If you believed everything said in the media and by many politicians you would think that higher taxes are an obstacle to job creation. That is why, supposedly, the UK's corporation tax rate has been cut from 28% to 20%. This, in association with other changes to the UK tax system, may have cost £10 billion a year in my estimate. The claim is that this will boost economic activity in our economy. In that case new evidence from the USA that this policy is unlikely to work and may even be counter-productive is interesting.
The work has been done by the indefatigable David Cay Johnston who have worked on the relationship between tax rates and jobs growth in the USA. As he notes, there are 3,144 counties in the USA and:
Just three California counties accounted for every 16th new job in America last year. Add in Orange County, the rich suburban area between LA and San Diego, and every 13th new job in America was created in just four counties. So about a tenth of 1 percent of counties accounted for more than 6 percent of job growth in America last year.
What's the odd thing about this? Well, this is happening in California where voters in 2012 elected to increase both sales and income taxes beginning in 2013. So, there was jobs growth 0 exceptional jobs growth in the US context - despite tax increases.
Now that does not prove tax increases create jobs. I am not saying that. But what it does say is that it does not stop job creation either. In fact, if taxes support the inherent strengths of a location by providing infrastructure, well trained staff, and more, then around the world we know that taxes can, by implication, aid growth. In fact, as Ernst & Young admitted to the House of Lords earlier this year, tax comes way down on the list of considerations when it comes to business location.
In that case we have to assume the UK's tax cuts are not about tax competition or boosting the economy at all. They are about increasing inequality. And that's something very different indeed.
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Evidence from the UK though suggests that tax cuts are working. GDP growth is running high, and unemployment, youth unemployment and underemployment are falling – and the nominal number of people in work is at an all time high.
That is not even worth responding to – when we all know all these figures are so heavily distorted as to not reflect economic reality
Distorted by the ONS?
If they are so distorted now, why do you think they weren’t distorted under the previous Labour government?
I suggest not nearly so much
First of all, they did not sanction people to get them off unemployment data and nor did they pay incentives for people to start false self employments?
I see you are now blocking posts with evidence to show that what you are talking about is cobblers.
No
I delete comments that repeat claims without foundation or that have already been rebutted many times
Just as a newspaper might edit a letters page
I was quoting the ONS unemployment statistics. Are you saying these are without foundation?
I am saying the figures are distorted by government behaviour – yes
I see you are too scared to defend the wholly incorrect statement you made. That you simply can’t stand to debate or answer questions which show you in bad light show at best a fragile ego, at worst an illness of mind.
This seems to be a theme with you – whenever anyone blows a hole in any of your arguments you simply resort to name calling, stating your convictions are correct and refusing to answer questions.
Having read much of your publicised work, it is fair to say that calling it amateur is too generous. It is sub-GCSE standard for the most part, and involves little more than basic multiplication as its analytical base surrounded by a lot of militant political propaganda. Having taught maths, statistics and economics, I would expect better work from a twelve year old.
I also see that you are rather hypocritical in your own actions. You are essentially taking a charity’s money for your own self-promotion, whilst avoiding tax through your own companies. Like most of the hard left, it seems that it is one thing for those you oppose, but another rule for you entirely.
When I first read this blog I was expecting nuanced debate regarding tax and economics. What I found was an egotistical little twerp with pretty much no understanding of either. You are nothing more than another shouty left-wing authoritarian who cares little for the lives of real people short of subjecting everyone and everything to control by the state – which I assume you and like minded individuals should control. You certainly aren’t an economist, and your work is demonstrably incorrect. Nor do you have regard for the facts – if they don’t suit your argument they get tossed out, once again you state that you are correct and depart on another political rant.
Part of me would love to see the disaster an economy run on the basis of ideas you put forward would be. Though I expect when it falls apart you would simply once again blame it on some unspecified neoliberal conspiracy theory.
This was too amusing not to post on the day that the Isle of Man press has acknowledged that work done on this blog using the sort of investigative economics and tax techniques that I use has fundamentally changed their government’s funding.
They said I was wrong.
They said my calculations were incorrect.
And they were adamant it was all just left wing propaganda.
It just so happened I was right, not by luck, but by coolly analysing at a macro level what others clearly had not seen.
And that’s what I’ll carry on doing.
