What a strange way to tax corporations

We've found over the years that Sir Simon Jenkins is generally sound on the subject of civil liberties. But he's a great deal less assured when it comes to the subject of economics. A pity, because he has decided to tell us all how corporations should be taxed: clearly within the purview of the economic way of thinking. He tells us that:

The answer is clear. Companies should pay corporation tax on the basis not of their headquarters or research base or place of origin.

They should pay on the proportionate spread of their sales. Likewise, individuals should pay tax to the country where they live or whose citizenship they enjoy – as is the case with most Americans.

That companies should pay on the basis of their sales is one of those Chesterton's Fence problems. Why doesn't the system work that way already? Because it has been considered and rejected, that's why. Such a system would mean that the company that made on single overseas sale would then need to file a full corporate tax return according to the rules of that country. This is not something that is likely to increase trade among small companies. And that's why the system is as it is.

It's entirely possible that it's not quite right in detail, but the current system operates on the basis that if you've a permanent establishment in a tax jurisdiction then you do indeed file a local return. And a permanent establishment, while it's not perfect, is used as a proxy for the corporation being a large enough actor in that local economy that it should be filing a tax return in it.

A business that one of us was once involved in once made a single sale of $6,500 gross value into India. The only sale into that country in a decade of operation. No sensible tax system is going to demand an Indian tax return on that basis, is it?

Sir Simon's suggestion also flies into the very face of the basic underlying rules of the European Union's Single Market. All companies are equal, from whichever jurisdiction, and may sell from any one EU country into any and all others.

Finally, look at the underlying idea. People buy things because they make them better off, by their own lights. The point and purpose of having an economy at all is to maximise this, to maximise peoples' opportunity to maximise their utility. We thus say, well, you, Mr. Johnny Foreigner, you have just made some of the residents of our country better off. Hmm, we'll have to fine you some tax for having done that you know.

Just not a sensible logical basis for taxation, is it?

Why Osborne should be applauded for his business rate devolution proposal

One of the biggest surprise announcements from today’s Autumn Statement – aside from the Chancellor’s spectacular U-turn on tax credits – was the decision to hand local councils full control of business rates. But it was a welcome one, too: devolving rates should deter excessive spending and stimulate competition between councils, while encouraging local government to be more responsive to business needs. When the Chancellor first mentioned devolution during his Conference speech in October, over 60 per cent of IoD members came out in favour of the policy. The devil is in the detail of course, but at face value it’s hard to see a downside to the policy. Some have pointed to the potential for geographic disparities, but those rural communities likely to have the smallest rates receipts are predominantly run by fiscally responsible Tory councils.

Others suggest that local mayors will succumb to the temptation to hike rates (currently, the uniform business rate is set at 49.3 per cent of a non-domestic property’s free-market rental in England and 48.2 per cent in Wales) to raise revenues without the consent of the local landowners. The assumption – or hope – is that accountability to their local electorate will help them resist.

But while business rates have long been criticised by businesses (and any cut welcomed), it is important to note that it’s not occupiers that end up shouldering the financial burden but landowners. So the notion than business rates cuts, as a result of devolution, could bring business into an area is a misconception: business rates cuts lead to rent rises in almost exact proportion.

And business leaders will need to be better engaged with local government to ensure councils are fiscally responsible. For example, city-wide mayors will be given the power to levy a business rates premium for local infrastructure projects, and as such businesses will need to make sure their views are properly voiced through their Local Enterprise Partnership.

From now on, it looks like businesses are going to get the local government they deserve.

The Sun told a porky pie, and here's why it doesn't matter

One of the points Owen Jones makes in The Establishment is that our country’s media is scandalously bent in favour of the free-market ideologues that monopolise newspaper ownership:

Whereas just 36 per cent of voters opted for the Tories at the 2010 general election, 71 per cent of newspapers by circulation backed David Cameron’s party.

Jones’s argument is that this lack of democratic accountability allows Rupert Murdoch and co. to wreak havoc on public opinion, leading astray the gullible and politically illiterate general populace.

The Sun’s recent attempt to convince us that 20% of British Muslims possess jihadist sympathies has forced fresh life into this debate, with questions raised as to the extent to which such flagrantly spurious material is any longer ‘acceptable’.

And yet, Jones’s argument is self-defeating – his statistic demonstrates that newspapers are not a primary determinant of the political climate in Britain. Those who call for regulation in response to this recent debacle fall prey to the same assumption: that people blindly believe what they read in the tabloids.

Jones’s position falls further apart when you look into extent of media bias in the first place – interestingly, 20^th Century Fox movies appear to receive no special treatment in reviews from News Corporation outlets.

