An interesting comment from elsewhere

Quite seriously, if this is the level of economic knowledge over at the TJN then they’ve got some serious problems:

Nicholas Shaxson

Submitted on 2015/08/11 at 2:42 am
The incidence of tripe in this article is astonishing. For example: “we’re also talking about capital which is 100% mobile. That is, we’re highly likely to be in an area where all of the burden of that corporation tax falls upon the workers in that economy levying the tax.”
So let’s take an example, shall we? ExxonMobil produces oil in an African country. $1 billion in revenues annually, $100m in costs, and it employs 1000 locals, who collectively earn let’s generously say $30m annually. Let’s say that the country levies tax at an effective rate of 50 pct, or $450m. How exactly is all the burden of that tax going to fall on those local workers? Please do explain. More generally, ExxonMobil ain’t going anywhere if tax rates are increased: they go where the oil is. US shareholders will have to grin and bear it. And even if they did (they won’t, but if), then the oil is there and someone else’ll come in and invest. Oil is immobile, see? But so is a lucrative telecoms licence. The companies generally have no choice but to cough up. Money flows from rich shareholders to poor country. Where exactly is the problem?
The Fox News approach of simply asserting that the burden or incidence of corporate taxes falls on workers is useful to repeat again and again, if you’re a shill, but it doesn’t make it any more true. It is nonsense. The ‘incidence’ argument, put this way, could be described as “Worstall’s fallacy” (There are a lot of Worstall fallacies out there, but this is clearly one of his favourites.)

On a separate matter, one wonders why Forbes is giving a platform to someone with this unpleasant track record:
Tim Worstall, British attack dog

Timm Worstall
Submitted on 2015/08/11 at 6:16 am | In reply to Nicholas Shaxson.
Nick, you’ve just described the taxation of a resource rent. Which is something very different (you do know this is different, right?) from the taxation of corporate profits.

If you have a look around you’ll find that I’m all for the taxation of resource rents until the pips squeak. Whether it’s of spectrum to mobile companies, oil royalties or mineral values. Exactly because it really is only a question of who gets that rent: the government of the country where the resource is located or the shareholders of the company that is exploiting it?

This is very different indeed from the taxation of, say, the profits from running a textiles factory.

And if you don’t know the difference about this then I really do worry for the economic knowledge of the TJN. Because it’s first level stuff, undergraduate course level, A level even.

49 thoughts on “An interesting comment from elsewhere”

  1. OK but you are WRONG about it being absolutely certain that the right rate of corp profit tax on MNCs in poor countries being zero.

    to work out the right rate, you need to know what they need the taxes for, what other options they have to raising tax, what the administrative costs are etc. The basic idea is that if you in a country with lots of hard to tax economic activity and very low administrative capacity in your revenue service, then you sometimes have to sacrifice economic efficiency, in the maximise the size of the pie sense, for ease of getting your hands on a slice of it.

    yes there will be some impact on levels of investment from imposing a corp tax, but there is a trade off against the need for public revenue and ability to raise it, and you CERTAINLY do not not that the optimal point on that trade off is zero corporation tax.

  2. He may be all out to sea on the economics, but he’s got you on the “Worstall is a meany!” count…..

  3. and, stop writing this “It’s a general result from optimal taxation theory that we shouldn’t be taxing the profits of companies in the first place.”

    you know that’s not true, because you have seen this before:

    http://www.separatinghyperplanes.com/2014/04/be-careful-how-you-wield-chamley-judd.html

    so why are you still claiming that optimal taxation theory says something that it does not? it is CERTAINLY not a general result, there are lots of settings in which the optimal tax on profits > 0

  4. Luis Enrique

    “to work out the right rate, you need to know what they need the taxes for”

    Most of the developing countries spend the tax money they raise on enriching the lawmakers. Ergo, your argument seems to be that they should need 0 tax revenues since it does more damage than good

  5. Zorro:

    “to work out the right rate, you need to know what they need the taxes for,”

    You mean who they are planning to murder/torture/pay off this time? Which European top shops the leadership’s lard-arsed wives want to go shopping in this month? What weapons and implements of death they are in the market for? The UK has a long track record of supplying African scum with shackles and other goodies. How awful if they couldn’t score enough cash to afford them.

