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December 13, 2012

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Al

Could it be the case that Conservative politicians nowadays don't have the same unhealthy fetish for small businesses as their counterparts did 3 decades ago?

After all, all big businesses started out as small businesses at some point. The reason that they're now big businesses is that they've been successful. The reason that most small businesses are still small, assuming they're not new start-ups still in infancy, is that they're not as successful as most big businesses.

There is no particular reason to favour small businesses over large businesses, in the same way as there is no particular reason to favour TV manufacturing firms over architecture firms or logistics companies over food processing plants.

Tim Worstall

"Starbucks' tax-dodging gives it a further edge - because in retaining more of its cash, Starbucks can more easily open new stores, "

A very important point. This entire cry that "not paying your tax" gives you an advantage. Means that it must be true that forcing corporations to pay tax disadvantages them.

So, why do we do it? Don't we want them to invest in new stores, new factories, new jobs?

dcomerf

I get the impression that small business representatives would rather complain about tax rates being too high than complain about some finding ways to avoid the tax. The tories and the business of representatives (of all sizes) give the impression of aspiring to being able to do a starbucks themselves rather than eliminating the possibility for anyone to do this.

dcomerf

I get the impression that small business representatives would rather complain about tax rates being too high than complain about some finding ways to avoid the tax. The tories and the representatives of business (of all sizes) give the impression of aspiring to being able to do a starbucks themselves rather than eliminating the possibility for anyone to do this.

Mcunning0708

"There is no particular reason to favour small businesses over large businesses, in the same way as there is no particular reason to favour TV manufacturing firms over architecture firms" ?

My point is that survival prompts business to grow (in whatever way it can); once a certain point reached however the large business is in position to 'distort' the market & can effectively hold national governments to ransom! Lesson is become "too big to fail" then not only can you detroy competition, you can control media & political outlets & benefit from a cosy form of privatised "socialism".

Markets work (up to a point) & then they fail! WE're living through the proof!

Luis Enrique

Tim W

I think advocates of taxing corporations understand that taxes are a cost to the corporation and thus "disadvantage" them (although you'd normally add a point about tax incidence here).

The fact that if one company pays tax and other evades tax, the tax payer is at a disadvantage does not demonstrate that we should tax no companies on the basis that tax "disadvantages" them.

alastair harris

tax dodging? What does that mean? As far as I can tell Starbucks have been guilty of complying entirely with all the relevant tax laws. The only thing that is legally dubious is their offer to fiddle their taxable profits in order to pay tax that otherwise would not be due. The worrying aspect of your article here is just how much you misunderstand the nature of competition.

Chris E

Tim -

The same reasoning could be applied to scrapping health and safety standards altogether. Are you advocating that too?

Neil

"There is no particular reason to favour small businesses over large businesses"

Yeah, individual freedom is *so* last decade. We should just shut up and get a real job at Tescos.

Anonymous

@Tim Worstall

No, requiring large firm to pay tax on their profits contributes to a level playing field. It does not disadvantage large corporations viz a viz their smaller competitors.

Why do we tax corporations? Because they are separate legal persons. All persons, whether natural or artificial are liable to tax on their earnings.

As an aside, corporations are protected by the Human Rights Act, just as natural persons are. This means corporate property rights are protected by the Act just as for natural persons.

Of course, corporations are always free to relinquish their corporate status and to trade as a partnership. There is no legal requirement for a firm to trade as a corporation.

Anonymous

@ alastair harris

Here is a link to a blog piece by John Kay which you may find interesting and relevant:

http://www.johnkay.com/2012/12/12/starbucks-shows-need-for-tax-change#.UMnVf2yjrq8.twitter … … …

FromArseToElbow

The party of small business appears to have migrated to UKIP.

paul

Lets go back to were these tories want us to go the 1850 & we are back in the politics of the day Free Markets v Protectionism,this con-lib-dem coalition is a protectionist government

Simon Reynolds

Tim Worstall argues:

1) This entire cry that "not paying your tax" gives you an advantage.

means

2) that it must be true that forcing corporations to pay tax disadvantages them.

No it doesn't.

Not paying *your* tax gives *you* an advantage -- it disadvantages everyone else.

Guano

"Tim - The same reasoning could be applied to scrapping health and safety standards altogether. Are you advocating that too?"

Careful. He probably is!

Sam

"There is no particular reason to favour small businesses over large businesses"

Or vice versa, and the problem with the current tax setup is that large multinationals have the opportunity to essentially choose not to pay tax, whereas their smaller local competition has no option but to pay tax on its full profits.

A rational person (of any political stripe) is left with two options - either adjust the law to place the multinationals on an equal footing with their domestic competition, or adjust the law by eliminating corporation tax, and shifting that tax burden to personal income, or property or something.

