Corporation Tax: Some observations August 12, 2010
Posted by WorldbyStorm in Economy.trackback
Thanks to John O’Farrell for the following which is in response to some questions asked here.
Richard Murphy of Tax Research UK (http://www.taxresearch.org.uk/Blog/) sent me a link to some useful Eurostat tables.
The intro is here.
The full set of over 400 pages is here.
The directly relevant tables are on pages 348 and 349, and they state that the RoI’s ‘Taxes on capital as % of GDP – Income of Corporations’ ranks 18 out of the EU 27.
More interesting is the table on ‘Taxes on Capital as % of Total Taxation’, which is the CAI’s justification. It shows the RoI 10th, but as if covers the period 1995-2008, one can chart the effect of the cut to 12.5% in 2003. This shows that the % take of Corpo Tax was increasing , peaking at 13.1%, followed thereafter by a slight decline to 11.2% in 2007, sloping dramatically to 9.8% in 2008, as the crunch took hold.
What seems to have been happening from the period just before the crash is a slight decline in takings after the cut.
Bear in mind that many of the larger FDI exporters would have been paying around 10%, the pre-2003 rate for manufacturers. The CAI are right to state that there is a case for simplification. What they don’t address is two things.
Firstly, their ‘Laffer Curve’ argument on CT does not seem to be backed by these figures at least. Cuts in CT have not led to greater takings in that tax, even before the crash.
Secondly, they do not address an issue of, I suppose morality, as opposed to ‘perfect markets’ (as they invariable are). Arthur Beesley’s point is not addressed: Why should the entire burden of additional taxes to deal with the crisis be from ther pockets of the working and middle classes?
The other issue of morality is the fact that this regime has facilitated the shifting, or ‘brass plating’, of companies from across the EU to the RoI, to avail of lower taxes which ought to be paid in the states where they do most of their business. Irish citizens are benefitting from a system which is essentially defrauding other EU citizens. One could call it living off immoral earnings. For more, follow the links here and here, and especially this one from Richard Murphy’s blog…which provides a brilliant illustration of how this works for one of ‘our’ prestige ‘investors’.
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Firstly, their ‘Laffer Curve’ argument on CT does not seem to be backed by these figures at least.
The “Laffer Curve” isn’t backed by reality in general.
It’s almost as if it’s just another BS argument by well-paid shills for the uber-rich, for why we shouldn’t tax the uber-rich. But perhaps I’m too cynical?
Generally I think you’re right, and it certainly seems to be the case for labour taxes (people on very high incomes just seem to work almost regardless of the tax rate: it’s why people like Bill Gates and Warren Buffet still work without having any conceivable purpose for the money).
That said, there probably is an argument for a (sort of) Laffer Curve for corporation tax, since, as WbS says, that report only refers to corporate tax takes. Takes from income tax, rates, carbon taxes and general economic spending from corporations all increase overall tax take. Arguably that take wouldn’t happen with a higher corporation tax.
It’s all John’s work above…
Woops! Sorry!
No worries.
Wbs
Adobe keeps telling me the file is ‘damaged’, maybe a broken link?
What it MAY show- judging from your description of the table in question- is that CT receipts decrease as a % of overall revenue, BUT the actual CT receipts figures, by year, increase slowly throughout the period, vindicating Laffer’s theory that reducing rates will increase revenue.
http://en.wikipedia.org/wiki/Corporation_tax_in_the_Republic_of_Ireland#Yearly_returns.5Bcitation_needed.5D
Of course, following Laffer’s theory, the tax could still be raised to 15% will little effect on receipts.
*with little effect
Tim, it seems to work okay on my computer. Have you tried again?
Re Laffer curves, I guess I take the position that there’s no fixed Laffer curve, that there are many and that it depends on the time and environment prevailing (or to put it another way there are many Laffer curves)! Which while not eliding with your last point certainly doesn’t contradict it.
it kept crashing firefox but it worked on IE !
Yeh, I agree with that – I think it works under the assumption that there’s a point at which people who are able to become flexible with their incomes begin to do so, but there’s no ironclad rule about where that point is. As I understand it, the equilibrium point depends largely on circumstance, such as whether people feel they are actually getting something for their money.
In which case, I think the rate could be increased to 15% without any adverse effects.
That link is up to 2001 only, sorry. correct figures here
http://www.finfacts.ie/irishfinancenews/article_1018437.shtml
That’s great work John.
Any light that can be shone on the murky smoke and mirrors world of corporate taxation is welcome.
Richard Murphy’s assessment of Ireland bears quotation:
The Richard Murphy blog is a veritable dump of ammunition.
Ryanair pays no tax.
Remember that next time you hear the merdeacious O’Leary given a platform to rant on about feather-bedded civil servants.
Richard Murphy and of the left afaik and a voice I’ve referenced I think once or twice in the past re pensions. Fantastic stuff.