PWC issued the latest of their Total tax Contribution reports today.
I readily admit I do not buy the logic of these reports, but this is what they say:
A survey by The Hundred Group of FTSE 100 Finance Directors has found that the UK total tax rate — combining all taxes borne or collected by FTSE 100 businesses on the Government’s behalf — has grown significantly as a proportion of total corporate earnings since 2007.
The members of The Hundred Group reported that their total tax rate increased from an average of 38.2% of total earnings in 2008 to 41.6% in 2009. This represents a year-on-year increase of 9% in FTSE 100 companies’ average total tax rate; an expansion in the overall corporate tax burden which has been implemented against the backdrop of the deepest recession for many years.
The survey was conducted on The Hundred Group’s behalf by PricewaterhouseCoopers LLP. During the 2008/2009 tax year, the UK’s largest companies paid or collected £66.6 billion in taxes. Corporation tax payments fell 6.4% to £10.3 billion over the period. However, other taxes did not reduce in line with declining profitability and therefore account for a higher proportion of overall earnings.
But hang on — don’t economists all agree that business can’t pay tax?
How can so many people — the captains of industry and the biggest firm of accounts in the world no less — have made such a drastic mistake in the face of that evidence from the world’s best economists (you know, the ones who didn’t see the recession coming)? Note that PWC say borne? Surely some mistake?
I hope Tim Worstall’s on the case 🙂
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Richard,
Corporations pay tax. Money leaves their bank accounts. I don’t think anyone disputes that, and Tim Worstall has repeatedly said this is the case. He gets it!
The issue of incidence is the question of whether the corporation can indefinitely internalise the tax without it ultimately affecting a live human being. That’s the incidence question. I don’t think they can. Tim (from what I gather) doesn’t think they can.
The PWC report you quote seems to refer to ‘payment’ only — it doesn’t (from the extract) even address the incidence (or ‘burden’) question.
The article by Felix and Hines talks about the burden. Completely different topic.
If you can prove, whether empirically or from theoretical ‘first principles’ that a corporation tax can internalise its tax (or indeed, any other costs) indefinitely without affecting one or more live human beings, please do so. If you can, it will probably be the greatest economic discovery of all time, worthy of a Nobel prize for the next decade, I’d think.
I can tell you why PWC don’t talk about incidence
I know the team who created the PWC report don’t believe it
Key members have told me so
Borne means paid by to them – incidence never occurs to them or the FTSE 100
Now, are they rational or irrational to think that – because they do? The wording of the report is deliberate. They collect some taxes, bear others (meaning they think they suffer them)
A bit of a challenge for you economists who think business is rational, isn’t it?
Richard
I have long struggled with the logic of this annual survey by The Hundred Group of FTSE 100 Finance Directors. I’m sure they know better than the survey suggests when combining “all taxes borne or collected by FTSE 100 businesses on the Government’s behalf”
They seem to be aggregating corporation tax, VAT, employers’ NIC and PAYE taxes. Assume the first 3 do not change the total will still increase when the top rate of income tax increases from 40% to 50%. And yet this is not an increased burden on the employers (other than having to cope with employees complaining about the impact of PAYE). Changes to the standard rate of VAT may impact sales but beyond that the requirement on the companies is unchanged whether the rate falls to 15% or increases to 20% (or even 25%). But the ‘total tax rate’ borne by companies would increase according to this report.
No wonder you don’t understand the logic of the report Richard. Neither do I.
From today’s paper:
http://www.telegraph.co.uk/finance/jobs/7354616/FTSE-100-tax-burden-threatens-UK-jobs.html
“Britain’s largest companies handed over more than half their gross profits to the Government in taxes last year prompting FTSE 100 finance directors to warn that the burden was damaging investment and job creation. ”
Less investment means less capital per worker. Thus lower wages. Fewer jobs means less upward pressure on wages. Thus lower wages.
So, as I’ve been saying all along, some of the burden of corporate taxation falls upon workers in the form of lower wages.
And as a century’s worth of economists have been saying as well, something rather more important than what I say.
But surely, more jobs and higher wages meanss less corporation tax payable by the employer? Of course, you can get round this obvious point if you argue that PAYE deducted from employees’ wages can be claimed as some kind of “credit” by the employer. This stuff is surely not really worth engaging with.
Don’t get me started on employers NIC. That really is a tax on jobs….
@Tim Worstall
Note what Tim says
You’re wrong
And I’ve provided data to show you’re wrong
And you still persist in your argument
Why is that you suffer from the delusion that that an economy can be accurately modeled using counterfactual propositions about its nature?
See here for source of the comment http://rwer.wordpress.com/2010/02/22/greenspan-friedman-and-summers-win-dynamite-prize-in-economics/
@James from Durham
I agree with you
The trouble is economists think like Tim
It may of course be because they’ve never worked in business, know nothing about it, and have tenure unlike most of us
It’s an obvious basis from which to make their wholly objective and informed comments on the merits of competition 🙂
Richard