Home Economics Aww, Bless, Dame Margaret, Lady Hodge, Doesn't Understand Tax Incidence

Aww, Bless, Dame Margaret, Lady Hodge, Doesn’t Understand Tax Incidence

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This is somewhere between amusing and worrying:

The Treasury has been urged to “step up and sort out” the digital services tax to close a loophole that allows tech giants including Amazon to pass on the fee to small businesses.

Dame Margaret Hodge, the Labour MP and tax campaigner, said Amazon had been a big winner from the coronavirus pandemic but was not paying the tax directly due to how the rules were written.

“Our high streets and smaller businesses are desperately struggling. That’s why it’s so galling that Amazon doesn’t pay its fair share and avoids the new digital services tax,” she said.

“Amazon is taking advantage of a glaring loophole in the tax. [It] passes the levy onto smaller businesses and escapes any charges for the products it sells itself. The DST is a terribly designed tax and raises little cash, but it’s necessary until there is international agreement on corporate tax reform.

She’s obviously been talking to Richard Murphy. The tax doesn’t work, doesn’t tax who she wants to tax, doesn’t raise cash, and yet the answer is still MOAR TAX. And yes, she does talk to Richard Murphy about such things.

There is that as an amusement.

But more worrying is that she appears entirely blind to the underlying reality she’s just discovered. That who nominally signs the cheque is not, necessarily, the same as the person who bears the economic burden of a tax. This being rather important when we discuss corporate taxation. Because it never is the corporate that pays the tax.

The intuition should be obvious. Any tax, of any kind or type, means that the wallet of some live human being gets lighter. It’s possible to check this with, of all places, the GDP accounts. That national income can be examined in three different ways, each of them should be equal to the other two individually. We can look at production, at incomes, at consumption. Everything that is made is consumed and as the real wage is what is consumed then either of these must be equal to all incomes. And that’s one way we do build those national accounts – incomes.

Everything is an income to someone. It might be a rent, a profit, a dividend, a PAYE income, but there’s always some live human at the end of the chain. There is no room in these accounts for some box marked “companies and not humans”. That’s only, ever, an interim stage.

The logic being obvious, there’s only us humans around to carry the burden of taxation.

The study of which human is the study of tax incidence. For example, companies never do pay corporation tax, not really. It’s some combination of the shareholders in lower profits/dividends, the workers in the entire economy in lower wages of consumers in higher prices. Academic study tells us it’s some combination of the first two. Yes, capitalists get less as a result of a profits tax. Which means there’s less investment and as wages across the economy are determined by average productivity and investment raises productivity then the economy wide level of wages is reduced by corporate profits taxation.

The arguments – among the cognoscenti – are only ever about who bears which portion, shareholders or workers, not whether.

Tax incidence, it’s important. Dame Margaret, Lady Hodge, does not understand this. Dame Margaret, Lady Hodge, used to be chair of the Public Accounts Committee.

Lawd Save Us All.

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7 COMMENTS

  1. This is one with the “Uber don’t pay VAT!” nonsense. Uber *do* pay VAT – on the things they buy, such as electricity and computers, as VAT is a charge on purchasers. What they mean is Uber doesn’t *CHARGE* VAT to its customers and pass on that charge to the government. Which would still be a charge on purchasers, either the purchasers of taxi radio control services or the purchasers of short-distance transport, depending on what you deem the corporate entity to be. But it would still be Uber’s *customers* paying the VAT.

  2. And, bless, she thinks it’s the job of civil servants to “sort out” legislation. There’s a clue in the name there – legislators sort out legislation. If she thinks a law is broken, get off your asre and fix it.

  3. It doesn’t seem to matter how obvious some of these things are; there is a large group of people whose identity is so built around simple ideals that they are completely unable to look at problems objectively. (As has been noted here before) the Facebook vs. Australia is another great example of this with some supposedly smart people completely incapable of making the (blindingly obvious) distinction between Facebook sharing and users sharing on the Facebook platform – and probably because the former supports a belief system with which they identify, and the latter not so much.

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