{"id":11003,"date":"2011-07-12T11:19:14","date_gmt":"2011-07-12T10:19:14","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=11003"},"modified":"2011-07-12T11:19:14","modified_gmt":"2011-07-12T10:19:14","slug":"the-blatant-untruth-at-the-core-of-conservative-corporation-tax-policy","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2011\/07\/12\/the-blatant-untruth-at-the-core-of-conservative-corporation-tax-policy\/","title":{"rendered":"The blatant untruth at the core of Conservative corporation tax policy"},"content":{"rendered":"

David Gauke MP, the Tory\u00a0Exchequer\u00a0Secretary, and a man for whom I have little regard (a feeling which I know is reciprocated) was speaking at the\u00a0Oxford Centre for Business Taxation yesterday and said<\/a>:<\/p>\n

We are prioritising reform of Corporation Tax because it is the most growth impeding tax there is.<\/p>\n

In contrast there are those who insist we increase Corporation tax and reduce the deficit on the backs of business.<\/p>\n

As if \u201cbusiness\u201d was an entity separate from society, distinct from employees, and irrelevant to growth.<\/p>\n

The argument is made \u2014 I heard it last week from the trade unions in Northern Ireland \u2014 that cutting corporation tax favours the wealthy over the rest of society.<\/p>\n

But of course the economics doesn\u2019t stack up.<\/p>\n

We all know that higher business taxes feed through to a combination of prices, dividends, pensions, profits...and for an open economy like the UK, wages in particular.<\/p>\n

Higher taxes on profits reduce the return to investment, leading to lower levels of investment. And a lower level of investment undermines productivity which ultimately feeds through to lower wages.<\/p>\n

Ever increasing tax rates would simply serve to make the UK\u2019s business environment internationally uncompetitive....to the detriment of our private sector, and to the detriment of our wider society, rich and poor alike.<\/p>\n

Cutting Corporation Tax encourages investment. As the Chancellor said last year, reducing the headline rate signals that we are committed to creating a competitive environment for business.<\/p><\/blockquote>\n

There's no other way to describe this but complete and utter nonsense. Unless of course you call it a lie - with a gratuitous insult for my work (he likes delivering them) for unions in Northern Ireland thrown in.<\/p>\n

The explanation is very simple. It's that right now the\u00a0world's\u00a0corporations\u00a0are sitting on an absolute mountain of cash. Martin Wolf\u00a0notes\u00a0it often in the FT. The FT recently noted it in a video cast<\/a>. \u00a0Paul Krugman did too the other day<\/a>.<\/p>\n

The reality is that there is not one iota of evidence that a)\u00a0investment\u00a0is being impeded by a\u00a0shortage\u00a0of cash as a result of tax paid by\u00a0corporations\u00a0b) changing tax rates will in any way encourage more\u00a0investment\u00a0when\u00a0companies\u00a0are already refusing to do it and are lending\u00a0their\u00a0cash to\u00a0governments\u00a0instead (how\u00a0else do you think the\u00a0deficits\u00a0are funded?)<\/p>\n

But despite this Gauke carries on saying that tax cuts are the way to encourage\u00a0investment. Which is flagrantly not true, as the evidence shows.<\/p>\n

So why does he promote tax\u00a0cuts\u00a0then?\u00a0Because\u00a0they make the rich richer. Precisely as the unions in\u00a0Northern\u00a0OIreland say. It's the only\u00a0obvious\u00a0explanation\u00a0there is. And it's at the core of his\u00a0government's\u00a0philosophy.<\/p>\n

Gauke like me believes there is tax incidence -\u00a0corporation\u00a0tax is paid by someone else than a company at the end of the day. He\u00a0however\u00a0hides behind the convenient claims of the\u00a0Oxford Centre for Business Taxation that the charge falls on labour\u00a0(an\u00a0argument\u00a0contrived on the basis of exceptionally dubious and bluntly biased analysis that only looked at the\u00a0consequence\u00a0of\u00a0corporation\u00a0tax increases and not decreases - which is what Gauke is\u00a0delivering). The reality is as I say - that tax cuts deliver\u00a0wealth\u00a0to\u00a0shareholders\u00a0and no one else. Not once, not ever, has a manager turned round and said \"we've had a\u00a0corporate\u00a0tax cut - have a pay rise\". Nor, candidly, have they ever turned round and said \"we've had a tax cut - let's invest more\" - indeed the evidence is that higher taxes encourage\u00a0investment\u00a0and lower ones don't.<\/p>\n

And that blows his whole policy apart.<\/p>\n

Which is not\u00a0surprising\u00a0as his whole policy is about increasing the\u00a0wealth\u00a0gap in the UK and nothing else.<\/p>\n","protected":false},"excerpt":{"rendered":"

David Gauke MP, the Tory\u00a0Exchequer\u00a0Secretary, and a man for whom I have little regard (a feeling which I know is reciprocated) was speaking at the\u00a0Oxford
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