital returns rather than workers\’ wages bearing the brunt of corporation tax.

But he\’s so insistent that cdorporations themselves must be taxed, so ignorant of the underlying economics, that he misses this open goal.

22 thoughts on “@richardjmurphy *still* doesn\’t get friggin\’ tax incidence”

  1. Brian, follower of Deornoth

    My company consists of the Certificate of Incorporation, six copies of the Articles of Association, and the Company Seal. Good luck getting any tax out of those things.

  2. It’s not so much pig-headedness. It’s a paradigmatic thing. I wrote a post over at Cats t’other day about the new real time reporting malarkey for tax, and in it I wandered onto the point that the Progressive mind understands the world in terms of institutions, and as such to them, institutions- “The Ministry Of Stuff” or “Imperial Widgets” or “Penge University” are more real than people, who are mere constituents of the institutions that comprise the system. Thus, economic (and other) interactions and transfers are inherently institutional matters to such a mind.

    So it’s impossible for Murphy to comprehend the world in any other way without a fundamental paradigm shift. He would have to start perceiving the whole of society and the economy in a fundamentally different manner. Which is unlikely.

    But we do have to be fair. It’s not like he is unique in this. We became an overtly institutional society in the Victorian Era- part of the horrific wave of error that overwhelmed our ancestors at that time. It leads naturally to the strange, irrational forms of economics by which people attempt to “run the economy”, particularly the belief in form of goose entrail reading based upon imaginary constructions called “aggregate statistical measures”. In a paradigm so mad that it is routinely believed that a hypothetical institution called “the nation” has a product- and even more strangely that you can meaningfully measure such a thing- Ritchie’s view isn’t the weird one. Sadly.

  3. Dickie said: “… the shifting of the tax burden from capital to labour and from rich to poor …”

    Because of tax incidence the burden is already on labour isn’t it? The labour of the employees and the labour of the consumers earning money to buy the goods or services.

    If that is so then Dickie’s problems stem from believing capital is already being taxed, just to not a high enough level to satisfy him.

    As an aside Tim, you suggest that tax incidence would support Dickie’s argument if only he could realise this. But you talk of taxing returns on capital. Dickie is talking (here at least) about the capital itself. Is this a significant difference or Dickie using capital to mean returns on capital?

  4. Gareth (#4), you’re still not thinking down to Murphy’s level of economics. By “capital” he probably means “rich, fat Tories in top hats”.

  5. . Most of the time a company has no idea who owns it.

    Simply not true. Failing to maintain the register of members (s114 Companies Act 2006) or have it open for public inspection (s113) are criminal offences.

  6. SE

    You’re doing a lot better than Ritchie, who seems to have completely forgotten about the register of members.

  7. re: Brian, follower of Deornoth

    Your documents are subject to a Text Tax, equal to 15% of all vowels and sometimes “y”.

    Fl t cmpl nd y wll b pnlzd.

  8. why should anyone be surprised about the Murph-meister not understanding the concept of tax incidence? It would not be possible to draw up a complete list of the concepts he has no grasp of – and you can start with manners, logic, free speech etc.

    He is, purely and simply, the WGCE.

  9. Hmm : “they are by far the cheapest and most effective agent to tax to ensure that their owners, whoever, wherever and whatever they might be, are taxed to at least some degree on the income they derive from the company.”

    Wait, what ? So corporations are real entities with their own profits not due anyone else, so we should tax them, because that’s the easiest way to get money from the people to whom those profits are, in fact, due.

    That shit is really fucked up right there. That’s the kind of hateful, self falsifying bullshit that a cut price ideologue churns out because they honestly believe that the people *on their own side* are too butt clenchingly stupid to spot either the flaws in, or indeed the complete lack of, the logic.

    It shades more towards the vile than the pitiful, IMO.

  10. Well, I suppose it’s one way of forcing companies to pay their workers more…..take the money out of the company in tax then feed it back to their workers in the form of in-work benefits. Minus the cut required to pay HMRC and benefits staff, of course 🙂

  11. Ritchie, who seems to have completely forgotten about the register of members.

    He’d probably claim that because you can have corporations, pension funds, nominees, tax haven whatever-he’s-being-paid-to-despise-this-week etc on the register, that it doesn’t reflect ‘actual’ ownership.

