Politics Thread (encompassing Brexit) - 21 June 2017 onwards

[Kopfkino]

42 minutes ago, DJ Barry Hammond said:

 

The neuance of corporation tax level and receipts doesn't appear to be keenly understood. This article makes some very good points on the context that should be applied to the current situation;

 

https://www.ft.com/content/ca3e5bd2-2a7e-11e7-9ec8-168383da43b7

 

Perhaps the most concerning part within this article is the mention of a reducing in company reinvestment - and it's this notion that makes me believe Corporation Tax should be increased rather than decreased (albeit not to the levels Labour propose). 

 

Thats because an increase in corporation tax heightens the value to companies of putting profits back into their business, which can help spur further growth in our economy and better profitability level for companies over the longer term and in theory offset a 'lower' corporation tax take from an increased return from employment and purchase taxes as part of this. 

 

So if Hammond puts up your income tax tomorrow, you're more likely to invest in your skills to increase your income?

[Steven]

2 minutes ago, KingGTF said:

 

So if Hammond puts up your income tax tomorrow, you're more likely to invest in your skills to increase your income?

Any sensible person would. Anyway your question is a non-sequitur as the second part does not depend on the first part. 

[Guest Foxin_mad]

41 minutes ago, DJ Barry Hammond said:

 

The neuance of corporation tax level and receipts doesn't appear to be keenly understood. This article makes some very good points on the context that should be applied to the current situation;

 

https://www.ft.com/content/ca3e5bd2-2a7e-11e7-9ec8-168383da43b7

 

Perhaps the most concerning part within this article is the mention of a reducing in company reinvestment - and it's this notion that makes me believe Corporation Tax should be increased rather than decreased (albeit not to the levels Labour propose). 

 

Thats because an increase in corporation tax heightens the value to companies of putting profits back into their business, which can help spur further growth in our economy and better profitability level for companies over the longer term and in theory offset a 'lower' corporation tax take from an increased return from employment and purchase taxes as part of this. 

I would say its fairly basic maths why, no a nuance. If you raise it too much people will try to avoid paying it by paying accountants to use accounting practices and loopholes to offshore as much cash a possible. We are now getting more income from corporation tax because it is lower, less reason to avoid it, and more businesses as a result.

 

http://www.telegraph.co.uk/business/2016/10/13/the-number-of-businesses-in-the-uk-has-hit-a-record-55m-up-almos/

 

I would be very surprised if an increase in corporation tax would encourage a business to reinvest more money in a country and am yet to see any evidence to suggest that is the case. I would suggest that along with an increasing minimum wage would lead most companies to cut staff, cut training budgets and invest less. The bottom line will be most important to board memebers and less paid in tax makes this easier to achieve.

[Kopfkino]

8 minutes ago, Steven said:

Any sensible person would. Anyway your question is a non-sequitur as the second part does not depend on the first part. 

Well it does being as that was his point. Higher corp tax gives an incentive to reinvest so they don't cede money to the exchequer.

 

Well at least we now have a justification from a leftie for the public sector pay cap now. Any sensible public sector worker would invest more in their skills now. Productivity boom awaits.

Edited 17 July 2017 by KingGTF

[DJ Barry Hammond]

4 minutes ago, KingGTF said:

 

So if Hammond puts up your income tax tomorrow, you're more likely to invest in your skills to increase your income?

 

If I was a top rate payer, I would look to utilise my tax deductibles in areas such as pension contributions, personal training allowances and the like yes!

 

But this is the point - the higher the rate, the bigger the incentive to utilise your income/profit in different ways.

 

And with the economy where it is, you want your companies making profit to be putting a fair proportion of that back into their business - so tweaking corp tax upwards a little would help shift mindset that way. 

 

Ultimately there is no one perfect rate, but it should be in constant flow up and down, and the down trend has probably go on too long now.

 

[DJ Barry Hammond]

5 minutes ago, Foxin_mad said:

I would say its fairly basic maths why, no a nuance. If you raise it too much people will try to avoid paying it by paying accountants to use accounting practices and loopholes to offshore as much cash a possible. We are now getting more income from corporation tax because it is lower, less reason to avoid it, and more businesses as a result.

