Oh Dearie Me Class: snookered by the Murphmeister

So Ritchie does a paper for CLASS, the new union supported let\’s think of the magic money tree think tank.

And even in the press release about the paper we find that facts are not as they are claimed:

The impact is easy to identify. Over a period of thirty years top rates of income tax have fallen from 60% to 45%, corporation tax rates will have more than halved, the use of tax havens by UK based multinational corporations is now officially sanctioned and even encouraged by tax law whilst VAT is at its highest ever rate. Inequality in the UK has risen. The share of national income paid to labour has fallen; the share to profits has risen.

30 years, right? 1982? Profit share as portion of national income?

Hmm, eyeballing it I would say that the profit share of income has fallen since 1982 actually.

Because, you see, Ritchie is making the schoolboy howler of thinking that if the labour share of income has fallen then therefore the profit share must have risen. When that\’s something that just ain\’t true.

It\’s is possible that the profit share will rise when the labour share falls, sure. But it is not necessary. As, in fact, it turns out it hasn\’t.

Now, perhaps we might consider this to be just some arcane numerological nonsense to which no attention need to be paid. But our problem is that on the back of this, umm, error to lie, we are actually getting national policy proposed. And basing national policy on an error to lie is not going to work out well, is it?

Please note that this is nothing at all to do with the desirability of the profit or labour share rising or falling. It\’s that we need to actually face the facts about what has been happening before we do anything at all to try and plan what to do about it.

The true story of the last 30 years in the national income accounts?

The labour wage share of the labour share of national income has been falling as employer paid national insurance rises.

The labour share of national income has been falling as the profit share has risen since the mid 70s, fallen since the early 80s and is, around and about, at its long term average.

What has risen as a share of national income over this time period (ie, neatly explaining the falling share of labour without boosting the profit share) is taxes minus subsidies (this is largely the effect of VAT rising over the decades) and a smaller rise in mixed income (essentially, self-employment and unincorporated businesses).

And our reaction to the falling labour share is going to be different if it\’s the bastard capitalists taking it all or the bastard government taking it all, isn\’t it?

Murph wants to lead us down that former path: while the truth is that latter one.

4 thoughts on “Oh Dearie Me Class: snookered by the Murphmeister”

  1. To be pedantic the highest ever rate of VAT was 25% from Nov 1974 to April 1976.

    In those days there was a standard rate of 8% and a luxury rate (which included petrol).

  2. “the use of tax havens by UK based multinational corporations is now officially sanctioned and even encouraged by tax law”

    So use of tax havens is now tax compliance, not tax avoidance! Trebles all round…

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