On Andrew Marr's show on the BBC he came out with this:
"Well*, first of all the corporation tax rate, that's the tax rate that businesses pay, is one of the most uncompetitive in the world, at 28p. And we live in a globalised economy where these businesses can either invest in Britain or they can go to China, or they can go to Ireland, just across the Irish Sea, where there is a 12½% rate. So having a low corporation tax rate is extremely important in the modern economy if we're going to attract jobs to this country."
Wrong, on so many levels...
1. The three main taxes on business/productive activity in the UK are VAT (£77.4 bn), corporation tax (£44.5 bn) and Employer's National Insurance (about £34 bn).
2. The UK's headline corporation tax rate is pretty "competitive", when compared to G8 countries, India, China, Australia and Switerland. Figures taken from KPMG’s Corporate and Indirect Tax Rate Survey 2007 and rounded to nearest per cent:
But, as I have explained before, corporation tax is not so important - it slows down the rate at which a business can grow, but doesn't impact on the economy as much (a good pre-tax decision is usually a good post-tax decision) or put people out of business (if your profits are low, you don't have to pay very much). Sure, it would be nice if the UK were 'internationally competitive', but let's get our own house in order first, remembering that 80% of our economy is purely domestic, only about 10% is imports and 10% exports.
3. VAT is the biggest/worst tax on productive activity - whether it is borne by producer or consumer is a pointless debate, seeing as most of us are both producers and consumers - it puts up prices to consumers, it reduces the gross income of producers and it makes low-margin businesses unviable. Further, corporation tax is only charged on a small slice of a business' turnover - the net profit, as against VAT (or 'General Sales Tax') which is levied on the entire turnover. So it is far more important to look at VAT/GST rates. Here, the UK is pretty "uncompetitive" compared to the same sample of countries:
So can't we look to reduce VAT first, once we've left the EU**, please George, and stop yapping on about corporation tax?
4. As to Employer's National Insurance, this is bollocks entirely of our own making of course - the post-war Labour Government thought is was a fine scam to sell a new tax as insurance. If you want full employment, wouldn't it be a good idea to get rid of a tax that makes wages more expensive, and hence reduces equilibrium employment levels?
5. As to the Laffer Curve, if you scrapped VAT and Employer's National Insurance, the 'cost' would be nowhere near £111 bn - initially, if prices and wages remain constant, profits would soar by £111 bn and so corporation tax receipts would increase by £33 bn. And of course businesses would expand to fill the new opportunities that are now profitable that were unprofitable before, employment would increase, welfare costs would fall, goods in the shops would be cheaper. I would be surprised if the long run 'cost' of scrapping these two taxes would be more than half current receipts, say £55 bn. And if you can't find £55 bn of waste in the public sector (i.e. one or two million totally superfluous jobs), you are probably the sort of person who would struggle to find a bass drum in a telephone booth.
* I hate it when politicians start a reply with "Well..." it is so irritating, they all do it. All the time.
** Can you spot the logical error in that exhortation?
About That Closet
6 hours ago
5 comments:
Face it, Mark, we'll be in the EU for our lifetimes. Even if we do leave it, it won't be the current Conservatives that do it (your logical slip). If anything they are less eurosceptic since UKIP formed. We might as well lower the taxes we can change first because if we're waiting on the ones we can't we'll never see lower taxes. Seeing as we have to have VAT, it might as well be the minimum allowed of 15% and corporation tax, which I don't think there are EU limits on, should just be scrapped.
It isn't as good as your solution but it is practical so that ought to appeal.
Further, corporation tax is only charged on a small slice of a business' turnover - the net profit, as against VAT (or 'General Sales Tax') which is levied on the entire turnover.
Is this actually the case? I pay VAT on purchases, and then have to charge VAT on sales. Fatty taxman gets the difference. Thus, I pay VAT on the added value portion of my products and services only, which isn't a million miles from paying corporation tax on my profits. What am I missing?
HH, you have to add together the VAT you pay to the taxman (i.e. output tax minus input tax) PLUS the input tax that you pay to your supplier. That's the bit you are overlooking.
Add 'em together, and you are paying 17.5% of your total turnover in tax. It does not matter whether your business is profitable overall, that is the point, you have to pay VAT (to taxman or to suppliers) whether you are making profits or not.
For a pure service business, the effect is far more obvious, as the bulk of their inputs (salaries) are not subject to VAT, so the amount they pay to taxman is very close to 17.5% of turnover.
HH, to put it another way, if you are a wholesale-cum-middleman with no overheads, yes, the VAT you pay to the taxman is 17.5% of your mark-up. But he's already getting 30% in corporation tax on the mark-up, so your overall tax rate is shifted up from an acceptable 30% to an unacceptable 47.5%. And if you have non-VAT able overheads, like salaries (which attracts Employer's NI, of course), the effective rate is far, far higher than 47.5%, in many cases more than 100%. Which is why HMRC are usually the largest creditor in insolvency cases.
All you people are talking sh*t as usual just like the rest of the British public!
For DECADES, all successive governments in the UK have done nothing but screw the public over so that they can fill their own pockets, what's new here??
Politicians are nothing but professional thieves, Great Britain isn't that "Great" any more.
What we need is for the people of the country to make a stand against these EVIL blood sucking thieves like the people in the Middle Esat. They have had enough hence taking their own action to overthrow dictatorship governments - THIS IS WHAT WE NEED TO DO HERE IN THE UK !!!
All we (the people) want to do is live and all the governments want to do is kill us through insane taxation and brutality in the sense of unfairness.
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