 

http://www.telegraph.co.uk/business/2016/10/13/the-number-of-businesses-in-the-uk-has-hit-a-record-55m-up-almos/

 

I would be very surprised if an increase in corporation tax would encourage a business to reinvest more money in a country and am yet to see any evidence to suggest that is the case. I would suggest that along with an increasing minimum wage would lead most companies to cut staff, cut training budgets and invest less. The bottom line will be most important to board memebers and less paid in tax makes this easier to achieve.

 

Dear oh dear!

 

Slightly higher corp tax means the value of reinvesting in the business increases, because it comes off your bottom line - reducing the potential corp tax paid on profits in the short term / and offering the chance of increased profitability in the medium - long term.

 

One stark statistic in business at the moment is poor productivity - this is coupled with lower business investment over the period of increased corp tax receipts.

 

A slightly higher corp tax could help fix things in this area (a couple of million investment based on a 24% corp tax rate has a greater yeild potential than at 17%).

 

 

Finally - Corp tax receipts are small beer when compared to personal / purchase taxation received by the U.K. Exchequer. 

 

Any reduction in total take in corp tax could well be offset by potential gains in personal / purchase tax, with the additional benefit that these taxation areas are consistent and guaranteed... the downside with corp tax is you only get it from companies that make profits, so in a recession your take will be severally hit.

 

 

 

 

 

 

 

 

[Kopfkino]

7 minutes ago, DJ Barry Hammond said:

 

If I was a top rate payer, I would look to utilise my tax deductibles in areas such as pension contributions, personal training allowances and the like yes!

 

But this is the point - the higher the rate, the bigger the incentive to utilise your income/profit in different ways.

 

And with the economy where it is, you want your companies making profit to be putting a fair proportion of that back into their business - so tweaking corp tax upwards a little would help shift mindset that way. 

 

Ultimately there is no one perfect rate, but it should be in constant flow up and down, and the down trend has probably go on too long now.

 

 

I mean I see what you're saying but the literature doesn't support it for a reason. Shareholders want returns which means, ultimately, we all want returns. I'm firmly of the belief we need to reform the tax system which would include huge reforms to taxes on corporations.

[DJ Barry Hammond]

32 minutes ago, KingGTF said:

Well it does being as that was his point. Higher corp tax gives an incentive to reinvest so they don't cede money to the exchequer.

 

Well at least we now have a justification from a leftie for the public sector pay cap now. Any sensible public sector worker would invest more in their skills now. Productivity boom awaits.

 

No, this point is defunct in a corp tax argument because the tax works in a completely different way and the major beneficiaries from a lower rate is the larger corporations that make greater profits.

 

The savings of 1-2% in corp tax to companies at the lower end of the scale is nominal in the grand scheme of things and depends on them actually making a profit. 

 

That's why the idea lower corp tax is business friendly is a rather narrow view - most businesses would prefer a reduction in their level of NINO contributions as that would be a constant saving to their bottom line regardless of the companies size / profitability - but naturally, a move such as this is far more costly to the government, which is why the token gesture of a lower corp tax has been used.

[DJ Barry Hammond]

21 minutes ago, KingGTF said:

 

I mean I see what you're saying but the literature doesn't support it for a reason. Shareholders want returns which means, ultimately, we all want returns. I'm firmly of the belief we need to reform the tax system which would include huge reforms to taxes on corporations.

 

Which is why a higher corp tax helps - because the potential yield from reinvesting is greater from a share holders point of view.

 

At a lower rate, there's less justification to shareholders to do this, meaning companies declare larger profits (like what is happening) and this money goes elsewhere. 

[DJ Barry Hammond]

 

Simply ask yourself this;

 

• What is the need to take corp tax from a 19-21% bracket to a low of 17%

• Who would stand to benefit most from this move

• How big an impact does corporation tax have on a company 'moving business' if the rate is largely comparable to other developed countries (hint - it's not in the top 5 of considerations of company exec's)

 

Keeping it where it is would be one thing, I'd be ok with that for a while, as long as an eye is kept on company reinvestment / productivity. But a further reduction - which is government policy - I don't see the cost/benefit justification. 

