Corporate taxes are a political issue – not an economic one

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Down here in Oxford an academic took me aside to discuss my comments on Mike Devereux's work, published hereon Monday. His argument was that a company can pay tax, but can't bear it. In other words, he argued in support of Mike that the tax charge on a corporation can be passed on to labour, customers, or whatever. As such it is an economically neutral issue.

I responded by saying that this is not true. Companies can decide within quite wide parameters where they will pay tax. And they can decide when they will pay tax. And as a result they can decide how much tax they might pay. All of these issues have been agreed upon here at Oxford today. That means companies decide who benefits from the tax they pay. If that is the case then they are doing two things. First they are acting as principals in their own right, and not as agents for anyone, be it for the shareholders or someone else. Second, they are pursuing a political activity when making these decisions.

This is far removed from the neutral economic claim that is usually made for corporation taxes. Second it shatters the myth that corporations have no social responsibility in this matter. They have. If you undertake political activity, even by proxy, then you have responsibility in the exercise of that action. This is why tax is at the core of social responsibility - and why every multinational company should recognise it as such.

I have to say that I was surprised by the reaction to my comments. The academic said he had changed his mind.