Ritchie and tax incidence

So, he\’s trying to deny that corporations do not bear the burden of corporation tax.

In summary: corporations can and do bear tax and they also change who pays tax, where tax is paid, when it is paid and at what rate.

Err, what? If the corporation bears the tax then it cannot change who bears it, can they? Only if it is not the corporation bearing the tax can the operations of the corporation change who does bear the burden.

And in his reasoning he tells us that:

However, we accept that this point has also been challenged, with some economists arguing that the owners of capital (the shareholders) do not in fact pay the corporation tax charged to a company and that the customers, or more often, the employees do. We do not agree, again, and are not alone in our opinion.

A US Congressional Budget Office report concluded in May 2010, that capital(shareholders) bears the majority and maybe all of the corporate tax burden. It was also not alone: another Congressional Budget Office report in March 2011 hedged its bets: it suggested when offering advice on measures that could help close the US fiscal deficit that increasing corporation tax would in the short term (by which it implied several years) increase the tax burden on companies themselves.

Thereafter it recognised that there could be a theoretical shift of the burden onto labour, but by then no one could be sure because other factors would have intervened and a great many further short term changes would have taken place.Any other answer but this comes, in our opinion, solely from the realm of theory and has no practical application. This has not stopped some seriously misleading claims being made with regard to tax incidence. In particular almost all the claims that the incidence of corporation tax falls on labour appear seriously and even fundamentally flawed.

Note what is being argued there: that the corporation tax falls somewhat to mostly upon returns to capital, somewhat to not very much on returns to labour.

That is, the incidence of the tax simply isn\’t on the corporation, we\’re arguing about whether the incidence is upon capital or labour.

So, Ritchie is using as proof that corporations do pay corporation tax the argument that actually it\’s capital that pays it not corporations.

Is there no beginning to this man\’s logical ability?

56 thoughts on “Ritchie and tax incidence”

  1. As I am wont to point out though, we do need to remember that this argument is not unique to corporations. Every tax is incident on other people. Tax me, the people I would have traded with suffer.

    Because the economy is like that circle of life in The Lion King thing.

  2. Offshore Observer

    At the end of the day all taxes require less money in a persons pocket. Only real flesh and blood humans pay taxes. Land, Companies, Luxury Cars, etc don’t pay tax.

    Any arguments that companies pay tax is simply bollocks. A “company” is a figment of our imagination, it simply doesn’t exist. That is why it is called a “legal person”, it is a fiction that the Law deems real.

    Pretend things can’t pay tax. You would think that allegedly smart people would understand.

    In a sense corporation tax is more of an anti-avoidance tool rather than a genuine tax. It was probably introduced to stop people avoiding income tax by running it through corporations (bullshit warning, I just made that up and have no idea whether its true but it wouldn’t surprise me if it was)

  3. So Much For Subtlety

    In summary: corporations can and do bear tax and they also change who pays tax, where tax is paid, when it is paid and at what rate.

    I think you are over-rating his intelligence. By where it is paid, he probably means that a corporation can move the tax off shore in some way by incorporating in Ireland or doing some clever deal with a subsidiary in the Virgin Islands or whatever. In the same way they can change who pays it and at what rate.

    He is not yet up to grasping tax incidence imo.

  4. Or is he taking the line “capital(shareholders) bears the majority and maybe all of the corporate tax burden…”

    to mean shareholders=corporations?

  5. I think he’s using the line “capital(shareholders) bears the majority and maybe all of the corporate tax burden” and then assuming that shareholders=corporations.

  6. Following on from another thread, if tax isn’t incident on anyone else, where’s the harm in taxing charitable corporations?

  7. Off topic, but Jesus wept, Tim, what the fuck have you done to the blog now? It is literally — and I don’t misuse “literally” — illegible. Bits of the sidebar are down the middle of the page, overlapping the main text, and my current typing. The links in the sidebar extend the entire width of the page, meaning, for instance, that if I put my mouse over the word “page” that I just typed there, it highlights “July 2011” and blanks out the entire line. The only way for me to edit what I’m typing right now is to go back and forth with the cursor keys, as the whole text box is overlapped with links, making the mouse useless. Same goes for most of the links in your posts: can’t click ’em. The borders between the sidebar links also extend the whole width of the page, making it look like it’s typed on lined paper, except the lines are on top of the writing.

    I really liked the initial redesign. This is an unmitigated disaster.

