5 annoying things about the Scottish Government's Corporation Tax Discussion paper

Had to get some things off my chest while I’m in the process of compiling the STUC’s comprehensive response to the Scottish Government’s discussion on corporation tax published this week. I have found the following aspects of the paper most annoying:

1       The sophistry

You say ‘introducing an attractive, competitive corporation tax policy’ ; I say ‘reducing the contribution to the common weal of currently cash rich, non-investing, often ethically dubious corporations’.

They all do it I know and in this respect the paper is no better or worse than the majority of Government consultation/discussion papers. Still annoying though.

2       The contempt for the discipline of economics & the knowledge accrued through its study over a couple of hundred years

Yes, economists have an awful lot to answer for but, y’know, economics has taught us some important stuff about the way the world works. It has not taught us that, “The key driver of economic growth in the long-run is the private sector”; a mind-bogglingly absurd sentence and perhaps the silliest ever to appear in a Government consultation paper.

One paper cited in support of the economic benefits of reducing corporation tax is described, ridiculously, as ‘seminal’. It is not. The Market for Lemons is seminal. On the Impossibility of Informationally Efficient Markets is seminal. The General Theory is seminal. Hell, it would be silly not to acknowledge that Friedman’s the Role of Monetary Policy is seminal. You might have issues with the author but it’s undeniable that the paper had a massive influence on the future development of the discipline. Lee and Gordon’s 'Tax Structure and Economic Growth' did not; it is not seminal. Why pretend that it is?

3       Asserting as fact that which is highly contentious

“Corporation tax is one of the chief levers that any government can use to promote growth, investment and jobs over the long run. It is also a vital source of competitive advantage in an integrated, flexible global economy, helping to attract new businesses, key corporate functions and highly skilled jobs”.

Is it a ‘chief lever’? Is it a ‘vital (or, more importantly, sustainable) source of competitive advantage’? Does reducing corporation tax really help to attract ‘key corporate functions and highly skilled jobs’? The paper utterly fails to provide compelling evidence in support of any of these propositions.

4       Misleading references

The rest is just annoying -  this is bad. Struggling to make sense of data attributed to the ‘World Bank’, I clicked on the lengthy non-World Bank link provided (pg 24). Lo and behold the paper referenced isn’t actually published by the World Bank at all; it’s from the American Enterprise Institute, a bastion of Republican economic wing-nuttery still striving to prove the Laffer Curve (gloriously described today on Twitter by Nouriel Roubini as the ‘most erroneous and laffable garbage ever hypothised’). The AEI tortures World Bank data in an effort to uniquely demonstrate that the US has the highest effective rate of corporation tax in the OECD and the Scottish Government serves this up as evidence. Incredible.

Oh how I wish I could be in the room at the next meeting of the FM’s Council of Economic Advisers when Joe Stiglitz is presented with this ‘evidence’...

5       The assumption that entrepreneurs know best about the development of economic policy

I’ll blog separately on this issue soon so I’ll keep this brief. If the Government wants advice on selling cheap sportswear then it should go to Tom Hunter. If it wants to learn about fitting exhausts it should go to Tom Farmer. If it wants to consider how sustainable economic growth might be maximised over the longer-term then, yes, it should speak to these people. But it should do so with a healthy scepticism and recognition that civic voices must also be heard. It is a demonstrable truth that entrepreneurs have a propensity and, it often appears unlimited capacity, for spouting abject nonsense about matters economic.

The words of Paul Krugman ring very true: “...economics and business are not the same subject and mastery of one does not ensure comprehension, let alone mastery, of the other. A successful business leader is no more likely to be an expert on economics than on military strategy...the next time you hear business people propounding their views about the economy, ask yourself, Have they taken the time to study this subject? Have they read what the experts write? If not, never mind how successful they have been in business. Ignore them, because they probably have no idea what they are talking about”.

Full response to the discussion paper in due course. Before departing I’ll quickly note a couple of things. First, to be fair, the paper does acknowledge that reducing corporation tax is not an economic cure all which puts it in a different bracket from the loony right think tank stuff on this subject (which makes the AEI reference all the more bizarre). Second, how Labour must regret their disgraceful, mystifying opposition to the modest Supermarket Tax proposals which conceded so much ground on ‘competitiveness’ (competitiveness? Retail? Lordy...) that credible opposition to these Corporation Tax proposals will be very difficult to achieve.

Stephen Boyd - STUC