This is fascinating for a number of reasons.
First it gives lie to the argument that taxes on employment are paid by employees: here they are clearly going to be passed on to sharehodlers in the form of lower earnings.
Second, it makes quite clear that banks are not being run for the benefit of their sharehodlers, which gives lie to all arguments henceforth about who really counts when issues of profit and loss are considered.
Third, when some argue that the evidence is that taxes on business are passed on to employees the claim can now be firmly rebutted: if taxes on employment are not passed on to employees there is no reason to think that taxes on business are.
So let’s conclude three things.
First, businesses can pay tax – they are here – and that is the choice they have made.
Second, in that case it is not clear shareholders will suffer – I bet no obvious shift in share price or dividend will result from this choice. So incidence on sharehodlers cannot be proven.
Third, it is clear business has not chosen to pass the tax on to employees in this case. If it does on other occassions that does not prove causality of a change in wages, it merely proves they have adopted a tax justification for a change in wages, which is not the same thing at all.
Finally, because this shows incidence, if taken into consideration, is completely unpredictable the obvious thing to do is ignore it and assume, as business obviously does, that the business pays – which if it has any consequence at all will be for the shareholder – which relationship will be hard to prove for reasonable tax changes.
So, business can face tax increases and bear it if it is the right thing for the economy that they do so – as is the case at present.
Shouldn’t the money have come out of shareholders’ equity, if it hasn’t decreased the bankers’ bonuses? So even if shareholders don’t feel the cost immediately, isn’t the direct incidence clear from the accounts?
As a shareholder myself, I agree that it’s frustrating that companies don’t appear to be governed by shareholders in the way we think they ought. What can be done to improve corporate governance? The biggest shareholders in companies are pension funds and so on, but they don’t always take their responsibilities very seriously. (Under-statement alert!)
@Philip Walker
I agree
Pension funds are negligent
largely because they devolve pension fund management to banks and other FTSE companies who have vested interest in supporting the bonus culture
It is the capture of the commons called pension funds that has allowed that culture to develop, I suggest
Richard
Richard,
How many times do individuals have to point out the concept of tax incidence on these pages?
When it comes to taxes: businsses collect, they do not pay. Business taxation results in some combinaton of the following:
1) Lower wages for employees
2) Higher prices for consumers
3) Lower returns for shareholders
Please do try to keep up.
Georges
@Georges
And as I’ll say for the last time – that may be true on a blackboard
In the real world there is no evidence that this is true, discernible, measurable or predicable
In which case the only reasonable assumption is that businesses do actually pay the tax – as they believe to be the case, with all the obvious behavioural consequences that follow.
To put it bluntly: in a perfect world what you say may be as true as the claim made by the same economists who promote these ideas make that only profit maximising firms survive. In the real world no one knows what profit as defined by economists is is or how to maximise it. So both the concept or profit maximisation and tax incidence have absolutely no value in use
Get over your fantasies
Richard
Richard,
No evidence:
The economic incidence and the legal incidence is usually the same for taxes imposed on households. However, for taxes imposed on businesses this may not be the case. The economic incidence of a tax may differ from the legal incidence of a tax due to tax shifting.
http://www.ksrevenue.org/pdf/kstaxincidencestudy.pdf
Plenty more “no evidence” to sift through:
http://yweb.com/84f
Georges
That’s not evidence
That’s analysis that assumes incidence
Not the same thing at all
We’re back to “let’s assume perfect competition” again
Debate over