    But, then, he believes that everything belongs to the people, through their always altruistic and never in error agent, the beneficent state (note to JuliaM and Anna – if you’re going to boak, do it outside). So the register must be wrong.

  12. “He’s said often enough that he thinks that capital is too mobile.”

    Indeed. Why let capital go where returns are highest? Viva financial repression!

  13. Interesting notion that it’s impossible to ascertain who owns a company’s shares. It might be true that some people own shares in a company for short periods of time. It’s also irrelevant. I wonder if Murphy is aware how sales of stock actually occur in the real world. Do you think he knows the function of a clearing corporation? Or how brokers move stocks on and off their books?

    He’d probably dismiss this as a technicality, which is Murphy-speak for “highly important issue that cuts to the heart of the matter but which my crippling mental retardation, arrogance and stubbornness prevent me from grasping.”

  14. @Anoneumouse

    Hey the next person arrested for tax evation should use that as their defence!!

    “It wasn’t me your honour!! it was the share certificate!!!”

  15. Just wondering…does Ritchie actually get the idea of incidence, but know that if he ever admits a company cannot physically incur the pain of any tax, it will put him at odds with this union clients who unshakeably think companies are a cow to be milked? And that’s the end of ‘Ker-ching’.

    So he doesn’t need to convince us of the argument, he just needs to convince Brendan Barber. And if he achieves that, then job done.

    The bigger stupidity in the piece is the way he seems determined now to turn himself into Judith Knott’s enemy. I had never previously heard of her, but I suspect she will not be enjoying this publicity.

    I work in the public sector and know that senior public sector workers HATE having their private views aired publicly. They know they have to serve superiors and politicians of all colours, and know their cards can be marked if they are known to have views which are off message.

    I suspect he may now be persona non grata at events where senior public servants are invited to speak their minds. Knowing Ritchie will just be in the room will dissuade anyone from speaking. Why risk your career for the sake of some jackass?

    The only events he will be invited to will be ones where public sector speakers just play the party line (in other words, the boring ones).

    The way he is now trying to argue that Chatham House Rules were not formally declared (funny how he looks to technicalities rather than the spirit of the rule when he’s in the dock, eh?) makes him look like a complete pillock without an ounce of common sense, trustworthiness or basic understanding of how senior public sector executives think.

    He really has cooked his goose. Stupid, naive man.

  16. What next with you lot? Political imprisonment?

    Look at this one, “Why risk your career….”. Why is it alright to “risk your career” in front of one set of people, bearing in mind you are the director of HMRC, but not in front of another?

    And Gillies, you’re a wanker.

    Did I mention Gillies is a wanker?

  17. From the viewpoint of economic efficiency any fule kno that corporation tax is bad (tax distorts incentives). However, in the UK if you didnt tax corporations and it was passed through to shareholders (either as dividends or capital gain – whether held for a few seconds or as part of a pension scheme) this would mean that some gains accruing to overseas shareholders would not be taxed in this country.

    Tim adds: And the problem with this is what?

    Foreigners send their money to build houses for us, make machines that make our work more productive, and you want to complain because they are not taxed for making us richer?


  18. Why is it alright to “risk your career” in front of one set of people, bearing in mind you are the director of HMRC, but not in front of another?

    Should probably be “blockheadquote” but …

    You have singularly failed to understand the issue under discussion. Which, really, isn’t a surprise.

    If you attend a meeting where you are encouraged to put forth your views or idea. Statements that may be contrary to current or future government policy (or the spin on that policy, or would upset J Random backbencher or newspaper columnist who will demand your head on a platter) and somebody is going to attribute those views to you on the interwebs, then you may be putting your career at risk.

    If you attend a meeting held under the Chatham House rule and the attendees obey it, you can get your point of view across without risking your career.

    In any meeting attended by your demi-god, the latter is clearly not an option.

  19. Tim.
    The issue is complicated. If we reduced corporation tax to zero and allowed it to be taxed as dividends and capital gains, there would be an immediate shortfall in short term revenue caused by the foregone corporation tax which accrues to foreigners. However, it would make the UK a more attractive place to invest, which should increase incoming capital, which would make the UK better off. I’ve not seen anything that looks at the distributional implications or the economic effects (although I’d expect them to be positive in the long run).

    It would undoubtedly be a short term consideration, especially politically, even if we think it would be sensible in the long run.

    And yes, it doesnt alter the fact that Ritchie is thick.

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