Plucking geese – some musings

A Frenchman (whose name escapes me) once said something like: “A good tax system is one that plucks the goose with the minimum of squawking.” My suggestion is that we should leave the corporate goose its feathers.

Consider that this is an economically active goose. She will certainly pay rents and taxes (on land, on property and on labour in the form of wages) in the country where she lives. She will pay consumption tax on the grain she eats and she will pay sales tax on the value of the eggs she lays.

Better yet, whether she is a stockmarket listed or privately owned goose, she will pay a share of her profits from the sale of her eggs to investors. They will in turn invest the income in other geese, so creating more jobs. Or they will pay tax on it when they spend it.

She might also reinvest some of her profits in R&D, creating bigger, better, healthier eggs. The grain growers will employ more people to serve grain to the hungry goose and will pay consumption tax on their inputs. While the consumers of eggs will spend money on the equipment necessary to prepare eggs in numerous ways.

All in all the goose will pay its way several times over during its lifetime without needing to shed a single feather. And when it gets old and inefficient a corporate fox raider will buy the carcass and break it up to sell for glue, gravy and duvets.

Currently companies in many countries find it is easier (cheaper) to squeeze more out of a smaller workforce than to recruit flexible workers to take some of the strain. That is partly because many states seem to regard business as another arm of social security. It is also because most states think seem to think taxing the creators of jobs and wealth is just as efficient as taxing earnings and consumption (even though consumption taxes are harder to avoid and encourage much needed saving).

If governments (of whatever political persuasion) really want a thriving economy, with job creation and wider prosperity, they would do well to scrap corporation altogether, and other taxes hindering start-ups. At the very least, they should cut employment taxes so as to reduce the marginal costs of employing more people (while also reducing the pressure on existing employees). Currently they seem intent on strangling every goose they can find – sometimes before they have hatched.

If the UK does not do this someone else will and they will gain a huge advantage.

Note: this is a revised version of a comment I originally posted on the Economist website in  May 2010.

Advertisement