In the case of reducing rates of corporation tax a number of deeply destructive consequences arise. First of all, tax revenues fall. I do, of course, know all the arguments based upon modern monetary theory that suggests that tax is not needed to fund the government expenditure, but as a matter of fact a sum total of tax has to be raised within any system, including that described by modern monetary theory, to counter the effects of inflation. In that case, and as a matter of fact, if companies pay less tax then someone else will have to pay more: modern monetary theory does not change this logic. And as such what Boris Johnson is seeking to do is to shift the burden of tax from capital onto someone else, which will inevitably be ordinary people.
That assumes that corporation tax falls upon capital. Something which isn’t true, not in the slightest.
How much it doesn’t, even why it doesn’t, is argued over. But that it doesn’t is just a well known piece of reality.
In 1998 the Organisation for Economic Cooperation and Development began a programme to attack what they described as ‘harmful tax competition’. That program was misguided. That was because the clear implication of its title was that there might be a benign form of tax competition. There is absolutely no evidence that a benign form of tax competition exists. All of it is harmful.
Think theoretically for a moment. There are bad forms of taxation. Or perhaps there are types which are worse than other types. Equally, we could say that there are harmful levels of taxation – type and level being distinctly different points here.
A place that uses the good types at not harmful levels does better than that the bad at harmful. This is obviously tax competition. The outcome of which will be that the bad is outcompeted by the good and thereby replaced by it. If only becuase people start to mutter, well, bugger me, hadn’t we better start doing it that way?
Do note that this doesn’t depend upon what we say is good or bad taxation, nor what the judicious level is. On that second places which don;t tax enough, thereby failing to produce enough government, would equally be found out.
So, is it possible for there to be a good form of tax competition? Sure there is.
The Senior Lecturer is therefore wrong. But then we knew that…..