Of course people have left wing views when they’re ignorant of such concepts as Tax Incidence and have opinions formed around myths like “world inequality is rising”, which went unchallenged on “thought for the day” this morning. Of course, with the Chinese, Indian and much of African economies growing at 8-12% (thanks to the much maligned free-trade) the number of people living on less than $1 a day is falling faster than at any time in history.
Even within western countries, inequality isn’t rising that fast. The UK’s GINI numbers are skewed by the presence of the international super-rich in London, a feature which probably affects New York, Hong Kong, Los Angeles, Monaco, Paris and Cape-Town. Otherwise, the middle class is growing, and the working class is shrinking. Inequality is mainly between welfare-recipients and those who work. I argue that our poorly designed welfare state with its manifest disincentives to finding a job represents a trap.
Vodafone doesn’t pay tax? Vodayfone may have successfully won a case against HMRC, and had £4.8bn written off, but it otherwise paid the tax due. Does anyone argue that a company isn’t allowed to challenge the Revenue in the courts? Because the left is dangerously close to arguing for retrospective and confiscatory taxation. It’s there in the report and accounts – they paid 27% of £9.8bn operating free cash-flow in tax (compared to a headline corporation tax rate of 24%). It may have been aportioned in different years, resulting in a figure in the profit & loss account of 17% on £8.5bn of operating profit but the CASH is the actual amount paid to the revenue and the equivalents around the world in that year.
Lefties often reject widely accepted economic concepts like tax-incidence, the idea that the economic burden of a tax doesn’t always fall on those writing the cheque. If corporation tax was abolished, some of the extra money would go to shareholders who pay CGT and income tax on dividends (at a slightly lower rate), however much would go to customers in the form of lower prices (does anyone argue that the mobile phone market isn’t competitive?) with the money spent (and taxed elsewhere) or workers in the form of higher wages, resulting in a much higher rate of tax. The result of abolishing Corporation tax would probably be rather small overall, at least in the long-run.
The idea that Corporate Tax avoidance is THE problem is ridiculous. Avoidance involves using the legal means to keep your tax bill to the minimum. It’s up to the Revenue to challenge “abuse” in the courts. If the court agrees, you pay the difference. The problem the revenue faces is that the UK is now pretty much at the limit of what the people (and the companies they run) will take. People will not pay very high marginal rates. They will hide income offshore, they will move, they will take lower wages, bring forward capital expenditure. Many will think that the rewards of running a business are simply not worth it, and retire.
Left wing myths are so deeply embedded, it’s difficult to challenge all of them, all the time. But these myths result in a slowly strangled economy. Because the solutions that fall naturally from left-wing myths: more investigations, tighter regulations and stronger enforcement are so poisonous to economic endeavour. This is why Labour break everything every time they get power.