Donald Trump has announced huge tax cuts for middle America and business, aiming for a 15 per cent corporation tax rate. Cue the howls of derision from the usual suspects.
However, in Britain we have cut corporation tax from its original punitive 40 per cent to 28 per cent, and now 20 per cent. Strangely, business tax receipts have gone up.
It seems that the Laffer Curve is alive and kicking in Britain. Human nature doesn’t change, so how could it be otherwise?
Corporation tax is a pointless, regressive tax, which should be removed altogether.
Consider this, a business can do one of three things when it makes a profit:–
1. Pay shareholders a dividend, which is then taxed.
2. Give employees a bonus, which is then taxed.
3. Invest in the business, leading to growth. This tends to result in greater employment.
In fact, if a business opts for choice three, the expenditure is often not fully tax deductible, if at all, leading to companies borrowing to fund expansion instead of using profits, which is madness.
So, why charge corporation tax at all?
Lower taxes lead to less avoidance behaviour and greater growth, a virtuous circle in fact.
The party wanting to cut business taxes is the one that will make the pie bigger for everyone and attract inward investment, which is why the EU Commission is wagging its finger at us for daring to drop tax rates.
The tax and spend approach will, as usual, simply shrink the pie until all we’re left with is crumbs, and certainly no cream.