    I’m using IE8, in case you were wondering. No doubt the blog works on some other browser, or I rather hope you’d never have published it.

    Course, now I’ve got to try and figure out a way to click the “Post Comment” button. Hmm….

  8. IanB: “Every tax is incident on other people. Tax me, the people I would have traded with suffer.”

    True. But you suffer the most. Every lost pound in tax to you is one less thing you can buy to survive – less food, less heat, less shelter. Yes the people you would have spent those pounds with have lost some of their profits they would otherwise have made, but their losses are of magnitude smaller than yours. You bear the greatest burden of the tax. Imagine a 100% IanB income tax. The State decides to remove 100% of your income by force. Who suffers most, you, Tesco or your landlord?

    But in the case of the corporation it needs no food, clothes or place to live. It exists in our minds only. How therefore can it suffer?

    Answer – it can’t of course. Someone else has to suffer the corporation’s loss. And that someone is a physical person – a worker, an owner or a customer.

  9. Tim,

    @Squander Two is correct. It doesn’t display properly in IE8 and IE9. Haven’t checked IE7 or IE10. Works fine if Firefox and Chrome. The main display problems appear further down the page.

    There’s a useful tool called IETester which allows you to easily do these sort of compatibility checks. http://my-debugbar.com/wiki/IETester/HomePage

  10. Yep, broken in IE9 here too. Ironically, there’s an IE browser sniffer at the start of the HTML 🙂

  11. Squander>

    “I’m using IE8”

    Then you deserve everything you get… Seriously, though, why would you do that to yourself? Workplace restriction? It’s simply obsolete software, as would be any other five year old browser you tried to use.

    Now, admittedly, WordPress themes really, really ought not to be breaking on IE8, but there are plenty of other sites around which legitimately use features that just weren’t available when IE8 was built, and which will break because the designers of the browser didn’t predict future standards. If you use a browser that’s out of date, and also makes up less than 10% of the market – if I remember rightly, in Europe it’s down to around 7.5% – then you have to expect large portions of the web to be broken for you.

    Essentially, you’re doing something akin to complaining that DVDs don’t work in your Betamax player.

  12. Offshore Observer

    I’m using IE8 and its fine if you click combatability view. But in my defence I would use chrome or firefox if I could (and do at home)

  13. GlenDorran

    Or, that shareholders are all rich bastards, and not significantly made up from the ISAs and pension funds of fairly ordinary working- and middle-class folk.

  14. The only good reason for taxing corporations as opposed to the individual flesh-and-blood human beings that consist of their shareholders and employees is if it’s easier to collect the full amount desired. Given that Richie et al are insistently pointing out that this doesn’t happen in today’s globalised world, it leads me to believe that a shift of the burden to individuals (be it via capital gains, income, or land value taxes) is inevitable in the long run.

  15. Despite the title of his piece, the real point was to show that capital gets hit the most from CT and that tghis is a good thing in itself; pure marxism.
    There is a challenge in there though, a challenge perhaps for Tim and/or the ASI. They are arguing strongly that increases in CT do not affect labour, that the long term decline of CT rates has been accompanied by a relative decline in labour’s share GDP. If this argument takes hold in the public consciousness then bad things could result.

  16. Dave,

    This is not my PC.

    On my own PC (on which I have not tried this blog yet), I’ve just switched from Firefox to IE10. Firefox used to be better, but IE now trounces the opposition on security. Got to move with the times.

  17. I might add that I’m hardly complaining that the HTML5 embedded interactive videos don’t work. It’s a blog. Writing and links is all that’s here. To talk of new Web features which the makers of IE8 never predicted is a tad disingenuous.

  18. It’s the unreliability of CSS layout, which is basically a very poor design from an ergonomic standpoint; the layout features are bolted onto a paradigm of a “document” which most web pages aren’t any more (and which HTML5 attempts to address, to a small degree).

    I still mostly use tables myself. So I know where the columns are going to be. Styling is good for styling elements, but it’s just not a good approach for layout.

  19. And since capital is almost instantly movable around the world corporation tax is the tax most punishing of investment in Britain. And as the Irish proved 2 decades ago, cutting it can, almost alone, get you into fast growth.

    If we actively wanted to prevent growth we would invent corporation tax, but as it happens, we don’t have to.

  20. Similar to Offshore Observer above, this is now useless in IE9 as well unless you click the compatibilty icon (thanks for the tip on that) and at which point it springs back to something that is readable again.

