The issue here is that taxes upon employment income end up being paid by the workers, not the employer. It’s wholly standard analysis that this is so, that the incidence of things like national insurance, social security, is on wages, not upon corporate profits.
Thus that entire £3.5 billion is a rise in taxation upon the wages of the workers. That’s just the way it works out.
If our rulers knew this and decided to do it anyway then I’d at least admire their sneakiness. But what worries me rather more is that peeps like Our Ange will be believing that the £3 billion does in fact come from the employers. You know, that they’re simply ignorant.
Apologies for starting with an off-topic comment, but this is just too good not to share right now. And i do not know where else to post it.
(Via Instapundit.)
Back to the original point 🙂 , it’s not just politicians that don’t understand how taxes work. A few years ago one of my good friends was huffing and puffing about how Amazon ‘should pay their fair share’ of taxes. Like many people this call to the emotions short-circuited his reasoning powers. I pointed out that there was no untapped hoard of Amazon money, increased taxes would be paid from workers pay, shareholders dividends, or increasing prices for customers.
Discovered Joys –
Absolutely spot on. Milton Friedman used to go around saying repeatedly that companies don’t pay taxes, only people can pay taxes. And he was right. When Tim refers to “incidence” in the OP he’s using the word that economists use to refer to the actual burden of paying a tax. For over a century economists of all political stripes have agreed that the real burden of a tax falls on precisely the three groups you mentioned: shareholders, employees, and customers. Shareholders get lower returns on their investments, employees get smaller and less frequent pay rises and perks, and customers have to pay more for a company’s products. Economists, as I said, agree on that; the only thing they disagree about is what percentage of the burden falls on each of groups.
This is why calls to punish companies for whatever sins by hitting them with higher taxes is so stupid. It’s an argument born of economic illiteracy. That illiteracy causes one to choose entirely the wrong weapon, one whose damage is only collateral.
I’d take this even further: one cannot be in favour of corporate taxes and also claim to give a damn about the working stiff. The two are incompatible.
“National Insurance Contributions” whether from the employer or employee are a TAX – no different from any other tax.
This is why the propaganda of Bismarck (who invented this con-trick) that “it is not a tax – it is an insurance, an investment” is a LIE.
There are no investments, the “trust funds” are just government IOUs – and they were never anything else, in Germany, Britain, the United States or anywhere else.
The United States Supreme Court admitted this in the 1930s – “Social Security” is a welfare scheme, it is not insurance, there are no investments, there never were. Ponzi Scheme – Chain Letter.
Philip Scott Thomas – the Milton Friedman argument, that Corporations just represent individual share owners, is not correct – it was proved to be false long before he was born.
For example, William and Edmund Burke (yes that Edmund Burke) tried to reform the East India Company (the leading corporation of their time) from within – they were shareholders, and the policies the Company was following destroyed share-holder-value – they, and other shareholders, got no-where – real power was with managers (such as Warren Hastings and Paul Benfield) NOT shareholders.
As for modern times – most shares have not been owned by individuals in Britain since 1965, that was 61 years ago.
The idea that Corporations represent “Aunt Agatha” style shareholders is just wrong – it is false.
They are controlled by bureaucrat managers – under the influence of other bureaucrat managers in pension funds and other such.
In the United States – the terrible three – BlackRock, State Street and Vanguard (which have shares-in-each-other) “manage” most shares – not Aunt Agatha. They and the (despicable) Credit Bubble Banks – already have the economy by the throat, this is NOT free enterprise, this is government supported madness. It depends on government at every step – from the funny money that goes (at low interest rates) to BlackRock and co – to the grants of incorporation itself (never forget that Corporate status is a gift-from-government).
By all means abolish Corporation Tax (yes indeed Sir) – on-the-same-day you abolish Income Tax and not-one-day-before.
Otherwise, if you abolish Corporation Tax WITHOUT abolishing tax on individual and family owned business enterprises, you will end up with an economy even more controlled by a handful of Corporate Entities than-it-already-is.
