Can social democratic policies reconcile capitalism with leftist conceptions of social justice? This is an old question which I ask because of a new paper which finds that, in Germany:

a 1 euro increase in [corporate] tax liabilities yields a 77 cent decrease in the wage bill.

This, of course, adds to the literature which shows that the incidence of company taxes falls heavily upon workers, in the form of lower wages and employment.

Which poses the question: if taxing profits is infeasible, what policies would increase equality?

It's not not enough for the left to contend that non-financial firms are sitting on massive cash piles - of £315.9bn deposits with UK banks and £383.9bn with overseas ones*. If firms don't want to invest at low tax rates, it's difficult to see how they'll do so at higher rates**. This leaves two possibilities.

One is to shift the tax base from profits to land value. However, whilst this is technically a good idea, I'm not sure how politically feasible it is. One reason why local government lacks any real autonomy is that the property taxes needed to finance it are so unpopular. Business rates are loathed, whilst domestic rates were so hated that Thatcher abolished them.

Another possibility is to shift taxes onto individuals. Personally, I suspect higher personal taxes are more technically feasible than generally thought, but I fear I'm in a minority.

This leaves a third possibility - to abolish capitalism and profits. Granted, nationalizing companies so that the state can grab their profits might be like buying an airline to get free hot towels. But I suspect that worker-owned firms would provide a more stable tax base than profits do now. If workers owned firms, they could no more enrich themselves by shifting the burden of profit taxes onto workers than they could by moving their wallets from their left-hand pocket to the right-hand one.

I mention this last possibility not because it is politically feasible, but to pose a question: what if "tax justice" can only be achieved by abolishing capitalism? I fear that social democrats avoidance of this question owes more to wishful thinking than it does to a firm evidence base.

* Table A57 of this pdf.

** It is theoretically possible to tax firms on their cash holdings rather than profits. But we know this isn't sufficient to raise investment because we've tried it since 2009. Falling (and negative) real interest rates are in effect a tax on cash, and whilst these have probably prevented capital spending falling more than it has - through mechanisms other than merely reducing companies' opportunity cost of holding cash - it has not unleashed a great boom.