As Lord Saatchi proposes abolishing corporation tax for small firms, is the levy justifiable at all?
Corporation tax is one of the worst on the books and it should be abolished as soon as possible. Corporations can hand over the cash, but they can’t bear the ultimate burden of tax, because they are legal constructs. In the end, the burden of corporation tax must fall on some combination of consumers (through higher prices), workers (through lower wages), or investors (through lower capital values or returns). There is no consensus among economists but, on average, empirical studies point to about 60 per cent coming out of wages. The other 40 per cent hits investors, meaning pension funds as well as the rich. But if we are really concerned about taxing the rich, we have better tools. Taxing investors reduces investment, and if there’s one thing economists can agree it is that investment means higher productivity and living standards for future generations. Cutting corporation tax on small businesses is a start, but it would be better to get rid of it altogether.
Ben Southwood is head of policy at the Adam Smith Institute.
To read the opposing view of this debate, visit http://www.cityam.com/article/1403028969/lord-saatchi-proposes-abolishing-corporation-tax-small-firms-levy-justifiable-all
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