As for the “working stiff” – an economy where there is no Corporation Tax or (the Texas alternative – also followed by some other States) no Turnover Tax, but there is a HIGH Income Tax – is an economy where the “working stiffs” would be reduced to the level of serfs – and individuals (those “Aunt Agatha” shareholders) would have no liberty at all.
In some jurisdictions Corporations can even deduct their local Property Tax from their taxable income before it is subject to Corporation Tax – that is utterly obscene, as an individual is NOT allowed to do this.
“But Corporations represent individual shareholders” – no they do not, see above.
By the way – there is no particular reason why a country has to have an Income Tax.
Many nations did not use to have an Income Tax – including the largest economy on Earth, the United States (till 1913).
Paraguay (a nation of millions of people) had no Income Tax till 2012.
If you abolish the Income Tax – then, yes, abolish the Corporation Tax.
Even during the Civil War the United States Income Tax was only 10% (at the top rate) – and it was abolished under President Grant in the early 1870s.
But in the 20th century (after it was passed again in 1913) it went to insane levels – for example President Herbert Hoover agreed to a top rate of Income Tax of over 60% (this was not an alternative to a tariff – as he also agreed to the highest tariff in American history). Anyone who thinks Herbert Hoover was a conservative should look at his background – his past record.
It is hard to see this, insanely high top rates of income tax, as anything else but an effort to crush individual and family owned business enterprises – and hand the economy (or most of the economy) to Corporations, controlled by bureaucrat managers.
Just as the Great Depression (the terrible suffering and distress) was used as an excuse by Franklin Roosevelt in 1933 to steal all monetary gold (he allowed people to continue to own wedding rings and so on) – so that the government and the Credit Bubble banks, would have their boots on the throats of the citizens.
Once people would have risen in armed revolt against such a measure – and Mr Roosevelt would have ended up hanging from a noose, but the Great Depression terrified people into submission.
Nigel Lawson, the only good Chancellor of my lifetime (yes – all the other Chancellors of the 1960s, 1970s. 1980s, 1990s, 2000s, 2010s and 2020s were useless), was fairly good on this.
Capital Gains Tax should be low, Corporation Tax should be low – all as long as the top rate of Income Tax is also low.
No playing favorites.
Paul Marks –
Your response is irrelevant to my point. I mentioned Milton Friedman specifically to see if you would bite. And you did. Your muddling of corporation tax and personal tax is typical. They are two different things and as such must be discussed separately.
No, corporation tax should not be “low”. It should be zero. That’s quite apart from income tax.
This is a hill I’m willing to die on – no one can advocate for corporation tax, at any level whatever, and still legitimately claim to give a damn about the working man.
No one.
Philip Scott Thomas.
You choose not to understand.
And I mean “choose”.
No they are not two different matters – and, no, they must not be discussed separately.
Your desire to destroy all independent business enterprises and hand over the entire economy to a handful of (government dependent) corporate entities, is despicable Sir.
“Corporation Tax should be zero” – perhaps, although there is also a case for charging a tax for incorporation (which is a gift from government) – but only when individual Income Tax is also zero.
If there is no tax on Corporate entities (backed as they are by government – in many ways), but there is a high tax on individual and family economic activity – then all liberty will be destroyed, the population reduced to serfdom. Even more than they already are.
No. It is your desire to harm me financially that is despicable. You want me to be poorer in the here and now, via lower wages and higher prices, and in the future, via a smaller pension pot.
Your economic illiteracy has lead you to choose (yes, “choose”) exactly the wrong weapon.
The Game of Taxation is like any other game (Cricket, Football, Poker, Monopoly – though that may be a bad analogy) and it has RULES. Those rules are the tax code. Those that study the rules/tax code, understand them and play to those rules to minimise their tax payments are not “cheating”, not avoiding “paying their fair share” or otherwise allowing children to starve to death in the streets and other similar imagined horrors.