 

https://www.gov.uk/government/publications/rates-and-allowances-corporation-tax/rates-and-allowances-corporation-tax

[DJ Barry Hammond]

 

Its also important to remember that these days, shareholders are mostly large international hedge and pension funds, meaning dividends and aggregated profits are not guaranteed to be reinvested back into this country - but that's globalisation for you and a completely different topic all of its own.

[Guest Foxin_mad]

1 hour ago, DJ Barry Hammond said:

 

Dear oh dear!

 

Slightly higher corp tax means the value of reinvesting in the business increases, because it comes off your bottom line - reducing the potential corp tax paid on profits in the short term / and offering the chance of increased profitability in the medium - long term.

 

One stark statistic in business at the moment is poor productivity - this is coupled with lower business investment over the period of increased corp tax receipts.

 

A slightly higher corp tax could help fix things in this area (a couple of million investment based on a 24% corp tax rate has a greater yeild potential than at 17%).

 

 

Finally - Corp tax receipts are small beer when compared to personal / purchase taxation received by the U.K. Exchequer. 

 

Any reduction in total take in corp tax could well be offset by potential gains in personal / purchase tax, with the additional benefit that these taxation areas are consistent and guaranteed... the downside with corp tax is you only get it from companies that make profits, so in a recession your take will be severally hit.

 

 

 

 

 

 

 

 

No need with the personal attacks I already know I am a thick tory white trash scumbag racist its all ok! I just disagree with you that's all........but I wont call you a name!.........

 

It might well do, but it doesn't mean a business will invest, some might, I know a lot wont. The shareholders would very rarely view it in this way, rightly or wrongly they are about maximising their profits now and short term. Unfortunately, and I agree wrongly most business now is very short sighted and often reactionary instead of proactive but that is a bigger issue. Sadly a lot of businesses don't invest maybe they could have a tax incentive for paying for graduates, apprenticeships etc directly? Maybe big change is needed but putting up tax will not make a business spend in my experience.

 

Poor productivity has long been a problem in the UK, there are a number of reasons why this is. Technologically a lot of our businesses are very far behind some other G7 countries. Even during the Labour boom we lagged far behind the rest of Europe in this respect. Some of this I think is deliberate because here unions and government refuse to accept change and modernisation easily. You bring in a robot that can do the work of 10 men in half the time, the unions and workforce wont be happy! Italy is more productive than us but has high unemployment!

 

Corp tax absolutely is small beer compared to personal/purchase tax, if anything the increase in tax may lead to business cutting costs and staff to maximise profits which would reduce personal tax take and increase welfare spending. Why would there be any gain from this unless like the Lib Dems suggested we increase it across the board? I would fully support a VAT increase to that of the Scandinavian countries and 2p rise in income tax but not many do. What most want is something for nothing.....which is Cobynomics! Lets make someone else pay as long as it isn't me.

[DJ Barry Hammond]

 

The dear oh dear was because your two points in that post contradicted.

 

You also point to the shareholders driving the position of the business, but they have little direct influence - it is the board, especially the chief exec that will drive the decisions, the share holders merely approve / reject the collective ideas at the AGM.

 

But regardless, there are two main functions of tax; to collect revenue and direct desirable behaviour. 

 

If you're in agreement that businesses aren't acting appropriately in areas of investment, one way to challenge that would be to increase Corporation Tax, because as mentioned the associated yield of then investing out of profits would be greater - it's a much easier sell to share holders because the spend in £ is offset by tax savings and potential future profits.

 

At 17%, shareholders will quite rightly demand greater returns now because it's an opportune moment to do so - but conversely, that's not in the interest of the nation right now. 

 

At 24% - the chief exec's will need to think harder on how to achieve the level of bottom line desired profitability - and although one way to do that would be cuts, the other way that encourages growth within a business is to invest profits. 