On the other hand, however, there is evidence to suggest that newspapers have some purchase at least. This 2007 study reports that those who received a free subscription to the Washington Post were 8 points more likely to vote Democrat. This does indeed seem a sizeable increase, and thus to demonstrate the important role of newspapers in determining how we think. But this figure surely shrinks to insignificance when you consider, firstly, that it’s a lot easier to decide whether Muslims are all evil ISIS-apologists than it is to decide between the two fairly similar political parties in the US, and secondly, that the Washington Post is a lot more respected than The Sun is.

Even if we were to concede that newspapers pose an almighty threat to the freedom and diversity of thought, it seems unlikely that in this particular case many people believed the half-truth they were being fed – the backlash from the rest of the media was a lot noisier than the original article.

The outrage in response to The Sun’s laughable figure-manipulation is misplaced and patronising. Just as we should afford a platform to the expression of racist or sexist ideas, we should allow newspapers freedom to present their own angle on things: the truth will out.

So they've worked out how to do the propaganda then

This is not quite what people seem to think it is. The report seems to show that people are happy with restrictions and taxes if they are for the common good. Thus we should go and tax meat. But that's really not quite what is actually being said:

Taxing meat to simultaneously tackle climate change and improve global health would be far less unpalatable than governments think, according to new research.

Meat production produces 15% of all greenhouse gases – more than all cars, trains, planes and ships combined – and halting global warming appears near impossible unless the world’s fast growing appetite for meat is addressed.

The new analysis says this could be done through taxes, increasing vegetarian food in schools, hospitals and the armed forces and cutting subsidies to livestock farmers, all supported by public information campaigns.

The research, from the international affairs thinktank Chatham House and Glasgow University, involved surveys and focus groups in 12 countries and found that even measures restricting peoples’ behaviour could be accepted if seen as in the public interest, as was seen with smoking bans.

“Governments are ignoring what should be a hugely appealing, win-win policy,” said lead author Laura Wellesley, at Chatham House.

“The idea that interventions like this are too politically sensitive and too difficult to implement is unjustified. Our focus groups show people expect governments to lead action on issues that are for the global good. Our research indicates any backlash to unpopular policies would likely be short-lived as long as the rationale for action was strong.”

What they have actually found is that if they dress up the policy that they already desire as being something that is for the common good then people will complain less. Something which is obviously true, every orator and politician has known for ever that the more you appeal to peoples' extant prejudices the more ridiculous the policy you can get them to swallow.

What Chatham House has just done is discover how to produce the propaganda for meat taxes, nothing else. And well done them of course, although quite when Chatham House got into the propaganda business we're not quite sure.

So, that DECC's renewables plans entirely up in smoke then

One of the little fables, falsities really, of the DECC's approach to climate change rests upon just the one number. And that's what is the price of natural gas per therm going to be off into the future. We could assume that the price will be roughly the same as today. Or it might fall as a result of fracking, or it might rise as a result of supplies running out. But we obviously do need to make a forecast because that's the only way we can work out whether those damn windmills and so on are ever going to be economic. So what DECC did was assume that gas prices would roughly double from their current level. In that manner they could then say that those windmills would in fact be cheaper. Not because the windmills are cheaper now, nor because they're going to become cheaper in the future, but because the gas price is going to double.

They were very insistent about supporting this too. We recall one of their pronouncements being that fracking wouldn't reduce the price at all. Because it would all be exported we think was the mantra. Then they said, well, maybe, a few percent reduction: look, here's a report about Cuadrilla's find which says 3 or 4% reduction in price!

Yes, well, that report was actually about the price impact of just he extra gas find that Cuadrilla had announced as the result of just the one borehole: and that price reduction applied to the entirety of the connected European gas market. Obviously the entirety of the Bowland Shale was going to have a larger impact than that.

But everything, the whole shooting match, the entire strategy of solar, windmills, nuclear and everything, has been based upon that one single number: the price of natural gas is going to double.

DECC's latest projections assume average gas prices for this year of 47 pence per therm, down from the 62p it projected last year. It estimates the price will barely rise over the next four years, remaining at just 49p/therm in 2019, and only ticking up slightly to 52p/therm in 2020. A year ago it had expected prices of 60.3p/therm in 2020, while two years ago it was forecasting they could hit 73.8p/therm.

Ooops! And of course the decline in price is being driven by that fracking that would never affect the UK price. Tight oil fracking in the US has driven down the oil price, to which many gas contracts are linked, and gas fracking has increased the amount of LNG sloshing around the world markets. These price decreases being before anyone's even considered whatever may be fracked right here at home.

The entire strategy thus needs to be re-examined. Starting with those numbers for what the future price of gas might be.

