Nick Shaxson ■ Tax Justice Network vs. Tim Worstall: a debate on corporate tax


Tim Worstall, a British commentator who has launched a number of vitriolic and personalised public attacks on TJN and TJN staff members in the the past, has been in debate with TJN’s Research Director, Alex Cobham, on the subject of corporate tax. (For a flavour of the extraordinary level of vitriol, see this.)

Anyway, here’s the debate.

Make your own minds up about who came off Worst.

On the much-debated subject of tax incidence, Worstall knows (because, as he states, he reads TJN’s outputs assiduously) that the nonpartisan U.S. Congressional Budget Office has highlighted studies that either find “capital bears the majority of the corporate tax burden” or that “even in an open economy, capital could bear virtually the entire tax burden and that the open-economy assumption is not sufficient to shift the burden of the corporate tax from capital to labor.”  (And he might like to answer the question of who the ‘workers’ are in a hedge fund or a shell company.)

As this 2012 paper (update: we mistakenly cited it as a CBO paper in the original: please see the comments below this post) put it in the conclusion:

“At the end of the searching, I find some evidence that suggests that corporate taxation may lower wages, but the preponderance of evidence does not suggest any wage effects from corporate taxation.
. . .

I close with a political economy point, mentioned by Lawrence Summers at a Hamilton Project forum in 2007.  He noted that it was indeed possible that corporate stockholders and managers who resist the corporate tax are not really acting in their own interests because they do not understand corporate tax incidence, since corporate taxes will ultimately be borne by their workers. But it seems far more plausible that they have calculated their interests correctly.”

See much more on this question of tax incidence here.

See also Tim Worstall, curious British attack dog.


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Comments • 15

  • AvatarTim Worstall
    March 3, 2016 - 9:33 am

    So, I wonder if this comment will be published?

    That paper that you link to, by Kimberly Clausing, is not a CBO paper. It’s in Tax Law Review as is clearly marked.

    When the paper came out I was in correspondence with Professor Clausing. Here is my email to her and her response (both in full, so I’m not editing for effect):

    Me to her:

    “Dear Professor Clausing,

    Prompted by Richard Murphy, who I believe you know, I have read your
    recent paper on the incidence of the corporate income tax. I would
    like to try and clarify a part of your argument. This, from the

    “In this context,
    it is important to note that the reporting of profit in particular tax
    jurisdictions is becoming increasingly discretionary. Truly global multinational
    firms are adept at using complex chains of ownership together
    with tax-motivated decisions regarding the holding of
    intangible property, the structure of finance, and the transfer pricing
    of intermediate goods, in order to report income where it is most
    lightly taxed. If global firms separate the location of their profits from
    the location of their investments and employment, then workers need
    not bear the burden of the corporate tax. The firms that are adept at
    shifting income face a lighter tax burden, which need not adversely
    affect their workers. Whereas immobile firms behave like closedeconomy
    actors, and thus they are unlikely to generate the open-economy
    incidence result.”

    I read that as stating that precisely because many multinational firms
    are “tax dodging” therefore the incidence of the corporate income tax
    is not upon the workers in the form of lower wages.

    I can see the logic here. If Google sells all its EU advertising from
    Ireland, as it does, then the corporate income tax rates across Europe
    will not affect its decisions to invest in Europe. For however many it
    hires or employs, it knows that it will be paying tax in Ireland on
    the revenues and or profits of such hires.

    The same would be true of the various arrangements of Microsoft,
    Facebook, Amazon, Apple and so on.

    In wider terms, it is precisely the jurisdiction shopping that such
    companies undertake that explains the lack of evidence of an impact
    upon labour of the corporate income tax.

    I just wanted to check that that is the implication that you are
    making in this part of your conclusion?


    Her to me:

    “Thank you for your email. Yes, that is the implication. It does not necessarily imply that if the dodging went away, that labor would bear the tax. (That remains an empirical question, and there is not much evidence (as I note) that K/L ratios are sensitive to taxation, which is what you would need for a large effect on labor.)

    I think the literature here is a bit agnostic, which is why in the United States, the CBO/Treasury/JCT/TPC distribute the tax as they do (mostly toward capital).

    I assure you that my paper is an academic work and not a piece of advocacy. (I do know Richard, but my work is rather different in character.)

