Corporation Tax

Corporation tax is a tax on investment. Current plans to increase the rate in the UK and the USA will, if implemented, severely damage their economies. That such self-destructive folly has met little opposition and is seldom even debated results from the weakness of current consensus economic theory—the neoclassical synthesis. The impact of corporation tax cannot be assessed without a command of financial economics. Except in the form of a few aprioristic and demonstrably false assumptions, finance is absent from the consensus model and this is widely accepted as its major fault. If implemented without offsetting policy measures, a rise in corporation tax will exacerbate two major economic problems. It will retard the already poor rate at which labour productivity and output grow and it will amplify the structural ex ante net investment deficit of the private sector. In the UK tax credits for tangible investment are planned for the next two years. The damage from a rise in corporation tax could be more than offset if these were made permanent and, in the USA, if similar credits were introduced.