From the 0.2 of a Professor

But Richard Murphy in The Joy of Tax argues there is another stakeholder that should be paying up: the company. With characteristic certainty he notes that “companies quite emphatically have property rights and that means that they have to pay tax in their own right”.

• How a ‘personal services company’ (PSC) can cut your income tax bill

He pours scorn on the “argument of libertarians that companies registered by law are nothing more than a bundle of contracts and that they have no real existence”. Murphy’s comments are of course correct in their driest legal sense.

That bit in italics is there in the Telegraph piece. Which I think is lovely given the Murphaloon’s history of advocating that in the pages of The Observer. And his own use of the idea as well.

But as ever he’s missing the point of the argument (I assume that I’m one of those libertarians of course). It’s not that a company isn’t a separate legal entity. It is, quite obviously. It’s that all and any tax makes the wallet of some live human being lighter. Therefore the economic burden of a tax must be measured by whose wallet it is that gets lighter.

And with corporation tax we know who that is. The investors in he company being taxed, in the form of lower returns, and all workers in the jurisdiction imposing the tax in the form of lower wages. And that is simply true.

10 thoughts on “From the 0.2 of a Professor”

  1. Corporation tax has the convenient advantage that the monies accrue to the UK exchequer; whereas if we relied on income tax on dividends, the spoils would go wherever the shareholder resides.

  2. Moron writes an entire book on tax without even understanding tax incidence, tax theory 101. Amusingly back at uni my lecturer mentioned the difference between the accounting incidence (in whose books is the tax) and the economic incidence (who actually pays it). Murphy mind is clearly still just that of an accountant, lacking any deeper insight into anything of economic importance

  3. Thing I don’t get is: if it’s a joy to pay tax why does he want companies, who don’t have feelings and hence can’t feel the joy, to pay it?

  4. As Andrew M points out, the investor will pay at least 20% anyway (ignore non tax payers, or give them (or not) a refund). So in practical terms what’s the point of reducing the Corp tax rate below the basic income tax rate.

    Unless there is mandatory witholding tax for all non UK investors, the Exchequer will lose that element of the tax.

    The only other loss of tax is where the company makes profits but doesn’t re-invest (as expenditure), ie tax on retained reserves. Hence, no (unnecessary) tax incentives to simply sit on cash balances. Ie, very broadly, might as well invest it or distribute it to the S/H.

    As long as C Tax is not complicated, I don’t understand (in a world where there are no capital controls or witholding taxes) why Corp Tax at the basic income rate level is not fairly optimal (notwithstanding that I agree with the incidence point)?

  5. Go Santiago:

    2.54 “No offence intended, but another inaccuracy in the piece is that you are described as an ‘economist’ when you are a chartered accountant.”

    4.30 “Respectfully, I am Professor of Practice in International Political Economy at City University, London”

    He is, I believe, completely insane. And dangerous.

  6. Bloke in North Dorset

    @Lizardking,

    He’s in good company: “Let me begin with a confession: I am a Professor of Economics who has never really trained as an economist.”

    http://yanisvaroufakis.eu/about/

    Although to be fair I think Varoufakis is a damn sight better read than Ritchie.

    But anyway, what is it with the left and believing that by giving themselves titles or redifining what they don’t like eg new economics it confers knowledge?

    Maybe we should all call ourselves brain surgeons and complain that we aren’t allowed to operate.

  7. PF
    Given a company operates as a going concern why should they be penalised for holding cash reserves to allow for future investment etc. As long as they pay tax on the interest like normal savers what’s the issue with ‘hoarding’ cash

  8. PF,
    What our non-Welsh friend says. Corporation tax unfairly penalises companies who dare to carry cash over to the following year for investment.

    Arguably it also unfairly penalises smaller companies. The multinationals can park all their cash in the Cayman Islands, ready to fund future expansion; whereas your small and medium-sized domestic companies can’t.

  9. Perhaps I’m misunderstanding:

    “what’s the issue with ‘hoarding’ cash”

    None? It’s simply tax on profits earned, same as for everyone else? I was perhaps talking more about the incentive angle?

    “Corporation tax unfairly penalises companies who dare to carry cash over to the following year for investment.”

    How? How does it “penalise”? Fast forward one year. If there is “some” P&L loss (“expenditure” investment), it can either be carried back one year or used against profits of that year, or otherwise carried forward.

    if all income is taxed, and be it coporate or personal (forget whether that in itself is good or bad, otherwise we get into “personal income tax” debates), then base rate levels of income tax = corp tax sort of deals with it all, and (ordinarily) avoids any double taxation?

    Ie, as an individual, I don’t get relief on my personal tax just because I don’t then go and spend it in that year?

    SME’s versus Cayman etc, hmmm – I understand, but as you know that’s a tad more complex? …as in getting the “profits” off shore in the first place which is a different ball game.

    Don’t get me wrong, it’s just I would actually rather that George (yes “even” george) collected the dosh (from a standard UK company) rather than an overseas investor easily avoiding it completely for perhaps no good reason..??

  10. “Ie, as an individual, I don’t get relief on my personal tax just because I don’t then go and spend it in that year?”

    On something that might be a legitimate expense for tax purposes obviously!

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