Who Pays the Corporate Income Tax? Should It Be Abolished? Are the Two Questions Related?
Megan McArdle has an excellent post on why we should abolish the corporate income tax. But David Henderson says she errs in thinking that shareholders are paying the tax. If the international supply of capital is perfectly elastic, the tax is passed on to others. But to whom? David quotes Lester Thurow (one of many liberals who has advocated abolishing the tax and replacing it with something more progressive) as opining that the tax is passed on to consumers, like a sales tax.
But surely this is wrong. If the supply of capital is perfectly elastic, the tax is paid in the form of lower wages for workers. A tax on capital, in this case, is a tax on labor.
The bottom line is: corporations don’t pay taxes. The corporate income tax is always passed on to somone else, whether labor or consumers or someone else.
I believe it was Reagan that said something to the affect of corporations don’t pay taxes — they pass it on to consumers in the form of higher prices. This is an over-simplification: To the extent consumers are unwilling to pay higher prices created by higher taxes, the taxes are passed on to workers in the form of lower wages (or no job at all).
I agree. Taxes on capital are taxes on labor. Not on the consumers of products.
If taxes on capital are ultimately paid by labor, what’s wrong with the AFL-CIO. They are completely out to lunch on their political agenda.
It’s certainly passed on to labor when it comes to manufactured goods, or to services that can be outsourced. But for purely local industries, such as housing or construction, I’d expect more of the costs to be borne by consumers. But not all, because the displaced manufacturing laborers will be competing for construction jobs.
Anyway, wasn’t there once a study that concluded that the cost of compliance was greater than the revenue generated by the corporate income tax?
The problem is corporations were originally formed in response to a defined issue for a finite time period then dismantled upon completion of the issue. They represented a public good.
Now,
They are treated as a citizen. A very, very wealthy citizen. Citizens who are more equal than man. A citizen who by law must subjugate man. They have turned on their creator and became the 800 fascist in the room.
Erik, you have a weird view of the world. All those corporations out there are competing day in and day out to meet your every need, and you feel subjugated????
I’ve always thought that creating some many complicated tax laws was a way of obscuring how much we’re really paying. I agree: get rid of corporate tax, and then see how things shake out.
Neil,
Corporations don’t care about my needs, your needs, or your families needs. The only need they care about is the shareholder and a return on investment.
Privatization (Corporatization) is the very definition of Fascism and is the quickest way to destroy the constitution and individual rights.
It is time to put stateless Corporations in their rightful place, as a tool which enables the public good, not as a citizen.