[Guest Foxin_mad]

44 minutes ago, DJ Barry Hammond said:

 

Its also important to remember that these days, shareholders are mostly large international hedge and pension funds, meaning dividends and aggregated profits are not guaranteed to be reinvested back into this country - but that's globalisation for you and a completely different topic all of its own.

This is true and perhaps the root of all our problems.

[Guest Foxin_mad]

19 minutes ago, DJ Barry Hammond said:

 

The dear oh dear was because your two points in that post contradicted.

 

You also point to the shareholders driving the position of the business, but they have little direct influence - it is the board, especially the chief exec that will drive the decisions, the share holders merely approve / reject the collective ideas at the AGM.

 

But regardless, there are two main functions of tax; to collect revenue and direct desirable behaviour. 

 

If you're in agreement that businesses aren't acting appropriately in areas of investment, one way to challenge that would be to increase Corporation Tax, because as mentioned the associated yield of then investing out of profits would be greater - it's a much easier sell to share holders because the spend in £ is offset by tax savings and potential future profits.

 

At 17%, shareholders will quite rightly demand greater returns now because it's an opportune moment to do so - but conversely, that's not in the interest of the nation right now. 

 

At 24% - the chief exec's will need to think harder on how to achieve the level of bottom line desired profitability - and although one way to do that would be cuts, the other way that encourages growth within a business is to invest profits. 

I'm not sure high tax directs desirable behaviour, for example the CEO of a multinational is not likely to careless about the poor in a place he has never heard of! Highlighting the globalisation problem perhaps! He will care about his EBITDA!

 

Its arguable whether a business would invest more to achieve that bottom line or just take what it can (I agree not necessarily right), and investment does not always lead to growth. Obviously a lot depends on the investment made. For the record I think 19% is very competitive but obviously the  government have a plan at 17% and its only fair to let them run with that and see what happens, maybe they are correct, I do not think there has been a case of any major economy having a rate so low and of what impact that would have.

 

During the last Labour government unemployment was higher, the number of business were lower, and private business investment was low, productivity was low despite everyone having a degree, hnd or nvq in something. In an ideal world what you say would be true but I think we have all determined here we live in a far from idea world.

 

Decent people can agree that maybe wealth should be shared, but it seems human nature (greed) the world over dictates that would never happen. In my example Venezuela, socialism was seen as the saviour, the great wealth distributor. Who are the only rich people now who can get access to vital supplies?.......the supporters of Chavez.

 

Corbyn and McDonnell are very worrying individuals who are being marketed and caring compassionate by a very good momentum marketing machine the vile Milne. They have all the attributes to morph into some kind of despot socialist dictatorship and they show it with their talk or 'seizing' and 'overthrowing the government', this is not the talk of sane decent democratic men! This is the talk of dangerous far left lunatics! What worries me is that so many normal people are falling for it and will regret it if he ever gets power.

 

Hopefully it never happens but we may find in a few years in a bankrupt Brexit Britain under comrade Corbyn that only the members of momentum are allowed access to toilet roll.

 

The system  now may not be perfect but Lots of people have jobs, lots of people have homes, lots of people are able to willingly give to charities that support those less fortunate. We have to be very careful we don't tip the balance the other way with an unproven system.

 

 

[Webbo]

7 hours ago, Captain... said:

I'm not kidding, we all want what's best for the country, and ourselves, that includes Webbo. I'm just wondering what news if any would sway them. We have had experts predicting economic collapse, trade disasters, food shortages, labour shortages, every layer of negotiations brings out more complexity and more scope for problems. All of these can be argued, but I see nothing of the benefits Brexit will bring, just people arguing against the experts predicting problems.

Food shortages? Seriously? We'll no longer be able to buy food? The truth is we'll be able to buy food at, lower world food prices, which, as food is a larger percentage of the lower paid's income, will be a disproportionate boost to the living standards of the poor.

 

Labour shortages? That will force up wages and productivity, which is what we all want isn't it?