  21. “Then you deserve everything you get”

    It was obvious this message was coming from the moment IE was mentioned, it was just a case of trying to guess who would send it.

    It was Dave!

    “Essentially, you’re doing something akin to complaining that DVDs don’t work in your Betamax player.”

    Except it also fails with IE9, as Justin pointed out above you. IE9 is two years old, and according to this guy (http://news.cnet.com/8301-1023_3-57582279-93/ie-10-doubles-its-share-of-desktop-browser-market/) IE8 and IE9 make up 40% of the market.

    Can you make up a witty metaphor for expecting a blog to work on more than 60% of browsers?

  22. At least one of the three or four people who use Opera 12.15 is delighted to confirm that it now works very well indeed; no irritating gibberish characters for quotes and inverted commas.

  23. Oh, no-one’s said anything interesting since, so I can talk about browsers again.

    I had to go off and talk about browsers to people who actually paid me for it before, so sorry for the delayed response.


    As I said, WordPress really ought to work on anything. But WordPress is shit, that’s a given. I didn’t intend my comments to refer to this site specifically.

    I was more interested – genuinely, it’s worth money to me to know – in why you were using an obsolete browser, even if I was being a little flippant. I understand the requirement for some businesses to continue to support legacy browsers for specific purposes, but I have never found anyone with a good reason for keeping obsolete browsers as the exclusive standard within a company, despite it being a depressingly common problem I run across. In fact, I’ve never seen a good reason for keeping a legacy browser as default – the closest I’ve seen was a large bank where upgrading IE6-reliant webapps was a significant cost, but still less than the lost productivity as a result of using a massively obsolete browser (by that point) across the company.


    I’ve often wondered if you’re a very subtle troll. Now I’m sure. Well played.

    Mr Potarto>

    Really, I couldn’t care less who makes a browser. They’re tools for a job. Saying so keeps earning me stupidly large amounts of money for such a simple statement, but that’s tech for you. Any five year old browser will do just as badly in general usage because they’re all pre-HTML 5.

    Software can become obsolete just as fast, or even faster than hardware. Browsers have seen particularly rapid developments in recent years, and have become obsolete even faster than, say, phones. We’re talking about a browser roughly as old as the first-gen iPhone, for some context.

    “IE8 and IE9 make up 40% of the market.”

    And Apple and my local corner shop are jointly one of the world’s largest conglomerates. I like the way you accused me of being disingenuous.

  24. Christ! *Another* thread where Dave demonstrates his inability to read.

    I didn’t accuse you of being disingenuous, I accused you of making the lazy, standard, “IE is for n00bz” criticism.

    “Apple and my local corner shop are jointly one of the world’s largest conglomerates”

    Except that in the link I posted, IE8 is the larger of the two. So yes, if your corner shop was larger than Apple your analogy would hold.

    Let me try and be clearer. You slagged the guy off for using IE8 because it’s old, but if he upgraded to IE9 then it still wouldn’t work. So your argument is crap.

    There is one overwhelming reason why people use old versions of IE – it is mandated by their companies. But you knew that already, so what is your point. Is it just to tell us that you earn so much money?

  25. IE9 is hardly an ancient browser. I’ll also add that as an Opera user myself, it works fine in that.

    Also, it’s hardly trolling to point out that CSS layout is badly designed. Unless you’re one of those people who believe that anything that comes from the web standards bureacracy must be automatically good, because, you know, bureaucracies are so good at setting standards.

    The most reliable way to get a basic multi-column layout is a table. Just is. Doesn’t break and have people going “everything’s overprinted in my browser” kind of thing.

  26. Thought I’d jump in on with some new insight.

    It looks & works great on Chrome.

    I remember having ‘wars’ at school about whether the Spectrum 48k was better than a Commodore 64. Manic Miner was the trump card for the speccy owners. Tim’s new layout seems to be playing a similar role in this new ‘War of the Browsers’!!

  27. Now, now boys.

    Put the knives away before this turns into a browser war and you make a retired accountant happy by murdering each other.

  28. This isn’t Tim- but I’m logged in as him sorting this out.

    Is IE8 (& 9?) OK now? I’ve added a header to force it into compatibility mode.

  29. Ironically, since my last post Microsoft forcibly upgraded me to IE10, which I’m frankly slightly narked about.

  30. David,

    > is it really that hard to put some words on the internet in 2013?

    Note Ian’s comment above:

    > bureaucracies are so good at setting standards.