Proponents of the first approach face the difficulty of identifying which profits "belong" to the UK. The arms-length approach is viable when a physical commodity is being traded, but it's just not possible to derive an arms-length price for the value of the Starbucks brand, let alone having HMRC unwind loan arrangements and establishing whether an arms-length business would have taken a loan from an independent commercial lender on the same terms as they took one from their foreign parent company.

So if it's too hard to implement a tax in a fair and equitable way, maybe we have to consider taxing something else instead.

Sam

Simon Reynolds:

Tim is correct. Everybody agrees that if company X pays tax but its competitor Y doesn't, then Y has a competitive advantage.

It is also true that taxing corporate profits places that corporation at a disadvantage with respect to the situation that would have existed had that corporation's profits been untaxed. This isn't complicated.

However, everyone, including Tim, will agree that it is necessary for governments to tax something in order to raise revenue. The question is how to distribute this tax burden in a way which is both efficient (causes the smallest economic harm) and equitable (people in similar financial situations pay similar amounts of tax). This question is independent of the question of big government vs small government (although higher taxes have a bigger economic impact than lower taxes, the optimum relative distribution of the tax burden must be largely independent of the absolute tax income desired).

Simon Reynolds

Sam:

I think Tim is wrong. The statement, "This entire cry that 'not paying your tax' gives you an advantage" does not imply, "that it must be true that forcing corporations to pay tax disadvantages them."

I think you are wrong when you say:

"It is also true that taxing corporate profits places that corporation at a disadvantage with respect to the situation that would have existed had that corporation's profits been untaxed. This isn't complicated."

There are reasons why a corporation benefits from the taxation of its profits -- for example these taxes: help provide roads that can be used to distribute its products; provide education of the people who it employs; fund the NHS which keeps its workforce healthy. This *is* complicated.

Jim

Small businesses have one very significant tax advantage over large one - they don't have to charge VAT if their turnover is less than £77K. This means they either can charge 16% less than their larger competitor, or charge the same and make a higher profit margin, or a bit of both. One of the biggest barriers to small businesses becoming larger is the expansion into the Vatable economy.

RichGreenhill

Shirley Porter is also a grocer's daughter.

All grocers are equal, but some grocers' grosses are grosser.

gastro george

"... they don't have to charge VAT if their turnover is less than £77K".

But neither can they claim VAT back. It depends on what the value added is, so not quite as clear as you suggest.

Ralph Musgrave

No one has spotted the blindingly obvious reason for Tory silence: big business funds the Tory Party.

Why will none of the senior people at HSBC responsible for years of criminality resulting in the $1.9bn fine be prosecuted? Same reason.

Or have I missed something?

Churm Rincewind

Maybe it's simply that politicians are wary of comparing the tax arrangements of large and small businesses. Big businesses may have be able to avoid tax by the use of devised structures, but small businesses and the self-employed frequently (an estimated 27% of all self-assessment returns) evade tax simply by underdeclaring their income - see http://www.hmrc.gov.uk/statistics/tax-gaps/mtg-2012.pdf

And given that I'd guess millions of voters are complicit in these arrangements ("Pay me cash I'll knock off the VAT"), I'm not surprised that politicians are wary of the subject.

chris y

"After all, all big businesses started out as small businesses at some point. The reason that they're now big businesses is that they've been successful. The reason that most small businesses are still small, assuming they're not new start-ups still in infancy, is that they're not as successful as most big businesses."

Wrong. The reason is that the great majority of owner managers have no desire to turn their businesses into multinationals, for any number of good and sufficient reasons. Someone who earns a living as an electrician for forty years, puts his/her kids through college and retires comfortably is every bit as successful as Lord Sainsbury; they just have different objectives.

local seo

The Kirkus review is not online yet, but they call it a "thought-provoking, hope-inspiring manifesto." And it's made a bunch of top fall books lists, which is always nice.

Hidari

It is not, incidentally, true that all companies started as small companies. Some companies are formed as mergers. Other companies are formed when larger companies are broken up.

PauW

A corporate culture permeated with greed will eventually counsel any kind of company to try and get away with "it".
"It" being deaths attributable to poor (i.e. cheaply done) testing, LIBOR rigging, any sort of financial fraud perpetrated by means of cunning technicalities ("rubber stamped mortgages"). Taxes unfortunately are no different, and would naturally and logically be the first legal step any company will try to implement.
The culture needs to change, and to change that one needs to address the tricks-of-trade being taught e.g. in those popular Master in Management courses. Wink wink, nudge nudge.

Broilster

Anyone who talks of corporations being persons (legal or otherwis) has not got a frim grip of reality. Wasn't it Mitt Romney who infamously opined, 'Corporations are people, my friend'?

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