    “what other options they have to raising tax,”

    Who else they can rip off or demand cash from with menaces?

    “what the administrative costs are etc.”

    How corrupt they are and how many hands are in the till?

    There is no govt that “deserves” or is morally entitled to a single penny from any source whatsoever. They are all thieves, murderers and general scum who live to lord it over their fellow beings.

  6. “to work out the right rate, you need to know what they need the taxes for”

    Why does a government ‘need’ taxes? They grab what they can get away with, and expand to meet that new level.

  7. Apart from not liking Tim very much (or UKIP), “eziwrestler” appears not to have much to say for itself. Certainly insufficient to make it even a barely credible source for citation.

  8. I think it’s amusing that Shackson thought it was important to link to that site. Is that really his standard / level?

  9. look, you lunatics, we are talking about very poor countries which lack the most basic of public services (including security, rule of law) and infrastructure. *And* they are plagued by politicians and bureaucrats that loot the public purse (and then dispense largesse to their support base). So suppose you think 20% of tax revenue is spent on useful stuff 80% looted, well that’s what you put into your cost/benefit trade off, and you *still* don’t get zero tax because when you are starting from a very low base the marginal benefit of that 20% is high.

  10. Whatever useful happens in the third world is people trying to do it for them selves NOT as a result of govt action. Even if 20% were the figure of “useful” state antics–so what? . Is “He kept the trains running on time(he didn’t-but for argument’s sake) ” a good reason to put up with Mussolini?. Let the trains run slow.

    If the 3rd world had no taxes and enough freedom to be entrepreneurs they would be on the way up. In fact that is -slowly-what is happening despite the thieving, meddling state.

  11. Luis,

    Using your own example / numbers (if you weren’t being sarcastic that is?).

    You’ve got £100. You can pay it across to the government and watch £20 hopefully get spent usefully (and £80 transferred to a private Swiss account), or you spend the £100 wisely yourself, spin offs of which will also help your immediate fellow citizens.

    Your choice?

  12. GlenDorran/ ‘SE’ (welcome back!)

    It was believed it was Heidi Moore who penned the pure ad hominem (the type that Murphy always complains about!)- I always find The fact that Murphy got Tim into writing for Forbes before he was ‘quietly dropped’ by them vaguely amusing……

  13. right … why would we ever want the state to take money off people when we could just leave it for them to spend themselves? I wonder if anybody has ever thought through these questions before ….? Could it be that if you are thinking about the cost and benefits of taking taxes off people, then what they could do with the money themselves has something to do with how you think about the costs of taxation? maybe one could imagine a coherent way of thinking through these questions … *quick google* OMFG it turns out there’s a whole thing called public economics. who knew.

  14. Luis,

    Cost / benefit…

    Yep, correct..:)

    I mean, come on, do the maths, and I notice you didn’t actually answer the question for yourself. A 20% return (using your own numbers) of your original investment and that’s it?

    Yes, it’s more complicated when it comes to someone providing things that only the state can (in theory, and which is a whole new debate), and which is why I phrased it deliberately in the terms I did (ie your money, your choice, what’s it going to be).

  15. PF, I did not say 20% return. If the marginal returns are >5, then it’s worth investing even if 80% of your money goes missing on route. But we are not talking about private returns. What is the most common assumption about the shape of marginal returns? Very high when current stock is low, then diminishing. So in a country where roads are not paved, hospitals not staffed or resources etc. etc. what are marginal social returns going to look like?

    Now of course I am not claiming that in every developing country the benefits of public expenditure after accounting for graft > cost but amazingly there are some countries out there which put some money to much needed good use, where it could well be worth extracting some tax out of the few large MNCs doing business in your jurisdiction despite the impact of tax on investment decisions (which should not be exaggerated – time after time surveys show that tax rates are low down list of things MNCs look for, things like political stability, roads, electricity supply usually more important – hey! some of those things are funded by taxes!

    (some of the more effective countries are odious regimes in other respects – everybody acknowledges that the two African countries that have really got their act together then it comes to public service efficiency are Rwanda and Ethiopia).