    Further, I would have been happy to report that the tax fell on labor if that is what the data suggested. You’ll find that there is exhaustive empirical work behind my results.

    I also have a great deal of empirical work on tax avoidance, which you will find on my website (address below).

    Finally, I refer you to my “Future of Corporate Tax” paper, which you may find helpful.


    And to clarify further. That there is some split between capital and workers in the incidence of the corporate income tax is the standard economic assumption. So too what influences the split: a standard assumption. The larger the economy compared to the global economy and the less mobile capital is the more the incidence will be upon capital. The smaller the economy and the more mobile capital is the more the incidence will be upon labour in that taxing jurisdiction (please note, with relevance to that crack about who are the employees in hedge funds or shell companies, the assumption is not the workers in the company being taxed, but all workers in the jurisdiction applying the tax as the tax leads to less capital investment across the economy).

    The US is a very large economy and capital (given the global taxation system there) less mobile than in many other places. Thus the assumption is that capital bears some significant part of the incidence. Various CBO reports have put it at 30% capital, 70% labour, and another at 70% capital, 30% labour.

    But as we move to smaller economies and start to talk purely about foreign capital, which is what we are doing when we talk about MNC investment in developing countries, that burden falls ever more on labour and ever less upon capital. And we should not forget the Stiglitz and Atkinson result, that the total incidence of a tax can be more than 100%.

    Finally, please note that this has nothing at all to do with the taxation of resource rents. They should, righteously and justly, be taxed until the pips squeak. Assuming that Alex can manage to work out the difference between wholesale prices in Zambia and retail prices in Switzerland of course.

  • AvatarDave
    March 3, 2016 - 6:06 pm

    Wow, Tim’s incredibly restrained in not simply calling Cobham out as a liar. You don’t get to make up your own facts, and I know for certain that Cobham has been educated about what might previously have been honest mistakes.

    It’s all part and parcel with TJN’s neo-antisemitic slant, though. Are you lot deliberately attempting to stir up hatred against Jewish people, or are you just useful idiots that the actual antisemites are exploiting to their own ends? Either way,. let’s not beat about the bush, this is just old-fashioned antisemitic propaganda straight out of The International Jew, with just one word missing.

  • AvatarIronman
    March 3, 2016 - 11:30 pm

    This is a debate that will no doubt rage on and on. Quite why though defeats me as it really does seem Alex conceded the point, at least in principle. I.would congratulate him on having the personal quality to do so. There is at least one other tax justice campaigner who has stubbornly taken a counter-knowlege position and argued that ALL incidence of CT falls on providers of capital!

    As regards the broadcast, I am struck and surprised by a point Alex repeated twice: namely that taxation provided the revenues to pay for spending on schools/hospitals/etc and that it had a redistributive effect. He must be somewhat behind on modern theories of money as for example by Richard Murphy at a recent lecture in Orlando. He lists the reasons for taxation and revenue raising is most certainly ly NOT amongst them. It follows from his logic that, if tax does not provide the revenue for State spending, then taxation is merely confiscatory and not redistributive. I wouldn’t suppose the Tax Justice Network is as keen to be seen to be advocating that. Your thoughts would be most helpful to me.

    • Nick ShaxsonNick Shaxson
      March 4, 2016 - 7:48 am

      Modern Theories of Money: you’re presumably talking about a particular theory of money, called Modern Monetary Theory. TJN doesn’t necessarily disagree (or agree) with the MMT position: we don’t take a formal position on it. (We discuss it on p26 of our Ten Reasons to Defend the Corporate Income Tax document. ) The MMTers say that tax doesn’t need to be tied to expenditure, but it seems pertinent to note that governments behave as if they need to fund expenditure with taxes, whether or not they ought to, and that is a large part of the point. (Naked Capitalism just picked up this point too .) As to Alex conceding the point, from memory of the episode which I watched when it came out, there was no point to concede. TJN has always said that the taxes are always ultimately paid by *someone* – the question is, by whom? But even then, corporations DO pay tax: corporate behaviour, and the distribution of ensuing profits by the corporation, are clearly influenced by the corporate tax. That statement is quite compatible with the statement that the taxes are also paid by others, if you think about it.

