Workers bear the corporate income tax burden(Read article summary)
Corporate income tax moves some capital abroad, which reduces worker productivity, wages and benefits, Marron writes. As a result, some of the corporate income tax burden falls on workers.
Corporations pay income taxes inÂ an administrative sense: theyÂ write checks (or send electrons) to the IRS. But corporations canâ€™t actually bear the burden â€“ they are just legal entities, not living and breathing human beings.
SoÂ who ultimately bears the burden ofÂ corporate income taxes?Â Shareholders? Employees?Â Customers?
Economists have struggled with this question for decades. When Mick Jagger dropped out of the London School of EconomicsÂ in the 1960s, for example, he allegedly complained that â€śeconomists canâ€™t even tell if corporations pay taxes or pass them on.â€ť
Weâ€™ve made some progress since then. Over at the Tax Policy Center, my colleague Jim Nunns summarizes what economists have learned over the past five decades and describes TPCâ€™s new approach to distributing theÂ corporate income tax.
As Jim reports, our best estimate is thatÂ workers bear 20 percent of the corporate income tax,Â shareholders bear 60 percent, and investors as a whole bear 20 percent. [Editor's note: This paragraph and a sentence two paragraphs down have been corrected. In the original, two figures were transposed.]
Workers bearÂ some of theÂ corporate income taxÂ because capital can move around the world. All else equal, the corporate income tax encourages some capital to locate abroad rather than in the United States. That reduces worker productivity (since they have less capitalÂ with which to work)Â and thusÂ reduces workerÂ wages and benefits. As a result, some of the corporateÂ tax burden falls onÂ workers.
Investors in generalÂ bear a portion of the corporate income taxÂ forÂ a similar reason. When you tax corporations, you encourage capital to flow out of corporate equities and into other investments, including corporate debt and non-corporate businesses. That flow reduces the rates of return that investors earn in those other asset classes as well. MuchÂ of theÂ corporate income tax thus gets passed on to investors in general, not just corporate shareholders.
Shareholders alone, finally, bear the portion of the corporate income tax that falls on â€śsuper-normal returnsâ€ť â€” i.e., the returns they get in excess of a normal rate of return.
If any readers know Mick Jagger, please send him a link to the study. Maybe it will finally give him some satisfaction.