Companies Challenge Tax and Anti-Transparency Law in Britain

August 31, 2007

British tour companies must pay a tax of £10 (about $20) per passenger, and are prohibited by law from passing on the tax to passengers (unlike the equivalent airline passenger tax). The travel group Thomas Cook blames the tax, which was enacted to fight carbon emissions, for weaker profits. They’ve gone to court to have it declared illegal, based on an EU law that forbids the government from charging for a service beyond the costs actually incurred.

The British law forbidding pass-forward shows a misunderstanding of how taxes work. Politicians love to say that they favor taxing companies and not people. As Professor Mankiw has noted, “Voters are always eager to have their taxes reduced and have some impersonal corporation pick up the tab.”

All taxes are paid by people; a government policy to tax companies is just an inefficient, hidden tax on people, who pay in the form of higher prices, lower wages, foregone investment, and/or lower profits and dividends to shareholders. All Britain has done is forbid companies from being transparent about who will bear this new tax.

We commented earlier in the year about a similar anti-transparency law proposed in Texas.

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