    • Nick ShaxsonNick Shaxson
      March 4, 2016 - 7:49 am

      Hmm, interesting Dave, many thanks for those pearls

  • Nick ShaxsonNick Shaxson
    March 4, 2016 - 7:39 am

    You’re right about the fact that the Clausing paper is incorrectly cited. The CBO paper is the Gravelle one. And for the record, Gravelle summarises research saying that “capital bears the majority of the corporate tax burden” then goes on to cite drawbacks with this model, concluding that under the other way of looking at it, “capital bears the full burden of the worldwide average corporate tax. . . capital could bear virtually the entire tax burden and that the open-economy assumption is not sufficient to shift the burden of the corporate tax from capital to labor.”

    Now it’s important to recognise that the entire edifice of your arguments about corporate tax, tax avoidance and so on depend to a large degree on your incidence arguments. You simply have no choice but to cling to your arguments: for the alternative is to concede all the other points, pretty much across the board.

    Your discussion with Clausing is very interesting, but I can’t quite see how it advances your argument. You simply cherry pick the findings of “various CBO reports” to exclude the ones you don’t like – and even then your cherries are firmly on TJN’s side. Then you retreat to a position where you say that only in very small economies, labour bears a bigger share. This may be the case in places like Bermuda, perhaps, but not in the UK, which is, you may have noticed, a large economy. Game, set and match to Mr. Cobham, it seems (but we’ll let you have a Bermuda cream puff afterwards.)

    And you are quite wrong about resource rents being unique. Well, you’re quite right that they should be “taxed until the pips squeak” (because oilfields are immobile and a source of largely unearned rents). But you might like to consider the difference between an oilfield (which is immobile) and, say, I dunno, a supermarket franchise in Turkey, or a telecoms licence in France. The latter are also pretty immobile. they can be taxed, too – not so highly, of course, because there is far less rent-seeking involved than with an oilfield. If the profits are there, the investors will come, and a whiff of tax won’t kill those markets.

    • AvatarIronman
      March 4, 2016 - 8:43 am

      He problem with this Nick is that Alex did indeed concede the point to Tim. It’s there on camera, saved for posterity.

      As regards the MMT view of money, I’m afraid.”neither agree not disagree ” simply isn’t a viable postion. What we tax, how much and WHY is crucially dependant on whether taxation is a revenue stream or not. Governments do indeed behave as if it is revenue, always have. If the MMTers are correct though (and not just a 21st Century wacko cult or self gratifying publicity whores) then governments have for all time been wrong. And – to repeat my earlier comment – so too must be those who see taxation as a form of redistribution.

  • AvatarTim Worstall
    March 4, 2016 - 9:06 am

    “capital bears the full burden of the worldwide average corporate tax.”

    Well, yes, of course, this is also part of that standard incidence theory. But that same theory also insists that capital within any specific local economy does not bear the full incidence. This is explicitly stated in Harberger (2008) in that paper.

    ” The economy is closed at the worldwide level, and, assuming the underlying parameters of
    the world are similar to those assumed in Harberger’s original closed-economy model, the burden of
    worldwide corporate taxes should fall entirely on worldwide capital.”

    Obviously. And if corporate and or capital taxation were the same in every country then that would indeed be so. Our entire analysis is predicated on the idea that it differs across taxing jurisdictions, that’s what we’re trying to work out.

    And from that paper, the estimates:

    “In summary, the separate estimates that align with the current evidence on underlying
    assumptions are similar. From GS’s sensitivity analyses, an estimate of 62 percent of the corporate tax
    falling on capital relies on parameter estimates similar to the central values reported empirically.
    Adjusting Randolph’s perfect capital mobility and product substitution model with the sensitivity analysis
    employed by GM also yielded an adjusted estimate of about 60 percent of the corporate tax burden falling
    on capital. Last, a simple exercise that provided a scenario of product rigidity to adjust Randolph’s
    estimates showed 48 percent of the corporate tax burden falling on labor. Taken together, these results,
    albeit imperfect, suggest that an assumption that 40 percent of the corporate tax burden falls on labor and
    60 percent falls on capital is consistent with open-economy models and with the current empirical
    evidence regarding the appropriate parameter values for those models. ”

    Which is about what I say for a large country like the United States. The paper also emphasises that the burden will move over to being more on labour the smaller the economy relative to the global economy and the more mobile is capital. Just as I myself point out in fact. I point it out because I have both read and understood this paper of course.

