It’s hard to see how someone who
understands economics as well as Krugman could make such a misjudged statement.
We already live in a world in which only humans pay tax, and we always have
done. It doesn’t matter that a corporation bears some legal resemblance to a
person: tax always means that some humans have less and some have more, whether
that tax is corporation tax, income tax, value added tax, road tax or whatever
kind. It’s true that corporation tax hits the pockets of humans in a more
indirect way, but it doesn’t change the fact that all tax is paid for by humans
(see my blog post The
Best Way To Get More Tax From Corporations Is To Stop Taxing Them for a
fuller analysis of this)
The
only thing to which I can ascribe Krugman’s ill-conceieved comment is his
gradual gravitation over the years further and further to the left – he’s
falling for the leftist rhetoric about the ‘evils’ of success in business. This
next little gem gives further indication of this:
“The federal government
still gets a tenth of its revenue from corporate profits taxation. But it used
to get a lot more — a third of revenue came from profits taxes in the early
1950s, a quarter or more well into the 1960s. Part of the decline since then
reflects a fall in the tax rate, but mainly it reflects ever-more-aggressive corporate
tax avoidance — avoidance that politicians have done little to prevent.”
Hang
on – Krugman starts by lamenting the shift from corporate person tax to
individual person tax but then goes on to lament the increase in corporate tax
avoidance. As I argued in my Blog link above, the exact same solution to
corporate tax avoidance is the very thing that Krugman is lamenting – a shift
from corporate tax to individual tax.
Besides,
a mere shift from corporation tax to individual tax doesn’t, by itself, amount
to a loss in government revenue. If 20 years ago Bob as a company shareholder
receives a £50 dividend but pays 25% tax, the government gets £12.50 in
revenue. If in the present day Bob’s corporation (and thus dividend) is taxed
less but Bob’s personal income more, he gets an increased dividend but pays
more income tax. Suppose he now earns £75 dividend, but the government taxes
him more to get their £12.50 (adjusting for inflation) – government revenue is
no worse off.
Lastly,
it is presumptuous to assume that this shift in tax “reflects
ever-more-aggressive corporate tax avoidance”. It may do, but it doesn’t
necessarily – and as Krugman didn’t see fit to elaborate on how he knows this,
he must stand accused of making a hasty presumption. It is quite possible that
the decrease in corporation tax revenue is actually down to that tax being
sought by other routes. Corporation tax may have shrunk as a percentage of net
tax collected, but been offset by various increases in percentage of net tax
collected in other areas (say for example, in income tax, in National
Insurance, in VAT, and in pensions).