  16. Luis,

    I understand tax. For example, the redistribution aspects have nothing to do with personal return.

    The underlying point I was making is that, if 80% disappears, it might be more wothwhile for A to provide C directly, rather than A give the money to B, who will then use 20% of it for providing C.

    Whatever C might happen to be?

    This is simply a conceptual point I am making, so please don’t tell me “ah, but the company can’t make a road, or provide security guards in an area”.

    Ie, I want “value for money” from my public services. If you don’t get that, then people may look to see if they obtain more cost effective alternatives. That’s all.

  17. and btw, I fully accept the point you make that if you get better than a 5 to 1 benefit then yes, 80 looted still gives value for money.

    But, provided that there was no other way of getting that benefit at a much lower cost. Ie , “if” you can the 5 to 1 without losing 80 to the Swiss account, then that’s obviously a better option.

  18. PF – ah OK, yep if there are ways of going from A to C directly, bypassing looting, then of course vastly preferable.

    I know you anticipated the “but A can’t very easily pay C to build roads” objection, but that is at the heart of public economics – if there were not some things that the state is better positioned to provide that private markets, we wouldn’t need it.

  19. @ Luis Enrique
    No, we are NOT talking about very poor countries which lack the most basic of public serrvices because multi-nationals do not establish manufacturing plants there. The only multi-nationals there are exploiting natural resources and building thewir own roads to the port (which they have built, or upgraded, themselves). Tim supports exploiting resource rents.
    To have a manufacturing plant run by a multi-national requires an accessible market big enough to justify the effort, so transport infrastructure, rule of law (so that the goods aren’t stolen ten minutes after they leave the factory), basic hygiene so that the buyers are poisoned or infected, some minimal standard of literacy so schools (but some are provided by missionaries – yes, even today, so state education isn’t an absolute requirement),
    Need I go on?
    There is a case for a non-zero corporation tax rate – you just haven’t enunciated it.

  20. Luis,

    I agree.

    I was about to post on roads then saw your response.

    I was going to suggest – If a mega corp can build some roads / infrastructure in an area, in return for operating there, and that cuts out the 80% drain into said Swiss account – and all for the real benefit of the people who live there – then surely that’s a much better option (for example), both for the state (it doesn’t have to do it) and for its citizens.

    Because in some countries mega corps really can do some stuff that local states may struggle with.

    But I think we’re on the same pitch on this one.

  21. At one point in the article, the writer refers to “corporation tax”, later on he refers to “corporate taxation”.

    He doesn’t seem to understand they are two different things.

    Is he by any chance American?

  22. bloke (not) in spain

    @Luis E.
    In your claim, it’s better the people get the value of 20% of taxes raised, you neglected to assign a value to the remaining 80%. It’s not zero, you know. You talk about security being paid for out of taxes. It’s not security a lot of poor countries lack. Mostly it’s too much. Used to secure the government from its people. paid out that 80%. So you should really be assigning it a minus value. In a lot of places, greater than 20%. Considerably greater.

  23. B(n)iS

    Ah. So in fact, what we should be doing, for the people of course, is encouraging these despots to siphon it all off to Swiss accounts instead.. I like your thinking..:)

  24. John77,

    Wrong.

    http://www.mbendi.com/indy/oilg/af/an/p0005.htm
    http://www.mbendi.com/indy/oilg/af/eq/p0005.htm
    http://www.mbendi.com/indy/oilg/af/co/p0005.htm
    http://www.mbendi.com/indy/oilg/af/ng/p0005.htm

    I could go on. But I won’t. I’ll let you do that.

    Luis is correct. My only gripe is that in some of these very poor countries, any taxation extracted by the government doesn’t go into the country anyway – it goes into the pockets of government officials. In fact in some of these countries taxation is completely pointless because profits from the state-owned oil companies also go into the pockets of government officials.

    Exxon Mobil invests in Angola, Chad, Cameroon, Equatorial Guinea and Nigeria. Most of the population of these countries lives on less than $2 a day.

  25. My congratulations to Luis Enrique for sticking to guns in the face of (a little bit of) lunacy and for making his case so very well.