 

We've had plenty of recessions in the EU and we'll have them again outside as well. The benefit of having a govt that has to listen to the voters, can't pass the buck, makes it all worth while. Of course it's going to be difficult and complicated but that's no reason not to do something. Atm we have the establishment spinning project fear. The Guardian and the BBC are constantly picking fault with the govt's case and ignoring the flaws in the EU's arguments.

[Buce]

5 hours ago, Foxin_mad said:

In your opinion. That's one picture chosen by a stupid newspaper to make a point.

 

Davis and his team I am sure a very competent and know exactly what they need to get from these discussions.

 

All the government have stated and are correct in stating is that we will not be bent over a barrel by the EU the deal has to be good and that is the point of negotiating. Both sides have a lot to loose and more to gain by striking a good deal. if the EU can keep us happy then we will contribute more towards the final settlement and the EU citizens will get a good deal, if they are happy with that then we will get what we fee is a good deal on trade. Their will be concessions on both sides I am sure.

 

Pretty much every product we buy from Europe we can by elsewhere. If Europe wont sign a trade deal with us tariff free, the US and many commonwealth countries have already said they will.

 

Oh, the irony.

[Kopfkino]

@DJ Barry Hammond

 

I was being deliberately facetious earlier. Now I have about 15 minutes, I will engage properly. I understand all that you are saying, I see your point. Corporation tax is a flawed tax, taxing capital is not optimal. I also don't believe a discussion around the headline rate is actually too useful. The important figures are the EMTR and EATR, it just so happens that, given there is little other reform to corporation tax, changes to the headline rate moves the EMTR and EATR. I'm not even necessarily personally advocating the current level or a lower level because we'd be better served by reform, but I don't think it should be higher. There is also a huge diversity in the pool of shareholders, it's not quite mostly international hedge funds and pension funds.

 

Anyway, it's key to understand the incidence of any tax proposal or who shares that burden. "You can't tax a corporation, you can only tax people" and so you have to look at who you are taxing. The problem is that you seem to assume the burden for corporation tax falls on the shareholder. This isn't the case. Southwood averages the empirical estimates and finds that 57.6% of the burden falls on workers. Fuest finds the burden to be over 50% and also shows that where wages are set by collective bargaining, it is 77%. Arulampalam et al show the burden to be 75%. The literature also says that the more open an economy and the more mobile the capital, the higher the burden on workers. Of course, eventually you can end up in a position, as the result of knock on effects, where the overall burden is higher than the tax collected which some studies do show. 

 

Then there's the deadweight loss from corporation tax which is higher than average and would only increase with any rise. That's because profits are mobile and responsive to changes in tax rates elsewhere. And also because, even if a business does invest more as you suggest they would, effective ROI after tax will be lower. That in theory would discourage savings and investment but I accept what you are saying. 

 

Djankov has conducted to most widespread and diverse study into corporation tax. He finds in his analysis of 85 countries that "effective corporate tax rates have a large and signi cant adverse effect on corpo- rate investment and entrepreneurship" and his results are robust when controlling for other taxes such as VAT and income tax, or regulation, property right protection, economic development, inflation, seignorage etc. There are studies that show rising corporation tax affects number of patents filed and new incorporations. 

 

There's a massive pool of economists that don't like taxes on capital, believe they are distortionary and not suitable for revenue raising. You tend to find that even if you look at those that oppose cutting corporation tax, you will be hard pressed to find any that support raising it again. There's some other interesting studies out there about where the burden of corporation tax falls and also different theories as to what it actually is taxing.

Edited 17 July 2017 by KingGTF

[Lionator]

Can anyone justify HS2?

[DJ Barry Hammond]

 

I acknowledge the studies that comment on the effect of a lower corpation tax... however, I understand these are taking data from a period where corporation tax was a lot higher - going from 60/50% I believe to around the 20's now, with only the US holding out above 30% (albeit with lots of complex deductions available insdie that?) in the major OECD economies? 

 

But the essence of my opinion is centred on an optimum curve theory within all taxation models and the thinking that this gradual cut and going as low as 17% is in effect reducing the insentive for investing because it helps companies make their profit without any additional effort and that switching direction slightly would be of overall benefit.