But this commentator won’t be posting again.
DWW (or should it be DWP?) -trebling of food bank use; one million IN work on housing benefit; The total number of sanctions against benefit claimants in the year to September 2013 was 897,690, the highest figure for any 12-month period; meaningless forms of self employment largely as a result of the aforementioned – and you think this is working?
How about the one million plus who are going to end up on the dole due to massive cuts in the public sector?
And on to a question that has been perplexing me: Why, if the UK is now doing so marvellously due to the ConDems economic policies, then why are we still experiencing massive cuts?
However some of the companies that are in this prime region have their tax base outside of the US. Google is one example which isn’t based anywhere.
“What’s the odd thing about this? Well, this is happening in California where voters in 2012 elected to increase both sales and income taxes beginning in 2013.”
Yes, of course. Standard optimal tax theory. Consumption and income taxes have smaller effects on economic growth than capital or corporate ones. Thus you will get more economic growth, thus jobs, from taxing consumption than if you try to raise the same revenue by taxing either capital or corporations.
This does of course mean that you cannot expect the same effects from your desire to increase corporate taxes though.
Tim
Only in your dreams
Richard
I don’t think it is as simple as taxing profits/corporations as opposed to other forms of tax.
If corporations invest their profits, we will get growth. If most is paid out as dividend, then that just boosts consumption.
If a government taxes profits and spends on e.g. new roads or research, then that contributes to economic growth. If the profits are stashed in a tax haven, then it doesn’t.
Surely they [tax cuts] whilst plausibly resulting in more inequality are more about reducing the size of the state. I mean that is the governments main motivation in my own opinion.
Both achieve the same result
What- a small state-utter nonsense. The state is massive when it comes to bailouts, bail-ins and defending corporate interests. We now live in a state that follows the ideology of ‘reverse socialism’, that prints money for asset bubbles and takes it way from the poorest.
Richard, your preamble includes a referecne to corporate tax rates: “That is why, supposedly, the UK’s corporation tax rate has been cut from 28% to 20%”, whic you decry: “In that case new evidence from the USA that this policy is unlikely to work and may even be counter-productive…”
However, you describe the Californian measure in terms of sales tax and income tax. Could you provide some figures for Californian corporate tax from 2011 onwards?
No, I can’t
But I do not think it relevant
The E & Y comment was what was relevant: taxes aren’t
The answer is easy: US federal tax rate has been constant at 35% since 1994. California state taxes on companies have also remained constant since at least 2000 at just under 9% effective rate.
I have to say that comparing the UK strategy of reducing corporate taxes to the Californian situation where increases in sales and income taxes — i.e. taxes suffered by individuals not companies — does not seem to me to be a logical comparison and I am not convinced your argument is strong in this instance.
A better conclusion if you want to focus on taxes on companies is that it is possible to grow the job market without reducing corporate taxes. Not so strong but more in line with the facts. Or perhaps the conclusion is that job markets can grow even if taxes on individuals are increased.
Although the comment below from Rory Supiteuchi seems to suggest the growth in jobs is more to do with the concentration of tech companies in the area than having any causal relation to the level of taxes in the area.
No – what you prove – as others do – is that tax has little or no direct impact and that was the point
This is all quite misleading. California is effectively a failed state, with public service in shutdown last time I checked because the direct democracy system means any sensible government measure is prevented.
Jobs in the counties where the tech companies (as noted above paying their tax elsewhere) and the wealthy folk are all would seem to support the argument that a kind environment to global giants is to be encouraged.
Not consistent with your main argument from my recollection!
Why misleading?
Tax went up
So did jobs
What is misleading about that?
Surely this is just plucking the goose a little bit more and in a highly productive area of the country. Sales tax went up 0.5% and income tax on over $1m by 3%. Not much compared to the way UK rates flap around by 2.5%, 5%, 10%, 18%.
Interesting to see when the voters will vote themselves another increase.
The vote was not just in those counties
As a worker in the Valley I can tell you that there is a lot of scope to slowly increase taxes as it will just be accepted as a cost. Skilled people are so in demand here that people stay for the salaries offered by the concentration of tech companies.
If they’d only repeal Proposition 13 they could collect the massive rent which is being enjoyed by the fortunate landowners. That would really boost production.