Monday 15 September 2008

Well, Sorta Vince

Vince Cable lays out the latest Lib Dem tax plans.

Big firms such as Tesco are using "immoral" tax avoidance measures and will be targeted as part of a Liberal Democrat bid to save £5 billion a year by closing loopholes, economics spokesman Vince Cable has declared.

The crackdowns will go towards reducing bills for low and middle earners by the equivalent of taking 4p off the basic rate of income tax - along with increased green taxes and reducing pension relief for the super rich.

It includes a move to prevent expensive properties being placed into offshore trusts or other vehicles to avoid paying stamp duty, a practice Mr Cable said was a "gross abuse" that had saved the supermarket giant £63 million.

Individuals and companies "who would usually think of themselves as highly reputable" had taken advantage of the loophole, he said, adding that closing it could bring at least an extra £1 billion into public coffers.

Those who think of themselves as "highly reputable" would include the Guardian Media Group then, do you think? For they did indeed use such offshore Stamp Duty dodges in their dealings over EMAP.

However, the real problem we've got here is an idea called tax incidence. The person handing over the cheque isn't necessarily the person who actually bears the economic burden of a tax. Further, when we deal with companies, there isn't actually a person there, only a legal fiction.

All taxes are in hte end paid by human beings: what we'd like to know is which ones for any specific tax. Given that companies are simply such a legal fiction then we'd like to know who is it that carries the burden of taxes upon companies? It's got to be some combination of customers in higher prices, workers in lower wages or investors in lower returns. When we look at corporation tax we find that it's 70% paid by the workers in the form of lower wages. It wouldn't be surprising at all to find that the Stamp Duty fell on them in the same way.

So while this all sounds quite lovely, bash the companies, it really isn't quite that simple. Are we really happy with the idea of a tax cut for the middle classes paid for by lower wages for the shelf-stackers in supermarkets?

1 comment:

Mark Wadsworth said...

who is it that carries the burden of taxes upon companies? It's got to be some combination of customers in higher prices, workers in lower wages or investors in lower returns. When we look at corporation tax we find that it's 70% paid by the workers in the form of lower wages.

According to your world view, possibly yes.

But look at VAT and Employer's NIC. They lead, directly and incontrovertibly to higher prices, lower wages and lower investor returns. We find that the total cost to these three groups [however divided is pretty irrelevant] is considerably more than 100% of the revenue therefrom.

Let's put out the blazing fire in the kitchen before we worry about the damp patch in the bay window.