 

I surmise there is an optimum point (possibly between 20-25%), that would balance benefits in terms of tax receipts and company re-investment, which i concede is is largely anecdotal - but feels like it has the essence of truth to it.

 

Maybe Ireland's recent impressive growth and corp tax rate of 12.5% counters this argument, but then again lots of factors go into GDP figures not just corporation tax and they also went through years of recession before that, so who knows - plus can we really compare Ireland's situation to the UK's?

 

And would it be fair to say "tax only being paid by people" is only a theory - albeit a famously researched and commonly accepted one?

 

In the example of corpoation tax, it is difficult to definitively decide with whom the burden actually lies - consumer, share-holder, worker (combination of all 3)?  This is one reason why it might be wise to do away with Corp,tax altogether... but it may also be a reason why it's useful for governments, because if no one realises they're paying it, they won't complain about it!

 

 

 

[DJ Barry Hammond]

18 minutes ago, Lionator said:

Can anyone justify HS2?

 

They may as well get on and do it, otherwise it will be seriously out of date by the time it's completed? And it may act as a pre-cursor to a wider update of other train lines?

 

Still - I wouldn't be surprised if China completed their massively ambitious train line into mainland Europe before HS2 is finished!

[Strokes]

22 minutes ago, Lionator said:

Can anyone justify HS2?

Be great when they get nationalised

[Guest]

5 hours ago, KingGTF said:

 

So if Hammond puts up your income tax tomorrow, you're more likely to invest in your skills to increase your income?

It's different with business, the cost of investing in skills comes off their profits and therefore reduces their tax bill.

 

 

51 minutes ago, Lionator said:

Can anyone justify HS2?

No. The idea of a northern powerhouse I can buy into. The idea that this consists of one badly chosen rail route I can't. 

The North of England has been left in near ruins from its heyday and it is time that a government came up with a proper strategy for developing local economies outside of London. We almost need to decide that different regions are going to have different industries and then help to power them forward. London has finance to keep its cogs turning it is time some proper money got spend elsewhere. The argument that London brings in the big bucks so deserves expenditure to keep the cog turning is ridiculous as it will never allow any other area of Britain to thrive. 

Edited 17 July 2017 by Guest

[LiberalFox]

4 hours ago, KingGTF said:

@DJ Barry Hammond

 

I was being deliberately facetious earlier. Now I have about 15 minutes, I will engage properly. I understand all that you are saying, I see your point. Corporation tax is a flawed tax, taxing capital is not optimal. I also don't believe a discussion around the headline rate is actually too useful. The important figures are the EMTR and EATR, it just so happens that, given there is little other reform to corporation tax, changes to the headline rate moves the EMTR and EATR. I'm not even necessarily personally advocating the current level or a lower level because we'd be better served by reform, but I don't think it should be higher. There is also a huge diversity in the pool of shareholders, it's not quite mostly international hedge funds and pension funds.

 

Anyway, it's key to understand the incidence of any tax proposal or who shares that burden. "You can't tax a corporation, you can only tax people" and so you have to look at who you are taxing. The problem is that you seem to assume the burden for corporation tax falls on the shareholder. This isn't the case. Southwood averages the empirical estimates and finds that 57.6% of the burden falls on workers. Fuest finds the burden to be over 50% and also shows that where wages are set by collective bargaining, it is 77%. Arulampalam et al show the burden to be 75%. The literature also says that the more open an economy and the more mobile the capital, the higher the burden on workers. Of course, eventually you can end up in a position, as the result of knock on effects, where the overall burden is higher than the tax collected which some studies do show. 

 

Then there's the deadweight loss from corporation tax which is higher than average and would only increase with any rise. That's because profits are mobile and responsive to changes in tax rates elsewhere. And also because, even if a business does invest more as you suggest they would, effective ROI after tax will be lower. That in theory would discourage savings and investment but I accept what you are saying. 

 

Djankov has conducted to most widespread and diverse study into corporation tax. He finds in his analysis of 85 countries that "effective corporate tax rates have a large and signi cant adverse effect on corpo- rate investment and entrepreneurship" and his results are robust when controlling for other taxes such as VAT and income tax, or regulation, property right protection, economic development, inflation, seignorage etc. There are studies that show rising corporation tax affects number of patents filed and new incorporations. 

