All this does is delay paying tax on the money until he takes it at a later date. Which is no different to your pension. Why is this a problem?

Tim adds: The only reason it’s a problem is that Polly T has just denounced those who practice tax avoidance: ie, her own boss.

Woah! I am completely indifferent whether it is existing or new firms that are expanding or contracting to fit in with the markets, that’s up to them to decide what’s best for them.

In any event, VAT and Er’s NI are real killers for new start-ups; but they can be pretty indifferent about corporation tax for the first year or two until they start making profits, and they then have nine months from end of first year of net profits (after deducting losses b/f) to make the first payment.

Also, corp tax is not the worst tax, the worst taxes are VAT (a turnover tax, from the point of view of economic incidence, increases price, reduces profits and depresses output) and Employer’s National Insurance (depresses wages and employment levels far more directly that corp tax).

Further, you only pay corp tax if you are making profits – unless you do something daft, corp tax doesn’t put you out of business.

As opposed to VAT and Er’s NI that you have to pay whether you are profitable or not, so easily sending low-margin/labour intensive businesses into losses and hence shutting them down.

Finally, by and large, there is no corp tax on REINVESTED (as apposed to retained) profits, if you REINVEST the money in training, market research, staff training and so on, you get a tax deduction for it – you don’t pay tax on the money that you reinvest.

Prof Mezian Lasfer has a cunning argument that HIGHER corp tax rates lead to MORE reinvestment and MORE employment, on teh basis that it is better to use the profits to expand (tax free )that it is to leave it in the bank and give half to the Treasury.

Tim adds: I understand the logic of corporation tax increasing reinvestment in the situation you describe. However, this rather assumes that we want increased investment by extant firms, rather than increased investment in new firms. And that isn’t, by any means, an assumption that I’m happy to make.

And I’m sceptical of that paper’s conclusions… I’ll read it when I get the chance.

It’s noticeable even for quoted companies – while for family-owned companies, it’s near-universal.

well-known among crazy libertoonian hacks, perhaps.

in practice, like all restrictions/taxes on companies, it will partly raise the price paid by consumers, partly reduce the profits attributable to shareholders, and partly reduce the wages paid to workers…

Tim adds: Yes, as I said, it will depress the wages of the workers. And as a paper I blogged on just recently (at the ASI) showed, in the long term, a £ raised in corporation tax reduces wages by more than a £.

I’m also not quite sure what is crazy libertoon about saying “depresses the wages of the workers” when you, presumably no crazy libertoon, say “partly reduce the wages paid to workers”. Are reducing and depressing not near synonyms?