Oh dear

Difficult to take seriously someone who says this:

A 2016 IFS report shows that property tax raises relatively little revenue in Britain.

The OECD says that Britain raises more in taxation upon property than any other OECD nation. Some 11 or 12% of tax revenue raised as opposed to a 3 or 4% average. For rates are indeed a tax upon property and they do, together, raise some £60 billion a year or more.

Not believing this bloke also turns out to be wise:

The assertion that increases in the corporate income tax would be paid by employees is if anything less credible than the stockholder argument. Corporations cannot directly charge employees for the tax they pay. The mechanism that the IFS have in mind must be indirect, through wages levels, that higher corporate tax payments by reducing corporate profits reduce potential wage increases. This is unlikely to be important in the UK current context.

No, the argument has been around since 1899, from Seligman.

Capital added to labour is what increases productivity. Productive workers get paid more. If we reduce the amount of capital added to labour we get lower wages. Taxing profits reduces the after tax return to investing in adding capital to labour. Given that there is an average return to capital across taxing jurisdictions those who tax capital returns will see lower wages in that long run.

Across companies the relative bargaining power of employees and employers determines wage outcomes. Since the crash of 2008 private sector real wages have grown very slowly and remain below their pre-crash level. These were years during which the corporate tax rate fell from 28% to 19% (shown in a graph from Trading Economics). If as IFS believe higher corporate tax rates depress wage growth, then lower rates should have increased wage growth, for which there is no evidence. In the abstract, corporate profitability is one of many factors influencing wages changes. It does not appear as an important influence in the UK in recent years.

‘E’s entirely missing the actual argument, isn’t he?

12 comments on “Oh dear

  1. If labour is a cost ( and as it is perfectly easy to work hard and no sell anything I think it is ) , then it seems vaguely dishonest to suddenly treat wages as if they were an aspect of investment .
    I can see no obvious mechanism whereby the increased productivity of an employee implies higher pay.
    The modern unskilled car worker pushes the odd button ( it takes a week or two to train a production line worker)- and is hugely productive . His skilled ancestors in the 70s were a legend for lack of productivity but they got vast wages
    It seems to me that the cost of corporate tax will probably be paid by the consumer and the unemployed. A company cannot control its Labour costs per unit it can control its costs overall , in fat it has to .
    Profit is also in a sense a cost and in a tolerably functioning market would be maintained at about the same level. The additional cost of tax must be paid by the consumer
    I can`t see how you can possibly argue that a tax on companies will be paid by some mysterious entity other than people a Company is only a legal personality for an interaction between share holders employees and customers .
    It has to come from someone

  2. Newmania, you’re right on the corporate entity bit, of course, a point that is repeatedly made by our host. You just missed out the shareholders (pension funds mostly) as additional payees.
    I think you’ve got productivity & wages backwards though; as wages rise companies are forced to invest in capital equipment that de-skills jobs and improves throughput and quality. I speak as a veteran of a couple of “skills based” (I use the term very loosely) West Midlands metal bashing companies where batallions of shopfloor workers drilled, filed and bent metal into vague approximations of the designers’ intentions. Meanwhile in Japan our competitors used the laser systems we didn’t think we could affored…
    It’s all a housing estate now, of course.

  3. How hard is it to guess that Facepainter does not understand tax incidence…. If tax rises then a company will react either by absorbing the tax and making less profit, raising prices, cutting wages or capping pay rises, capping or reducing dividends to shareholders. Or some combination. Why is this so hard to understand?

  4. Diogenes said:
    “Why is this so hard to understand?”

    Oh, it’s easy to understand. But many people find the result unpalatable, so deny it.

  5. It is difficult to get a man to understand something, when his salary depends upon his not understanding it!
    Upton Beall Sinclair, Jr. (1878–1968)

  6. An article to send to BluLab and Corbynites, especially young naive

    Capitalism works, encourage, promote and support it
    Solving the problems of the world requires stuff, and the world trades stuff for money – money being the manifestation of wealth. The more problems you want to solve, the more money you need and the more wealth you need to create…

    Taxing the wealth creators slows, stops or reverses wealth increases for all

  7. I can see no obvious mechanism whereby the increased productivity of an employee implies higher pay.

    Sad as it may be, Newmania, I believe you.

  8. If labour is a cost ( and as it is perfectly easy to work hard and no sell anything I think it is ) , then it seems vaguely dishonest to suddenly treat wages as if they were an aspect of investment.

    I suppose it never occurred to you that investment is a cost as well?

  9. It seems to me that the cost of corporate tax will probably be paid by the consumer and the unemployed.

    Given that real wages in the USA have increased substantially since the lowering of the corporate tax rate from 35% to 21%, it would seem that the latest real-world data strongly suggests that you’re an idiot. More often than not, the cost of corporate tax is borne by employees of the corporation. At least that’s what reality has just told us.

    Beyond that, could you show your work? Some scholarly (or governmental) study showing that corporate taxes are “probably” paid by (1) consumers and/or (2) the unemployed?

    A company cannot control its Labour costs per unit it can control its costs overall , in fact it has to.

    This is Richard Murphy level stupid. Think real hard, Numbnuts: If a company has the ability to control its overall costs, by definition it has the ability to control per unit costs.

  10. @Dennis

    +1 +1 +1

    Corbyn, You’re Fired: Lord Sugar Backs Boris

    The former Labour peer also says a vote for the Tories is the best route to save Labour in the long-term — by ousting its hapless leader.

    The business tycoon warned the party’s spending plans “would create economic chaos”.

    He said: “Jeremy Corbyn has turned Labour into a negative anti-business party that is clueless on how the economy works. His £1.2trillion spending splurge is complete madness.”

    Dubbing it “the most significant election in my lifetime”, he writes: “As a former Jewish Labour man, this is a difficult thing for me to write.

    “On Thursday, it’s time for Sun readers to tell Corbyn to resign and get a sensible person to take the helm and make Labour great again.”

    The lifelong Labour supporter’s intervention is a major boost for the Tories….

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