Timmy elsewhereJuly 24, 2013July 24, 2013 Tim WorstallTimmy Elsewhere12 CommentsAt the ASI. Increasing corporation tax collections in the developing world will simply impoverish the workers. previousThis isn\’t a question for climate scientists mateynextWhy the Czechs are like farmers 12 thoughts on “Timmy elsewhere” Ironman July 24, 2013 at 9:36 am For Richard Murphy, observations and questions (questions that I know you are unable yo and so have no intention of answering): 1. Profits are diverted by transfer mispricing, interest, insurance, management fees. No, not if tax rates are low they’re not. That is after all the whole point of tax avoidance isn’t it. 2. You have today again through your strange little bill insisted that accounts for every subsidiary of UK plcs should be published (I agree). As very much of the trading in which these subsidiaries engage is intra-group, there must be a transfer pricing methodology employed. You yourself implicitly acknowledge this through your reference to ‘transfer mis-pricing’; there must be a correct pricing method for there to be mispricing. However, if this isn’t done using the arm’s length principle, then how? You have consistently denigrated the arm’s length methodolgy, but offered nothing in its place. Ian B July 24, 2013 at 12:15 pm The problem is, so does income tax and so do, particularly, sales taxes and, especially, pigovian and pseudo-pigovian sin taxes. All of which pale into insignificance compared to land value inflation. Which is to me the problem. Corporation taxes are paid by consumers (i.e. the workers) but so are all other taxes. If I tax bakers, either the price goes up, or the bakery staff pay it, and so on. But so also if I put a sales tax on bread. And if I pump vast amounts of M0 into banks and tell them to lend it to the workers for mortgages, I impoverish them even more. There’s nothing special about corporation taxes, except that Edwin Selgman was a corporatist progressive, who was actively campaigning for an income tax in the USA, and figured that arguing that corporation tax is incident on other people was advantageous in that regard. Dave July 24, 2013 at 12:34 pm O/T, but this in the Indie amused me greatly: “The standard rate of corporation tax in the UK is 24 per cent of a company’s profit. The F1 teams tend to avoid this because they spend all of the money they receive in a bid to boost their chances on track. ” Yes, being a non-profitable business is indeed considered ‘tax avoidance’ by the Indie. http://www.independent.co.uk/news/uk/politics/exclusive-formula-one-pays-just-1million-corporation-tax-on-300million-profit-8728928.html Emil July 24, 2013 at 2:19 pm Ian B: with the difference that it is easier for companies not to set up in poor countries than it is for their citizens to move out of them Ian B July 24, 2013 at 2:32 pm Then it ought to be an argument in favour of the Robin Hood tax. Goldman Sachs fucking off to Bongobongoland and paying its employees ten dollars a day would be delicious fun.  As Tim says, wages are set by the local economy’s average aggregate wage. We must presume this applies even to bankers. Emil July 24, 2013 at 5:48 pm there are not lots of qualified bankers to hire in bongobongoland now are there? Ian B July 24, 2013 at 9:02 pm What qualifications do you need to accept handouts from the taxpayers and spunk it all away, then ask for more? Surreptitious Evil July 25, 2013 at 2:22 am A 1st in PPE? It used to need to be Oxbridge, but I hear they’re taking Durham and Queen’s grads too, now. As a sop to the peons. Luis Enrique July 25, 2013 at 11:16 am you know, I’m not sure the Atkinson Stiglitz results go through in a developing economy with a handful of large corporations, a massive informal sector, an economy that is generally very difficult to tax, and tons of very poor people whose lives could be markedly improved by a government run tax funded cash transfer system. I do wish you wouldn’t adopt the mantle of caring about poor people when really all you want to do is bash lefties without really bothering to think through the issues. ChrisM July 25, 2013 at 4:53 pm Really? So “in a developing economy with a handful of large corporations” who is it that actually pays CT then? Luis Enrique July 26, 2013 at 10:36 am ChrisM sorry, I phrase that poorly. I did not mean tax incidence theory suddenly disappears in poor countries, I meant the conclusion that “we ought not tax corporations because those taxes are ultimately paid by workers” or something like that, does not hold once you start thinking through the situation a bit more thoroughly . suppose the incidence of corporation taxes levied on the few large firms in LDCs falls solely on the employees of those firms. Those employees are still going to be far better off that then average citizen, and it might make perfect sense for governments to raise tax revenues where they can find them, and use them to redistribute to the really poor. Tim adds: But that’s not how tax incidence works. It’s not to the workers in the company being taxed. It’s to all workers in the economy where the taxation is taking place. Remember: average wages are determined by average productivity, not by firm specific productivity. Luis Enrique July 26, 2013 at 1:17 pm TIm, oh I was just thinking about direct response to taxation (roughly either raise prices, cut wages or cut dividends, and assuming one for sake of argument) you have in mind longer-run effects, something like higher effective corporate taxes will reduce investment, make workers less productive, wages lower? And you think that labour markets in developing countries are tightly integrated enough that if wages of workers in a handful of large firms fall, that’s going to pull down wages across the economy? Pull the other one. that’s if you even believe the investment elasticity to (sensible sized changes in) taxation is meaningful, and that link between wages and productivity that tight. We are not talking about perfectly competitive markets here. Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.