    All but a lunatic would agree that a country needs a tax base. Quite why the mad-arse believers in MMT, or People’s QE or Corbynomics also agree with this proposition it is beyond me, but I won’t waste time on them.

    Resource rent would obviously be the first choice, but a state must do what it must. So Luis has done us a favour in reminding us of public choice economics.

    PF, Frances et al

    I understand the desire for ‘A to provide C’ directly. However, the recent history of governments bartering their countries for new infrastructure projects, most commonly but not exclusively to Chinese enterprises, is itself not entirely a happy one. There is no substitute for good governance and we should assume Africa is a hopeless case. Change can come and more quickly than any of us imagine.

  26. Frances,
    Since when did oil cease to be a natural resource?
    I expect *you* to read stuff like “The only multi-nationals there are exploiting natural resources” before “refuting” it with four examples of oil companies.
    Not up to your normal standard

  27. @ Luis Enrique
    Ethiopia was the most advanced country in Black Africa under the late Emperor and even after 17 years of stalinist misrule by Mengistu Haile Mariam leading to a million or so starving to death, while it is poor it retains a lot of old and serviceable infrastructure (plus 58 airports – how many has the UK got?), male literacy is c50%, the rule of law again prevails.
    It would help if you tried to answer my point instead of just distracting.

  28. Ironman
    I think there is a case for non-zero tax rates – a non-corrupt government will find it far easier to collect revenue from a handful of corporations tha from a multitude of small shopkeepers if you have a theoretically preferable sales tax or VAT.
    But let’s have a soundly argued case – which LE has not presented – instead of shrill screaming on both sides.

  29. Ironman

    I don’t disagree with a word you’ve said there.

    Luis put the scenario that dictator might squirrel away 80% of said tax. I was only responding to that particular point, simply as a cost / benefit exercise, and I think we ended up agreeing!

    You are right, change can come quickly – and which surely is good for all, especially the locals; as then maybe 80% doesn’t end up in Swiss (or otherswise shooting / subjugating those locals)?

  30. Tim, you’d figure people reading your Forbes article would’ve been more knowledgeable about basic economics. Jesus Christ, so much failed going on with the comments on your minimum wage articles.

  31. Coming full frontal with the economic understanding of the American public is, umm, yes, a shock sometimes.

  32. bloke (not) in spain

    @Iroman
    ” So Luis has done us a favour in reminding us of public choice economics.”
    Which would be useful if there was some economics going on.
    But in a lot of poor but resource rich countries, the people running – or rather owning them, because that’s what it amounts to – actively prevent economics.
    If you’re the president of an oil rich country, your people aren’t an asset, they’re a liability. You’d rather they weren’t there. You’d much rather they were uneducated, poorly served by health care & hungry. Much less chance of them getting together a viable, coherent opposition.
    Take roads. Yes a highway from the coastal capital to a far flung province might enable a textile factory there to export its wares & bring prosperity to the region. But it could also bring a rebel army from the far flung province to the presidential palace gates. The president doesn’t need the road. His tax purchased ground attack jets can be there in half an hour, with troop carrying helicopters not far behind. Well armed, well trained troops. Not the handful of part timers with muskets the country could otherwise manage.

  33. John

    look you silly person. if you write that MNCs do not establish manufacturing plants in very poor countries and I respond with an example of that – Ethiopia is one of the poorest 20 countries on the planet – then that is answering your point, not distracting.

    and as for citing airport numbers – please stop embarrassing yourself. hey, you don’t think it’s a big country with shit roads by any chance? And an airstrip, that’s some high tech shit right there. OMFG look how many airports DRC has got!!!
    https://en.wikipedia.org/wiki/List_of_airports_in_the_Democratic_Republic_of_the_Congo

    of course it is true that Africa does not have many MNCs doing non-resource stuff (if it did, it wouldn’t be so poor) however many African countries do now have a handful of large non-resource MNCs, and these are valuable sources of tax revenue.

    Nigeria has 45 automotive assembly plants, I recently learned. http://venturesafrica.com/nigerias-automotive-sector-gains-momentum-with-12-new-assembly-plants/ which surprised me.