Unfortunately, governments of all persuasions have made the rules of the game so complicated and Byzantine that the normal man in the street neither understands them or can take advantage of them. That is why tax consultants and financial advisers are so well paid by those that can afford to pay for their knowledge and expertise. The rich pay the amount of tax demanded by the tax code and no more. This does not make them evil or “evading” their tax liability.
The solution is not to make even more rules to micromanage every single penny in existence but to massively simplify the tax rules and to massively reduce government spending so that a simpler and easier understood system suffices to finance those services that are deemed necessary.
But that is as likely as me flapping my ears and flying to the moon.
@Philip Scott Thomas
I’d take this even further: one cannot be in favour of corporate taxes and also claim to give a damn about the working stiff. The two are incompatible.
Can one be in favour of the income tax or the sales tax and claim to give a damn about the working stiff? Or are they more compatible?
“No, corporation tax should not be ‘low.’ It should be zero.”
Corporations consume government resources. They should pay for those resources. Taxes are how that is done.
I think Tim misses another possible politician’s fantasy about this: ‘This time it will be different, because it’s being done by me’.
“increased taxes would be paid from workers pay, shareholders dividends, or increasing prices for customer”
Which is to say all of these are essentially the same place. The place where all taxes come from.
“Can one be in favour of the income tax or the sales tax and claim to give a damn about the working stiff? Or are they more compatible?”
All theft is bad. Some theft is slightly worse than others.
On corporations – should the oldest bodies corporate, the churches and universities, continue to be free of taxation?
Many Classical Liberals were hostile to the churches (especially the largest – the Roman Catholic church) not paying taxes – when ordinary farmers (and so on) had to pay land tax and so on.
The argument for the tax exception was the charitable works of the churches – and of the universities (which were created by the church).
But today the churches are largely political bodies (who have redefined God to mean “the people” in a Rousseau, or even Karl Marx sense), and so are the universities – so is their tax free status still defensible?
As for profit making corporations (that are in no way charities) paying less tax (as a proportion of their income) than a person who personally owns, say, a corner shop – that is barking mad.
It is simply potty for a commercial corporation to pay less tax than an individual or family – and it is just NOT TRUE that a modern corporation represents “Aunt Agatha” style individual share holders, it does not.
The Corporate manager class (including the pension fund and credit bubble bank types) have their own interests – and push “The Message” just as government officials do.
As for “national insurance” with “employer and employee” “contributions”.
It is a massive lie – a tissue of lies first put into practice by Bismarck.
I believe Denmark does not play this stupid game – and funds its welfare benefits (including government pensions – which-are-welfare-benefits) out of general taxation – none of this “contributions” nonsense. There is really no “National Insurance” in Britain or the United States (or France and Germany and so on) – because it is a TAX (not a voluntary contribution) and there are no investments – and never were any investments (it is a Chain Letter or Ponzi Scheme).
This is one reason why even the Danish Social Democrats are hostile to mass immigration – as no one can pretend that immigrants could be denied benefits (they are not really denied benefits in other countries – but a pretense is made that they could be).
Fraser Orr –
Can one be in favour of the income tax or the sales tax and claim to give a damn about the working stiff? Or are they more compatible?
That is exactly what I was arguing about. Corporation tax, income tax, and sales tax are very different things. This is what Paul Marks fails to understand. He mashes very different things into one topic. That is not valid.
Paul Marks –
It is simply potty for a commercial corporation to pay less tax than an individual or family – and it is just NOT TRUE that a modern corporation represents “Aunt Agatha” style individual share holders, it does not.
Christ Almighty, will you please get over the whole ‘Aunt Agatha’ bullshit? Your argument is no less collectivist thinking than the Soviets. Corporations aren’t only the mega-corps of your fever dreams. They are also the family companies, built over generations, that actually make England. Over a certain income threshold they too are subject to your hatred of ‘corporations’.
Philip Scott Thomas – Google and other Corporations supported the increase of State Income Tax is Arizona and its introduction in Washington State.
Because Google and the other Corporations do not pay Income Tax (or Inheritance Tax) – but many business owners do.
