{"id":10215,"date":"2011-05-28T07:31:13","date_gmt":"2011-05-28T06:31:13","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=10215"},"modified":"2011-05-28T07:31:13","modified_gmt":"2011-05-28T06:31:13","slug":"corporation-tax-cuts-do-not-stimulate-growth","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2011\/05\/28\/corporation-tax-cuts-do-not-stimulate-growth\/","title":{"rendered":"Corporation tax cuts do not stimulate growth"},"content":{"rendered":"

The TUC has launched a new report I have written on\u00a0corporation\u00a0tax <\/a>this\u00a0morning. As the report says, it:<\/p>\n

    \n
  1. Reviews the history of UK corporation tax, the history of UK mainstream corporation tax rates and the history of UK small company corporation tax rates.<\/li>\n
  2. Compares movements in UK corporation tax rates with those of a sample set of data drawn from more than 60 other countries.<\/li>\n
  3. Notes the history of corporation tax yields in the UK in isolation and in comparison to other main taxes, and then reviews forecast trends in these yields.<\/li>\n
  4. Describes, using examples, the proposed changes in UK corporation tax and the impact they might have on the tax base.<\/li>\n
  5. Speculates on the impact of the proposed changes on tax yield.<\/li>\n
  6. Reviews data on the relationship between corporation tax and growth in GDP and average employment rates in the EU15 states and selected other locations.<\/li>\n<\/ol>\n
    \n

    As a result of this work the report suggests that:<\/p>\n

      \n
    1. There is no current competitive pressure to undertake these tax reforms;<\/li>\n
    2. The consequence of those reforms will be declining corporation tax yields at a time when increased revenues are needed to reduce the deficit;<\/li>\n
    3. Large companies will see a disproportionate decline in their tax charges when compared to small companies, creating an unfair competitive advantage for large companies. This will hinder internal tax competitiveness in the UK;<\/li>\n
    4. There is a significant prospect of there being outflows of profit from the UK as a result of proposed changes in the UK corporate tax base;<\/li>\n
    5. There will be some disadvantages for developing countries as a result of the proposed changes in the UK\u2019s corporate tax base that will harm their prospects of collecting the taxes legitimately due to them.<\/li>\n
    6. There is little prospect of significant growth resulting from these changes in corporation tax;<\/li>\n
    7. Consequently these tax cuts represent a poor use of government resources at a time when these are exceptionally scarce.<\/li>\n<\/ol>\n

      Evidence is, of course, suggested to support each conclusion.<\/p>\n

      Why do this now? I suggest<\/span> it's appropriate for several reasons. First the Finance Bill is currently making progress through the Commons. Opposition to its tax cuts for big business is still possible.<\/p>\n

      Second, there is a large body of opinion that says tax cuts\u00a0stimulate\u00a0growth. I can reproduce that\u00a0result, but only by\u00a0including\u00a0tax haven states. The UK is not a tax haven state so the comparison is simply misleading. I presume no one wants to copy the Irish debacle and no one thinks the UK could behave as Luxembourg has.<\/p>\n

      Third, squeals that the UK has uncompetitive taxes are heard often but analysis does not support this view.<\/p>\n

      Fourthly<\/span>, the fact that massive<\/span> effective tax cuts<\/span> are being given to big business (but not small business) now<\/span> is an issue that has hardly been<\/span> noted as yet.<\/p>\n

      Lastly, the UK has to accept that its actions have unforeseen consequences<\/span>. The abandonment of our residence based principles of tax and controlled foreign<\/span> company regulation<\/span> will have serious consequences<\/span> for some developing<\/span> countries.<\/p>\n

      These are issues that need to be on the political agenda and without reports of<\/span> this sort they won't be.<\/p>\n

      I am well aware opponents will protest. That's not the point: what I show is that I too can pick data and show that links between tax rates and employment<\/span> and growth are weak: data in my case selected to ensure that the samples were similar to the UK. Such data cannot prove causal relationships<\/span> at the end of the day, but it can say associations between data are weak. The relationships<\/span> I found between tax rates, growth and employment<\/span> were very weak; well under<\/span> 10% of all variation in growth and employment could be explained by tax rates<\/span>. In that case the suggestion is simple: to change tax rates is a very poor way to stimulate<\/span> the economy.<\/p>\n

      As ever, the Conservatives are backing the wrong economic policy<\/span>.<\/p>\n

      But the error of judgement<\/span> does, undoubtedly suit their friends in big business<\/span>.<\/p>\n<\/div>\n

       <\/p>\n","protected":false},"excerpt":{"rendered":"

      The TUC has launched a new report I have written on\u00a0corporation\u00a0tax this\u00a0morning. As the report says, it: Reviews the history of UK corporation tax, the
       Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[64,73,1],"tags":[],"class_list":["post-10215","post","type-post","status-publish","format-standard","hentry","category-corporation-tax","category-tuc","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/10215","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=10215"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/10215\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=10215"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=10215"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=10215"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}