And of course, this is also why planning centrally of anything doesn't work. Here it's obvious that, to put it at its most kindly, people became wedded to a particular analysis and simply did not want to hear of changes to it (less kindly they manufactured that analysis to order). But even when that does not happen, we still end up with a plan which depends upon the assumptions which go into it. Rather than leaving things to market forces, which means that we get a multiplicity of plans, with a multiplicity of such assumptions.

Yes, it's true, climate change isn't a problem that entirely pure markets are likely to solve, involving as it does externalities. But that's why the correct answer is to intervene in the market price, add in that externality, and then still have the markets with their mulitple answers and assumptions. Rather than the monolithic central plan reminiscent of Stalinism. Which has just failed as did that Stalinism, reality having to intrude.

The Overseas Development Institute is as stupid as the IMF

Or maybe they're being deliberately misleading. Back in May, Sam wrote a barnstormer in The Telegraph refuting an IMF report that called it a 'subsidy' when the government didn't tax oil and gas as much as the IMF would have liked it to. This report was important because the IMF is taken seriously, especially by those who don't usually find themselves on its side, when it says stuff they like ('even the IMF' etc). Sam made the obvious point that a subsidy is a subsidy and not taxing something is never a subsidy, even if you think we should—even if your model says that it should—tax that thing more to increase social welfare. If it were a subsidy to tax something (like fossil fuels) below the optimal amount, then it would also be a tax not to subsidise something (like basic research) the optimal amount. But it's not; it's patently, blatantly, ridiculous and obfuscatory use of language.

We might have thought the issue was put to bed. But here we go again, this time with the Overseas Development Institute's new report, which tells us:

While other nations have responded to the drop in energy prices by reducing fossil fuel consumer subsidies, the UK has reduced taxes on fossil fuel production, increasing subsidies to fossil fuel producers.

The industry pays £30.1bn in total taxes, including downstream levies like fuel duties, but since this is not £35bn or £40bn, it's being 'subsidised' according to the IMF and ODI.

It gets onto actual things we might call 'subsidies' later, and they are as piffling as you might expect, given how they are buried:

The International Energy Agency (IEA) estimates for budgetary support for R&D to all fossil fuels in the UK were $76 million in 2013

Note the units.

In addition, the UK government has committed to providing significant direct support for the development of CCS. The largest commitment is for the $1.6 billion for the Commercialisation Programme, although this has not yet been disbursed.

OK, this is a real subsidy, and of a significant size (but nothing compared to oil and gas tax contributions!), but you might note that (a) it's not been paid yet; and (b) it's specifically tied to abating emissions!

So this is a non-story. The real story is 'the energy industry pays a large amount in tax, slightly lower this year, but probably still enough to cover its externalities, and even if it wasn't it's certainly not a "subsidy"'.

And the ODI are as stupid as the IMF.

UPDATE: Turns out the WTO uses the 'tax break = subsidy' definition too; it's still not clear this is a useful or meaningful definition—it requires an idea of the relevant baseline.

Ten initiatives to help young people: 5. Youth start-up loans

Young people who opt for university education are eligible for loans at preferred rates.  They qualify for tuition loans of up to £9,000 per year, and for maintenance loans which could go as high as £8,200 per year for those from low income families.  Most students assume this is a good investment that will lead to higher salaries over the course of their working lives, and are cushioned by the fact that only those earning more than £21,000 per year have to start repaying those loans. But young people who do not qualify for university admission, or who decide against it, are not eligible for similar loans.  In fact young people starting out in work or seeking work find there and many associated costs.  They often have to face deposits for accommodation; they sometimes have to buy new clothes appropriate for their work or their job-seeking.  Most have no cushion of saving since few will have yet earned any money.

If young people not at university were given access to loans on terms similar to those available to students, many would find their lives much easier.  For some it would help cover the costs of moving into their first independent accommodation.  For others it might help pay for a bicycle to travel to work on.  

For others, loans such as these would offer the opportunity to start a small business.  Paying for driving lessons to pass the test and buying a car would be a real possibility for those who wanted to become professional drivers.  Others might find themselves able to rent premises to set up as independent hairdressers.  A range of small business possibilities would open up.  Far from the world of multi-million software businesses, there are small one-person businesses that operate as gardeners, window-cleaners, street traders, hairdressers, and the like.  

To set up a one-person business such as these takes initial capital, capital that young people simply do not have.  Some of the lucky ones might borrow from parents.  Some might persuade a bank to loan them money, but banks are wary of lending to those without collateral, so for most the possibility is ruled out by lack of available finance.   A scheme like that which provides student loans, but which made them available instead to non-university young people would open up countless opportunities for advancement.  For some it would help them with their move into the city to find work and accommodation.  For others it would open the possibility to start up their own small business.  It would reduce unemployment and encourage ambition.