    Her final conclusion:

    This review suggests that the assumption of an open economy is not sufficient to conclude that
    much of the burden of the corporate tax is shifted to labor. Indeed, assumptions of highly mobile capital
    and highly substitutable products, internationally, are needed to ensure that the majority of the tax is
    borne by labor. Relaxing the assumptions of perfect mobility changes the burden allocation to indicate
    that, even in an open economy, a majority of the corporate tax burden, perhaps 60 percent, is still borne
    by capital. ”

    And highly mobile capital is just what we are talking about when we talk about MNCs in developing economies, as long as we’re not talking about resource rents. Which is all really rather my point, isn’t it? My critique of your advocacy? That in those developing economies, where MNC capital is indeed highly mobile, (at least) much more of the burden falls upon labour in those economies than is true in larger and richer economies. Therefore far from corporate taxation being something more desirable in developing countries it is something less desirable.

    A supermarket franchise is of course higly mobile: and you’re right, some part of a telecoms franchise is not. Spectrum for example: which is why I fully support those auctions which make the bandwidth suppliers pay through the nose for access to that natural resource.

    “Now it’s important to recognise that the entire edifice of your arguments about corporate tax, tax avoidance and so on depend to a large degree on your incidence arguments. You simply have no choice but to cling to your arguments: for the alternative is to concede all the other points, pretty much across the board.”

    It’s not so much that I cling to said arguments. It’s that even the papers you offer to try to refute my argument make exactly the same argument I do. And I make this argument because these papers say that that is the correct argument.

    • Nick ShaxsonNick Shaxson
      March 4, 2016 - 10:20 am

      umm, not quite sure how this lot advances your arguments. and “a supermarket franchise is of course highly mobile.” the point here clearly is that a licence to operate a supermarket in Turkey and the Turkish customers are what we’re talking about, that’s not exactly mobile is it? Any profit-making opportunity, unless it’s financial engineering, is rooted in a real economy somewhere.

      But let’s get this straight. What these papers are saying, generally, is that capital bears the majority of the burden of the corporate income tax, or perhaps the entire burden. And that’s your point too, is it? In which case, how, then, is this a basis, or even part of a basis, for your recommendation for abolishing the corporate income tax?

    • Nick ShaxsonNick Shaxson
      March 4, 2016 - 10:29 am

      I think this is an extremist view on MMT. The MMTers are saying (and they may be right) that government spending does not need to be tied to tax levels. But the facts on the ground are that governments behave as if spending ought to be tied to revenues. (One needs only look at all the deficit hysteria to see one reason why this is the case.) And if govts behave as if spending

      Alex agreed with Tim on a point of sophistry, and there was no concession there: it’s that Tim loves creating straw men an probably claimed that Alex has claimed otherwise, elsewhere. I’m pretty sure he hasn’t. But that gets us no closer to the question of whether or not, and to what extent, it’s a good idea to tax corporations.

  • AvatarTim Worstall
    March 4, 2016 - 2:24 pm

    “But let’s get this straight. What these papers are saying, generally, is that capital bears the majority of the burden of the corporate income tax, or perhaps the entire burden.”

    Nope, that’s not what they’re saying at all. They say that globally capital bears the global burden. And that in specific economies capital will bear some to most to all the burden. And what moves along that spectrum is the size of the economy and the mobility of capital. Larger the economy, less mobile capital, more it falls upon capital. And again, my major argument against the TJN stuff on MNCs and developing economies is that the same point means that in those circumstances the major to most to all part of the burden falls upon the local labour.

    And I don’t think that charging tax to poor people is a good idea.

    And let me repeat what I asked Alex above. If it is capital which carries the entire burden then why are you so dead set on corporation tax in the first place? Why not just tax investors on their incomes and abolish the taxation of companies? By your argument it would still be the same people paying the tax, wouldn’t it?

    • Nick ShaxsonNick Shaxson
      March 4, 2016 - 3:50 pm

      errr, for quite a few reasons. It serves as a backstop to the corporate income tax, for one thing. otherwise everyone with a tax adviser will shovel their income into personal shell companies and pay nothing (sorry, ahem, they will ‘pay taxes when they receive a distribution’ and we all know what that means for people with clever tax advisers.) And here you are once again, on this same thread, arguing that most of the burden of corporate taxes falls on labour, in developing countries this time. Sigh. I guess this merry go round is just going to carry on, until you feel you’ve had the last word.

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