    I think that tells us all we need to know about why publishing some text on the Web is now an order of magnitude more difficult than it was in 1992.

  31. Well, yes, web publishing is more complicated than it used to be, but these problems only occur in Internet Explorer, which deliberately broke standards in an attempt to use its de facto monopoly as leverage to knock out competitors.

  32. If the site isn’t working in IE8 still, could someone please send a screenshot to [email protected] – the page does render properly in the only online test sites I found that didn’t block this as an adult site… I expect the swearing might have something to do with that.

  33. @ Dave

    “I have never found anyone with a good reason for keeping obsolete browsers as the exclusive standard within a company, despite it being a depressingly common problem I run across.”

    This has troubled me also, and I have concluded that it’s down to simple control-freakery on the part of IT departments who have yet to notice that it’s not 1995 anymore, and the restrictive and controlled approaches to software that were necessary in the early days of PC ubiquity are now largely redundant.

    We’ve managed to change that mindset within my organisation, but we’re embarking on a product development which will require us to ‘educate’ some of our clients. It might cost us some business, but the cost of developing something compatible with IE8 will be prohibitive.

    The frightening thing is that we’ll have clients who’d happily install any software that we presented to them on a CD Rom, but would run a mile from the very notion of installing Chrome or Firefox.

  34. Peter,

    That’s an interesting new spin I’ve not seen before: what I would call “They’ve fixed a bug in Internet Exporer,” you refer to as “Internet Exporer isn’t even compatible with itself, across versions.”

    > these problems only occur in Internet Explorer, which deliberately broke standards

    Utter bollocks on both counts. Joel Spolsky wrote the definitive answer to the “Web standards” nonsense back when IE8 was launched, and it still holds. Long, but highly entertaining.

    The web standards camp seems kind of Trotskyist. You’d think they’re the left wing, but if you happened to make a website that claims to conform to web standards but doesn’t, the idealists turn into Joe Arpaio, America’s Toughest Sheriff. “YOU MADE A MISTAKE AND YOUR WEBSITE SHOULD BREAK. I don’t care if 80% of your websites stop working. I’ll put you all in jail, where you will wear pink pajamas and eat 15 cent sandwiches and work on a chain gang. And I don’t care if the whole county is in jail. The law is the law.”

  35. It basically is left wing. The animus against MS goes all the way back to the day Bill Gates wrote a letter to the beardy lefties at the Homebrew Computer Club asking them not to steal his software, thus ensuring that he would ever after be despised as an evil capitalist. Because everything should be, y’know, free and stuff.

  36. The animus against MS is made up of lots of things. Gates’ letter is one, but there are other things. Deliberate use of illegal and monopolistic trading tactics has led to more than a trillion dollars in out of court arrangements and fines. The policy of achieving dominance by dubious means then letting technology stagnate has done some harm.

    If you’re unaware of the elements in this that are deliberate, well.. bless.

  37. > illegal and monopolistic trading tactics

    Yes, they broke the law against bundling a browser with an operating system, which has been internationally banned since… oh, hang on.

  38. The real biggie was actually bundling fraudulent error messages into Windows 3.11, which turned a mixed OS market into a de facto monopoly.

    With browsers, they initially beat Netscape using innovation and engineering skill – we owe AJAX to their invention of XMLHttpRequest. Then they let IE stagnate, failed to fix incredibly serious security holes, and used incompatibility with standards rather than product quality to maintain their dominance. They even used special CSS files for non MS browsers like Opera at one point, just to make sure they wouldn’t work with MS sites.

  39. It is. Huzzah and thank you, Peter!

    Now, back to the bickering.

    While I agree that the length of time between IE6 and IE7 was appalling, I blame Netscape for the Dark Years too, as they decided to spend time whining and going to court instead of innovating.

    > used incompatibility with standards rather than product quality to maintain their dominance

    There are two types of incompatibility with standards: buggy crap like the bloody box-model bug, and cool new features that are incredibly useful but aren’t in the standards. The former did nothing to maintain Microsoft’s dominance; the latter is a good thing which actually drives the adoption of new standards.

  40. “While I agree that the length of time between IE6 and IE7 was appalling, I blame Netscape for the Dark Years too, as they decided to spend time whining and going to court instead of innovating.”

    It’s kind of like the Wright bros spending most of there time after ‘inventing’ powered flight fighting in court to try and patent it. They could have just focused on building better aeroplanes and still had a business.

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