It is unfortunate that you call the truth (for example that most vast corporations are NOT controlled by individual shareholders – that Milton Friedman was just wrong in his claims) “bullshit” – but it remains the truth.
And it you, not me, who is far closer to the Soviet position – as it you (not me) that wants to hand over the economy to an handful of entities. Although this was really closer to the position of Mussolini rather than Lenin and Stalin.
You know very well to end the taxation of corporations, whilst keeping the taxation of individuals, would have the effect of giving the economy to a handful of corporate entities – and that these corporate entities are backed (in many ways) by the state.
But you just do-not-care.
That was obvious when you said (AFTER the position had already been explained) that you did not believe that the income tax (or other taxes on individuals) be abolished – just the Corporation Tax, you, dishonestly, pretended the two subjects are not linked – when you know very well that they are linked – that to abolish Corporation Tax (and all other Corporate taxation – as the possibility of a Turnover Tax had already been mentioned) whilst-keeping-individual-taxation-in-place would be fatal to liberty.
BlackRock, State Street and Vanguard (plus the Credit Bubble banks) are certainly not “family companies, built over generations” – and you know that very well. Indeed Mr Warren Buffett (of Berkshire Hathaway) has worked for many years to destroy “family companies, built over generations” – who comes to them offering money (thanks to the Federal Reserve he gets “cheap money”) to buy up their companies (thus avoiding inheritance tax) and turn their children into “trust fund kids” – he also worked to get Germany to introduce such a system.
For centuries the backbone of the German economy was family owned business enterprises – now, perhaps, being undermined by the changes made to tax law (changes made under the influence of an international establishment of which Mr Buffett, before his retirement, was very much part). Mr Buffett, at every stage of his time in business, was helped by his political connections – and that was not just a matter of corruption (although that was, perhaps, part of it) – there was also ideological kinship, the Gentleman always worked to push the international ideological agenda – he did so openly (at least he was honest about that).
It is this agenda, the agenda of the WEF and others, to get the economy under the control of a handful of entities – joined at the hip with government, that we should be opposing – not supporting.
Good day to you Sir.
Milton Friedman was a great man – but that does not mean that we do not have many years of hindsight that he did not have.
For example, we now (2026) know that he was horribly wrong to oppose Right to Work laws – laws that stop people being FORCED into unions, the record of States that have such laws, against those that do not, is now clear – we now have information that he did not have.
We also now know that handing out cash to the poor is a disaster – Milton Friedman did not have this information when he advocated the Negative Income Tax in 1962 (in “Capitalism and Freedom”), he might have remembered Aristotle (pouring liquid into a container with no bottom on it) on this matter – or what happened under the Speenhamland system in Britain from the 1790s to 1834, but (to be fair to him) he-had-no-particular-reason-to-do-so – we must remember we have 64 years more experience than he had.
We also know far more about the antics (dishing out endless funny money to the politically connected – thus creating the bubble of the late 1920s) of Benjamin Strong (head of the New York Federal Reserve in the 1920s) than Milton Friedman knew – or could reasonably be expected to know.
When we smile at Milton Friendman’s praise for the the dreadful man that Benjamin Strong was – there is a massive danger of being SMUG, we assume that he “should have known” things that it was not reasonable for Milton Friedman, many years ago, to have known.
Lastly on Corporations.
Milton Friedman was born in 1912 – in his youth most Corporations really were mostly owned by individual investors (that was true in Britain till 1965).
And most Corporate managers, including in banks, were patriotic men – most of whom had served in World War II.
They would have never have pushed the “agenda” or “message” of today – they would have died first (literally).
The situation was totally different – such things as the World Economic Forum did not even exist, and neither did BlackRock – or the idea of most shares being “managed” by the three headed creature that is BlackRock, State Street and Vanguard (which have shares in each other).
Milton Friedman is not to blame for advocating a policy, ending Corporation Tax whilst keeping the Income Tax, that we now know would lead to disaster, because the world then (back in the 1950s or in 1962) was a wildly different world.