Heresy

Am I the only one thinking it?

That can’t be the case.

Then it must be that I’m the only one willing to say it out loud.

This year, the government estimates it will collect around six billion euro in corporation tax, give or take a million.

Next year, even with credit crunches and recessions taken into account, it expects to raise 5.6 billion.

That’s with no change to the tax rates, currently 12.5% for trading income and 25% on non-trading income.

Don’t worry too much about that 25%. Effectively, most corporations here pay tax at 12.5%.

Now, suppose we raise the rate to 15%.

Rough back of the envelope calculation, we’d bring in about 6.7 billion in 2009.

Even if a few corporations upped sticks and left, and accountants got creative to avoid paying the increased taxes, it still a pretty sum.

Are large corporations really such sacred cows, when there’s a billion or so there for the taking?

Am I really the only one thinking about this?

I’m not saying we should do it, but I’m amazed that in the week when people on minimum wage are hit with an income levy, we aren’t even having the debate.

Published by Gerard Cunningham

Gerard Cunningham occupies his time working as a journalist, writer, sub-editor, blogger and tweeter, yet still finds himself underemployed. Go figure.

4 replies on “Heresy”

  1. Our prosperity of recent years has not – contrary to some facile comment – been a delusionary one based entirely on the property bubble and easy credit. A more important component has been our attractive climate for foreign direct investment, and a key part of that is our low *and stable* tax regime. I don’t say that we should not discuss it, but let’s do so in the full awareness of the message that an interference with our marketing advantage would bring.

    And don’t underestimate the ease with which the taxable profits can be reduced if a decision is made to do so .

  2. Maybe. But I’d still like to see the maths. Is it really asserted that there’s a Laffer curve of diminishing returns for each and every increase in corporation tax?

  3. The Laffer Curve, which even Laffer himself disowns somewhat nowadays because of its misuse by politicians, was, at its simplest, almost tautologous. A tax of 100% will yield no revenue because no-one will be motivated to earn the income, take the profit or whatever, and every reduction in the rate (until the turning-point is reached – though there are those who like to pretend that there is none) will be less discouraging and thus more income-producing. This can be graphically shown in two dimensions as a curve (those who most often refer to the Laffer Curve paradoxically speak of it as if it were a straight-line).

    When it comes to the effects of change in our CT rate, I suspect that multi-dimensional modelling would be needed, and even that might fail to adequately capture reality.

    A bit like how Wall Street sleep-walked into the current nightmare, in fact.

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