 

There's a massive pool of economists that don't like taxes on capital, believe they are distortionary and not suitable for revenue raising. You tend to find that even if you look at those that oppose cutting corporation tax, you will be hard pressed to find any that support raising it again. There's some other interesting studies out there about where the burden of corporation tax falls and also different theories as to what it actually is taxing.

 

What taxes do economists like?

Liberals like income and corporation tax because the entity being taxed has the ability to pay. Also taxes like VAT on luxuries that are optional.  

[Kopfkino]

@DJ Barry Hammond

 

Optimal curve theory (Laffer Curve) does only consider maximising government revenue from that particular tax and I believe that there was a study that said that could actually be as high as 70% (in the US) but the problem with such a theory is it only ever limited to an individual tax whereas we should be looking at growth-optimising levels of tax which is sort of what the Rahn Curve does (but then you lose the micro aspect). Anyway, I see what you're saying whereby investment becomes an effective tax avoidance measure in simple terms. But that surely works on the assumption that shareholders/corporations only seek to maximise their returns when taxes are higher. So why, when taxes are higher do they have incentive to increase their returns but at a lower rate are happy to take the profits and not maximise returns. Simplifying it down, my firm turns over £100m and pre-tax profit is £10m. At a 15% rate, why am I happy to just pocket the £8.5m in the knowledge I haven't invested and so I make the same next year, but at 25% I decide to invest £1m, end up with £6.75m this year but make more next year and in subsequent years. In both cases it doesnt matter if you know your ROI (which, in net terms, will actually be lower when the tax is higher so is therefore less appealing) but I only choose to invest to maximise future returns when tax is higher. Maybe this idea works if shareholders incur a time cost to increasing their returns, like you see for labour with the backwards bending supply curve, but they don't.

 

I agree there probably is a optimal point that balances investment with tax revenue for the government but I would speculate that neither maximises government revenue, maximises investment, nor probably maximises growth. That's just logic with trade offs. There is then of course the deadweight loss of corporation tax.

 

I don't know about the usefulness of comparisons with Ireland. I'm not sure it's possible to deny that corporation tax has played a role recently. Yeah they suffered in the crisis still but as many on here are quick to point out, it was a global crash and one that Ireland was deeply wedded to because of its construction boom and being tied to the Euro. You can look at the fact that their productivity levels shot up when they drastically cut it but it was nothing special (the UK hasn't benefitted so much but maybe time differences account for that a little) and FDI was massive but actually FDI as a result of big multinationals headquartering themselves in your country is not particularly beneficial and possible economically inefficient. I haven't ever read up on specific examples to know enough about the Irish case and it's not a country that has ever interested me or most people I imagine 

 

It's not theory, it's true. A corporation is a legal entity that is legally responsible for the tax but it doesn't pay the tax. Eventually someone, somewhere has to pay the tax. People pay taxes and any tax is going to affect their economic behaviour.

 

Of course, from a public choice point of view, corporation tax is an easy tax and is useful for governments from a political standpoint. But actually corporation tax is problematic because of "demoralisation costs" that are basically the cost of perceptions that a corporation doesn't pay its fair share. That has both a political and economic cost. And anyway, I'm not sure the argument that corporation tax is good politically, because the lines of burden are blurred, is a particularly good reason for its existence. It's inefficient, highly distortionary, and not actually particularly effective at raising revenue. Anyway, it's pretty obvious i'd prefer reform more than anything and am therefore not necessarily supporting this race to the bottom that seems to have erupted amongst the OECD.

 

 

@LiberalFox

Well they love consumption taxes basically. That and 'poll' taxes actually. Some forms of property tax are also favourable I believe. Tax is an interesting one because actually there's a broad agreement across the spectrum. 

I, personally, back a flat-rate consumption tax, made progressive by a negative income tax. That seems a long shot at the moment though.

Edited 18 July 2017 by KingGTF