  34. Tim,

    you should really try to stop pissing people off!

    In future, check that your articles mesh with the infallible economic doctrines explained in Das Kapitaal.

  35. Luis Enrique
    It would help if you read that which is written down. I did *not*, repeat *not* say ” MNCs do not establish manufacturing plants in very poor countries”.
    My words were (complete with typo) “very poor countries which lack the most basic of public serrvices because multi-nationals do not establish manufacturing plants there. Ethiopia does not lack the most basic of public services. Ethiopia was formerly the most developed country in Black Africa, the first African country to join the League of Nations and the United Nations, with mass education, schools, railways, roads and hospitals. Ethiopia has been impoverished by the Dergue and subsequent civil wars but it retains a lot of the infrastructure and security has been restored apart from the areas bordering neighbours enduring civil wars. So it does *not* fit that criterion.

  36. Oh see. So you don’t think Ethiopia lacks basic public services. Relative to what standard here? Ethiopia: 26% of population have access to electricity (WDI data), 42% to clean water, and where despite recent good process there are, per 10 000 population, <0.5 physicians, 2 nursing and midwifery workers, 2 hospital beds, where after a decade of accelerated investment the road network is now up to the standard of the Low Income Country average (AICD data) does not count as lacking the most basic of public services. Because a few decades ago it was in relatively good shape. Gotcha.

    you're doing really well, carry on

  37. Luis

    “however many African countries do now have a handful of large non-resource MNCs, and these are valuable sources of tax revenue.”

    This brings us full circle back to Shaxson’s idiocy on Forbes. You have highlighted the choice faced by some governments: you require tax revenues but know that they may be acting as a break on economic activity. But tax is or should be a small adjunct to.economic activity. Shaxson and his friends see MNCs only as a source of tax revenue; nothing else. They do no accept that benefit accrues from their presence; they are only exploiters and despoiled. He and his friends represent as big a danger to Africa’s image and development potential as Bloke in Spain’s sub-Frederick Forsyth imagery.

  38. Ironman,

    yep, I think it’s idiocy, particularly just ruling out the possibility that investment levels might respond to taxation and that has consequences for wages. A sensible person would think about how responsive investment in Africa is to tax rates, and the sort of trade-offs we have been discussing above. So I am afraid on this one I think Shaxson’s idiocy is mirrored by Tim’s, who has gone to the equally daft opposite extreme.

  39. @ LE
    You are yet again – should I say “as usual” – making it up as you go along. Ethiopia has, once again, a police force that maintains law and order, an education system (wikipedia says 15.5m out of a population of 90m attended primary school in 2008/9), a health service incuding 119 or 154 hospitals (depending on which page you look) and 412 health centres, public transport (buses, trains, aeroplanes, taxis). So it does have the basic public services.
    The reasons for its low GDP/head are twofold – the decades of stalinist misrule and civil war and the near-trebling of the population in 30 years so that the dependency ratio is above 1:3.
    Some of your statements are factually inaccurate because, for instance, you quote the %age figure for “improved warter supply” as that for those with access to clean water which is much higher.
    In 2013 “Currently, there are 3, 245 health stations, 16,048 health posts and 229 referral hospitals across the country, according to Ahmed. In order to attain the target, the construction of 175 hospitals is underway ” Your <4,500 physicians must spend half their time commuting between them! Basically your numbers are out of date the ratio is wrong because you are using the 2006 number of physicians and the 2015 population. Even in 2006 the ratio was better than 0.5 per 10,000.

  40. theoldgreenfascist

    Here’s a laugh. Timmy talking about the economic ineptitude of someone else. Motes and beams spring to mind

  41. John77,

    you note earlier that Ethiopia has 58 airports and ask how many UK has?

    The UK has 235 active airports/airfields

    I know that wasn’t your point, but lets not undersell ourselves!

  42. @ iata
    Thanks for the info – i just don’t have the strength to dig out all the data tyto refute “lefty” lies.
    So GDP of the UK is 80 times that of Ethiopia according the IMF and it has 4 times as many airports.
    Any rational person would point out that the UK has fewer airports because it was the first country to develop a national rail network, but …

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