Will cutting corporation tax produce growth?

Categories: Features

The political establishment argue that cuts in corporation tax will ultimately lead to job creation. But this policy is failing, and there is an alternative, argues Brian Christopher.

Alex Salmond, Scottish First Minister, made a wild claim recently that a cut in corporation tax could create 27,000 jobs.  It fits into a growing call in some sections of the UK to use tax cuts as a lever to boost the economy.  Many businesses in Northern Ireland are also behind a push to cut corporation tax in half. This is just one of a series of regional variations, around Europe, to applying the austerity agenda.  The Northern Ireland Economic Strategy published by the Northern Ireland Executive in March supported the call, claiming it would make the region a business friendly environment, and create jobs by encouraging corporations to relocate there.

For people in a deprived area, like the east end of Glasgow or in the west of Ireland, it can seem as a “no brainer” that governments should do everything they can to create jobs and get the economy moving.

But policy decisions are not neutral or scientific.  They represent a drive towards a specific kind of economy.  There was a time when de-regulation of the banks was considered an obvious necessity too.  But we now know it was a disaster.  The world is now paying the consequences.

The austerity model, of low taxes on business and high taxes on income and consumer goods is failing in its own terms. Across Europe there is growing anger at cuts and unemployment and the lie that the private sector would absorb public job losses is laid bare. In their panic, the very people who moan about the catastrophic public debt and ramp up taxes on pasties and grannies, are thinking of new ways to cut the flow of money into the treasury and direct it instead towards private interests in the name of “growth” or “new jobs”.

But cutting corporation tax would be a disastrous move, both economically and ideologically.

A worker in the UK will generally pay 10% tax on the first £2700 earned in a tax year, 20% up to £35,000 and 40% up to £150,000 and 50% thereafter (although that last bit is soon to be abolished to save the rich yet more of their wealth).

If you are lucky enough to be a corporation you only pay 20% on your first £300,000 and it goes up to a whopping 24% although there are exclusions for certain kinds of companies and profits and it’s due to go down, yet again, next year.

It used to be the case that companies paid the same income tax as individuals – in some cases up to 50%. But the introduction of corporation tax separated the tax regime and then, from the 1980s onwards, corporation tax in Britain was slashed, contributing to the huge inequality that grew up under Thatcher and is worse still today.

The argument from right-wing pundits, Tory cheerleaders and business moguls is that tax hurts competitiveness and stifles activity.

This is nonsense.  A 50% corporation tax rate would guarantee that half of everything made by multinational corporations could be invested; put to use in schools, hospitals, services, job creation and utilities.   Rich individuals and companies might well decide to invest some money in their company, creating employment or new cycles of production – but their choices will always be guided by profit.  They need not consult anyone on what to produce, where to operate, how to organise the company.  And they can just as easily squander the money on luxuries.  How can this be an effective way to ensure growth?  If taxes were structured so as to divert money towards public services, our entire ecnomoy and society could be radically transformed for the better.  As noted by the MP Michael Meacher, writing in The Guardian,  “the richest 1,000 persons [in the UK], just 0.003% of the adult population, increased their wealth over the last three years by £155bn. That is enough for themselves alone to pay off the entire current UK budget deficit and still leave them with £30bn to spare.”

In the corporations that produce the massive profits that give rise to personal fortunes, employees themselves are not consulted about anything. The board makes all the important decisions. As a result, cutting corporation tax doesn’t just shift wealth towards the elites; it also gives them more and more say over how everything in our society is run.

Tax revenue on the other hand can be used to build, regenerate, educate and service – this is money that might otherwise be used for yachts or private jets, donations to the Tories, escorts, horses and supercars.

The experience of those countries that have slashed corporation tax is that they bleed the public purse dry while giant companies make huge profits and suck the resources out of the environment, with little consideration for the people who work or live there.

The Republic of Ireland experienced just this.  Energy companies like Shell acquired swathes of land, sea and shore in extremely lucrative deals.  The wealth of Ireland’s coastal regions was plundered as the companies took advantage of the low rates of tax, the government’s eagerness to sell off state assets and the position of power over policy that their new presence in Ireland gave them – including the luxury of calling in police to batter and arrest protestors.

The catastrophe faced by the Irish population as the government demands payment for water, and a new household charge is the direct result of the government’s willingness to give corporations a free hand as well as the ideological surrender to private interests that goes with the “business friendly” programmee. The government continues to argue that it is necessary because to tax the rich would make them leave.  The government shows no remorse when confronted with the cruel irony that it is unemployed people who are leaving Ireland in their thousands.  Shell can stay, but the poor have to emigrate.

There is an alternative.  Rather than start a downward spiral where Ireland – North and South – and regions of Britain race to the bottom in an attempt to entice corporations by offering the country’s wealth, we could actually secure investment through taxation.

There are huge amounts of idle wealth in the finance sector, to take one example, both in the City of London and in the tax havens of Ireland.  They represent an insult to our democracy, when schools are closed, students are made to pay for education and hospital services are sold off – and all the while unimaginable sums of money are moving from one computer to another and bets are made about what things will cost at some point in the future.

This financial activity does nothing whatsoever to create real wealth for ordinary people.  But by taxing it effectively huge portions of wealth could be extracted from bankers and used to abolish tuition fees, save the health service and build affordable housing. When economist say something will hurt the economy they rarely include these injustices, they usually only refer to the confidence of the market or the speculator.

We should therefore make this argument against every suggestion that we should hand our economy over to international corporations. They would seek to make our countries their playgrounds, extracting our minerals and exploiting our labour.  We should remember that for that to happen they need us.  But in order to run our economy fairly – we certainly don’t need them!

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