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Why abolishing corporation tax might make sense

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In a recent blog from the Adam Smith Institute entitled Why we really do want to abolish corporation tax – reason 672, Tim Worstall set out the argument for the abolition of this tax. Bloomberg and the Financial Times support the cause. We agree if coupled with a pollution tax and reform to land taxes.

The furore over Google, Amazon and many large corporations’ byzantine legal structures that exploit tax loopholes and allow them to claim no tax residency has brought the international corporation tax system into sharp focus.

The current beggar-my-neighbour race to the bottom of corporation tax levels, aided and abetted by an archipelago of tax havens, many of them British Crown dependencies or EU ‘partners’, is unsatisfactory.

Therefore, could we lose the tax altogether? Could we put something better in its place which creates the corporate behaviours we desire?

Tim Worstall’s thesis is simple.

Corporations do not pay tax – people do. It is the shareholders, employees and customers who ultimately pay the tax through lower dividends, lower employment or salaries and products that are more expensive. Profits of companies flow to their shareholders as dividends (already taxed at 10-37.5%), their employees as income (already taxed at 10-45%) or lead to higher prices for customers (already taxed through VAT at 20%).

Corporation tax is “dreadfully inefficient” and distorts markets, argues Worstall, often in favour of larger businesses that can afford legions of tax accountants to optimise their tax position when compared to smaller operators.

Filling the hole? Here are some napkin scrawled calculations.

Corporation tax contributed £41 billion or 9% of the total HMRC-collected taxes in 2012-2013. Increasing taxes on alcohol (£10 billion, 2%), tobacco (£10 billion, 2%) and petrol (£27 billion, 6%) would start to close the gap, but would be unpopular and depress sales, reducing the tax receipts over time.

One point that certainly caught our eye was Worstall’s perspective on pollution: “The simple existence of the tax sticks an oar into market pricing and thus causes some people not to do what they would have done in the absence of the tax. Sometimes we desire this, of course: taxes on pollution say are meant to reduce the amount of pollution.”

This is true to the free market spirit of Hayek. He was concerned about negative externalities, such as deforestation or pollution, and the market’s inability to factor adequately them into pricing. We agree. Taxing pollution and other externalities would make companies pay the full cost of their activity. This would be a ‘desirable’ distortion to the market.

Pollution costs the UK up to £9.5 billion a year. Clawing this back in tax would offset 22% of corporation tax.

Some might argue that this is already being done through fuel duty (£27 billion), vehicle excise duty (£6 billion), landfill tax (£1 billion) and the climate change levy (£600m). However, these costs falls disproportionately on the motorist when we desire a system that causes all corporations (shareholders, employees and customers) to do things they would not have done in the absence of the tax – be less polluting and more resource efficient.

Conversely, a 2011 report estimated that the environment generates £33 billion of free services. ‘Charging’ businesses for the use of those services would offset 75% of corporation tax. Charging for use of the commons and taxing pollution would generate £42.5 billion of tax receipts – close to the £44 billion lost in abolishing corporation tax.

Worstall makes the case, as we have done, for core Adam Smith principles of moving from taxes on income to taxes on land values:

“We thus should get rid of corporate taxation and replace it with something less damaging, something less distortionary and with lower deadweight costs. Like, for example, repetitive taxes on immovable property (or land value taxation perhaps) which is one of the very few taxes, which has negative deadweight costs. For you can’t avoid it thus there’s no distortions and the weight of the tax is likely to lead to more efficient use of the available land.”

New ‘you can’t avoid it’ taxes on property would close the gap significantly. Stamp duties on land raise a measly £6.9 billion while council taxes based on 1991 property values raise £26.3 billion. Rebanding council tax bands or introducing new higher bands to reflect 2012 prices, with some transitional relief, would make taxes on property more reflective of the value of the land and property. The top band in England is £320,001, meaning 23% of properties fall in this higher band.

The combined value of Britain’s residential property stock was £6 trillion at the end of December 2012. An annual land value tax on residential property alone that raised 0.74% of the market’s value would offset corporation tax altogether. Adding in the £1 trillion of commercial property would bring that rate down to 0.59%.

The average house price in the UK was £238,293. Three fifths of 1% would impose an additional annual bill of £1,399 or £117 per month on average households. This would be politically difficult initially, but the economic stimulus from zero-rated corporate tax would be massive. Employment and salaries would rise. The cost of dependency on the state would fall. Besides, combined with a pollution tax, this bill would be significantly lower.

Our economy would boom as innovative clean companies located themselves in the 0% corporation tax nation.

Tempting?

Further reading

Responsible investment can help crack down on tax avoidance

Google, Amazon, etc: blame tax laws, not the taxman or taxpayer

Corporations and tax avoidance: the time is right for investors to push for change

MPs deem global companies’ tax avoidance as ‘an insult to British businesses’

The joy of tax

Simon Leadbetter is the founder and publisher of Blue & Green Tomorrow. He has held senior roles at Northcliffe, The Daily Telegraph, Santander, Barclaycard, AXA, Prudential and Fidelity. In 2004, he founded a marketing agency that worked amongst others with The Guardian, Vodafone, E.On and Liverpool Victoria. He sold this agency in 2006 and as Chief Marketing Officer for two VC-backed start-ups launched the online platform Cleantech Intelligence (which underpinned the The Guardian’s Cleantech 100) and StrategyEye Cleantech. Most recently, he was Marketing Director of Emap, the UK’s largest B2B publisher, and the founder of Blue & Green Communications Limited.

Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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Energy

5 Easy Things You Can Do to Make Your Home More Sustainable

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sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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