Only the Little People Pay Taxes

By James

28 May 2011

The TUC has launched a new report on corporation tax which makes for some interesting reading. Among other things, it looks into the relationship between corporate tax rates and growth, concluding:

...there are only weak associations between declining tax rates and increased growth rates and declining tax rates and increased rates of employment. In addition, even these weak relationships do not prove causality. Such analyses also disguise aberrant data such as Ireland’s high growth rate before tax rates were cut and the collapse in growth in that country after they were reduced.  It therefore suggests that the impact of planned corporation tax cuts on growth prospects is weak at best and unlikely to be significant.

graph of corporate tax rates

Source: Corporate Tax reform and competitiveness - TUC - 27 May 2011

Of course, this report by the TUC is unlikely to negate extensive campaigns by business organisations to reduce corporate tax rates . Indeed, the ideological consensus that cutting public services while reducing corporation tax will lead to growth seems to be almost unquestionable in policy circles, despite all evidence to the contrary and even if it comes at the cost of causing what the FT refers to as a “runaway social crisis in many high-income countries”:

”With capital globally mobile, moreover, governments are now in a race to the bottom with regard to corporate taxation and loopholes for personal taxation of high incomes. Each government aims to attract mobile capital by cutting taxes relative to others. Governments like Ireland have created tax havens that drain revenues from the rest and act as conduits to tax-free Caribbean hideaways such as the Cayman Islands. The rich are doubly benefited: by the underlying market forces of globalisation and by their governments’ policy response.

“...both the US and UK are aiming to do the impossible: run a modern, high-technology, prosperous 21st-century knowledge economy without the requisite tax base, largely to satisfy the upper classes and multinational companies, which threaten to decamp to milder tax regimes, or direct their campaign contributions elsewhere, if they do not get the tax cuts they obsessively crave… Multinational companies and their disproportionately wealthy owners are successfully playing governments against each other. The game is clear, and it is working fiercely well.”

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