The right wing fundamentalism of the Institute for Fiscal Studies on display again

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People often wonder why I criticise the Institute for Fiscal Studies for right wing fundamentalism, as I have done on this blog, quite often. The reason is that it is right-wing and fundamentalist, however good its analyses might be when it comes to budgets, spending reviews and so on.

Take this report from the BBC:

In the Royal Economic Society's annual lecture on Tuesday, Professor Rachel Griffith will argue corporate tax should be charged like VAT.

"A preferable way to tax corporate income would be to tax profits at the destination of sales", she will argue.

Ms Griffith is professor of economics at Manchester University.

They might have added that Professor Griffith is also Deputy Research Director at the Institute for Fiscal Studies and that what she is saying continues a long line of such commentary on corporation tax from that body with which I have a fundamental problem.

This difficulty is simply stated and is that a corporation tax that behaves like a VAT is in fact the same as VAT. It's a sales tax. And sales taxes have three fundamental problems.

The first is that they are regressive: in other words those with lowest incomes pay a higher proportion of VAT than those with higher income. The reverse is true, of course with regard to taxes on shareholders - which despite IFS claims is exactly what corporation tax is now. So this suggestion is massively socially regressive and will increase economic inequality.

Second, sales taxes fail to reward producer states. They may be developing countries who lose out on revenues on the extractive industries. Or they could be high tech states who have spent a lot on innovation. However looked at this is absurd: the states bearing the costs do not get the revenues in such a system. That's economically bizarre, to be kind, and massively harmful to developing countries in the process.

And third, do this and capital almost ceases to be taxed in practice. How convenient for the owners of capital.

This proposal, most closely associated with Prof Michael Devereux of the Oxford Centre for Business Taxation, who is also closely linked to the IFS, which also espoused it in its Mirrlees Review, reveals an indifference to the role of tax in redistribution within and between states and ignores economic fundamentals but happens to suit the owners of capital very well.

If that is not right wing fundamentalism I do not know what is.

Beware the IFS when it comes to policy issues: it is very far from the neutral think tank it likes to pretend to be but is, instead, a fully paid up advocate of neoliberalism and the flooding up of wealth.

PS: I have been asked to define right wing and fundamentalist

Right wing in this context is having a bias to capital

Fundamentalist means it works in neoclassical economic theory so let's do it in practice

PPS: I watched the lecture - and yes, a VAT was suggested.

To achieve the recovery of corporation tax would require a VAT rate exceeding 26%

I note it was said that this is not a VAT in answer to my questions - but throughout the lecture it was said that this tax base would be like VAT

Looks like VAT, quacks like VAT, is VAT, I think precisely because the aim of incidence in this case is sales - and that is precisely what is wrong with the logic