Order has returned to my universe.

His argument is still a bit daft: real professional economists don’t, in fact, believe in the Econ101 model of a firm as profit-maximising based on perfect information and with perfect alignment of incentives between management and shareholders, because that’s a silly thing to believe.

But he’s not making any kind of claim that taxation or accounting is now, or should be, based on expected future profitability.

Of course a company will seek to act in a cost-minimizing/revenue (and thus profit) maximising way. But do such examples of good corporate governance translate into higher tax bills TODAY? If I’m CFO of a business, the profit from which is projected to grow for the next five years, will I be expected to fork over more lolly when I write the corporation tax cheque for this fiscal year, before those profits have materialised?

Tim adds: No, no NPV calculations in corporation tax. It’s historical only.

Since when? I am not an economist, but that strikes me as one of the most fucking retarded things I’ve seen Murphy come out with yet, and that’s against some truly robust competition. Perhaps the poor deluded idiot meant to say something like the net present value of a company is the sum of the discounted flow of estimated profits in the future, which has the usual quality, as this blog’s subtitle suggests, of being both true and boring. But in the corporeal world which Murphy seems to glimpse so dimly, profits are revenues minus costs (and all the jiggery-pokery entailed by accounting and tax law). Or am I hopelessly wrong?

Highly recommended for people who enjoy the sensation of wanting to tear off their own eyelids, stab themselves with a fork etc.

Corp tax – borne by shareholders

VAT – shared between customers and supplier (depending on price elasticity of supply and demand)

PAYE and NIC – borne by employer (employee works for net wages) BUT he gets corporation tax relief on total cost, so the net cost to employer is (gross wages x 70%) minus net wages, in practice about 18% effective, but again there is relative prices elasticities of supply and demand for labour.

You think Labour are socialist?

*dies laughing*

No more than 2 more Brown years to go. Then perhaps the Dick will fuck off to some other socialist haven where some fuckwit might take some notice of him.

Tesco pays £x in corporation tax + VAT + NICs + PAYE. You’re right that CT is proportional to how much profit it makes; VAT is proportional to how much revenue it makes; and NICs/PAYE are proportional to how much it pays its workers.

But that’s not necessarily where the *incidence* lies. Doubling VAT wouldn’t just hit consumers – it would hit profits, and probably lead to lay-offs or wage cuts hitting workers. Doubling income tax wouldn’t just hit workers, it would probably force Tesco to raise wages, hitting profits, and raise prices, hitting consumers.

In Econ101 theory, corporation tax *should* fall exclusively on the shareholders, because the company should already be profit maximising (and therefore, if corporation tax were raised, there would be nothing the company could do to increase profits). But in practice, it’d be likely to lead to higher prices and lower wages as shareholders sought to keep their returns up.

Tim has cited academic studies here before that suggest that raising CT hits workers harder than it hits shareholders. These are speculative, correlation-based econometrics, so aren’t necessarily accurate, but certainly deserve reading and thinking about.

Corporation Tax.

“consumers”

VAT.

“and employees”

NICs and PAYE.

Pretty straightforward.