Wisdom on housing and land from across The Pond

It's a sad commentary on contemporary British politics that it would be almost impossible to even imagine an even vaguely lefty economic adviser making the following statement:

In today’s remarks, I will focus on how excessive or unnecessary land use or zoning regulations have consequences that go beyond the housing market to impede mobility and thus contribute to rising inequality and declining productivity growth.

While land use regulations sometimes serve reasonable and legitimate purposes, they can also give extranormal returns to entrenched interests at the expense of everyone else. As such, land use regulations are an example of a broader range of situations that may give rise to economic rents. By this I do not mean the check you write to your landlord every month, but a situation in which any factor of production—in this case, land—is paid more than is needed to put it in production.

Further:

I want to be clear from the outset, some land use regulations can be beneficial to communities and the overall economy. There can be compelling environmental reasons in some localities to limit high-density or multi-use development. Similarly, health and safety concerns—such as an area’s air traffic patterns, viability of its water supply, or its geologic stability—may merit height and lot size restrictions. But in other cases, zoning regulations and other local barriers to housing development allow a small number of individuals to capture the economic benefits of living in a community, thus limiting diversity and mobility. The artificial upward pressure that zoning places on house prices—primarily by functioning as a supply constraint—also may undermine the market forces that would otherwise determine how much housing to build, where to build, and what type to build, leading to a mismatch between the types of housing that households want, what they can afford, and what is available to buy or rent.

The tradeoffs inherent in land use regulations are well known and have been of concern to policymakers and academics for decades, since at least 1961, when Jane Jacobs wrote The Death and Life of Great American Cities. In it, she argued that limits on density and mixed-use development, as well as an imbalance between preservation and new construction, can reduce housing affordability, socioeconomic diversity, and economic activity.

That's all from Jason Furman, currently chair of the Council of Economic Advisers to that well known right winger, President Obama. If only any single one of Jeremy Corbyn's advisers, heck, if just one of two of those somewhat to the left of us were this clear on the cause of our basic housing problems then we'd be able to solve them by next Tuesday afternoon.

We simply place too many restrictions on who may build what, where. To solve the problem we thus have to remove some to all of those restrictions. And that really is it.

American police now steal more from the citizenry than the robbers do

There's a good reason why we don't arbitrarily allow the State or any of its agents to take the property of the citizenry. That reason being that however logical those first steps onto hte slippery slope seem it always, but always, descends into an orgy of said State and its agents plundering the population they are supposed to be protecting. A case in point:

Between 1989 and 2010, U.S. attorneys seized an estimated $12.6 billion in asset forfeiture cases. The growth rate during that time averaged +19.4% annually. In 2010 alone, the value of assets seized grew by +52.8% from 2009 and was six times greater than the total for 1989. Then by 2014, that number had ballooned to roughly $4.5 billion for the year, making this 35% of the entire number of assets collected from 1989 to 2010 in a single year. According to the FBI, the total amount of goods stolen by criminals in 2014 burglary offenses suffered an estimated $3.9 billion in property losses. This means that the police are now taking more assets than the criminals.

The point of the police, of the criminal justice system in general, is to protect us from the thieves, not for them to become the thieves.

We in the UK have only just started down this road: we should change path immediately and go back to the old system. Once you've been convicted by a jury of your peers you can be fined, jailed, forced to pay compensation, all sorts of things. But absolutely nothing is due to the State until that jury has ruled.

We must regulate Bitcoin because.....?

We can fill in that "...." with whatever we want of course. For Bitcoin enables (despite whatever other fragilities we might think it has) people to transfer money around, do business, trade, without the intervening hand of the State. And that will never do: how can the functionaries of the State make sure they get paid if we just do things without paying them their tithe in tax? And thus:

European Union countries plan a crackdown on virtual currencies and anonymous payments made online and via pre-paid cards in a bid to tackle terrorism financing after the Paris attacks, a draft document seen by Reuters said.

In more detail:

They will urge the European Commission, the EU executive arm, to propose measures to "strengthen controls of non-banking payment methods such as electronic/anonymous payments and virtual currencies and transfers of gold, precious metals, by pre-paid cards," draft conclusions of the meeting said.

The bodies are not even buried yet, we know absolutely nothing at all about how this attack was financed. And yet everyone knows that cyber-currencies must be more regulated. Because......

Well, just because, because we cannot be allowed to do things beyond the purview of the State and any old excuse is a good enough because to make sure that that is not allowed to happen. The terrorists could have been using their own bank accounts and we'd still be having this clampdown. Because.