Tim Worstall

Taxation and Representation

The man does have a point here:

British Retail Consortium director-general Kevin
Hawkins warned the proposal could cost high street stores as much as
£500m a year, adding: " Giving local authorities the power to directly
tax businesses is like setting Pooh Bear loose on honey reserves, only
it is retailers that will get stung.

"We do not
support taxation without representation and supplementary business
rates would give councillors the freedom to tax businesses without
having to face them at the ballot box."

Of course, that extends to the taxation of corporate profits as well.

The truly unfortunate thing though is that the general public doesn’t understand the truth about such taxation: that it isn’t actually the companies that pay it. It’s some combination of the workers (in the form of lower salaries), the customers (in higher prices) and the investors (in lower returns). It would be better by far for the taxes to be raised, if raised they must be, directly from those three groups, rather than from the companies.

But to do so would, unfortunately, lead to cries of the companies not paying "their fair share": because, alas, the voters don’t understand this basic point.

In

5 responses

  1. Jim Avatar
    Jim

    “because, alas, the voters don’t understand this basic point.”
    Then neither does the director-general of the British Retail Consortium, surely.

    Reply
  2. ChrisM Avatar
    ChrisM

    “Then neither does the director-general of the British Retail Consortium, surely.”
    It is not a zero sum game. It is possible that higher (or any) taxes on business is bad both for cunsumers/employees/investors AND the company. Just because a company passes its tax burden on, does not mean it is totally unaffected by higher taxes. It may go out of business meaning no taxes, no jobs, and no goods and services coming from a company that otherwise would provide these things.

    Reply
  3. Mark Wadsworth Avatar
    Mark Wadsworth

    They are talking about supplementary business rates, which are not a million miles from Land Value Tax, ergo the least-worst tax that we have in the UK.
    Business rates only hurts landowners, who do nothing more than cash in on the locational value that is in turn driven by how the local council invests and the actions of socety in general. Yes there are owner-occupier businesses, but the same logic applies.
    Remember that prices in Primark on Oxford St (massive rents) are no higher that prices in Primark anywhere else in the UK. Rents, and hence Business Rates, do NOT get “passed on” to consumers.
    Unlike VAT which is the worst tax that we have.

    Reply
  4. cuthhyra Avatar
    cuthhyra

    “Business Rates, do NOT get “passed on” to consumers.”
    Nonsense, either customers pay higher prices, as there is an additional overhead (which, incidently, would be divided out to all customers of a chain like Primark) or, as ChrisM points out, the business goes bust. Of course in reality a prime location like Oxford Street no doubt generates more money even relative to increased costs, which is why Primark is there. However, that increased profit simply means you can get away with higher taxes without putting them out of business, not that overheads aren’t incorporated into prices.

    Reply
  5. Mark Wadsworth Avatar
    Mark Wadsworth

    Cutthyra – Sales and turnover taxes like VAT get passed on to customers (and also result in lower net prices for producers and reduced output. Sounds like shit to me – EU imposed, but there you go).
    Business Rates are a % of rental/property values.
    Rental values are themselves a derived figure – i.e. rental values on Oxford St are a function of how many items of clothing Primark can sell – they don’t matter nearly so much. The opposite and incorrect view (to which you appear to subscribe) is that the prices that Primark on charge on Oxford St charge is a function of rents on Oxford St, which is quite simply incorrect. Do you really think that shops open up on Oxford St just for for the fun of increasing prices (and making themselves uncompetitive) nationwide?
    There are intermediate taxes like income tax or corporation tax, I am not too fussed about these. What I am trying to do is show that turnover taxes (VAT) are the worst taxes and land/property taxes (Business Rates) are the least-worst.
    Where’s Rog Thornhill when you need him?

    Reply

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