Monday, July 26, 2010

Who pays corporation taxes?

We have blogged periodically on what is sometimes known as the incidence brigade - those sly lobbyists who argue that when you tax corporations, the taxes are ultimately paid by someone else - so why not abolish the corporation tax and just tax those other people?

Well, there's another article worth adding to the occasional series (look up "incidence" on our A-Z archive for more). After slogging through a lot of rather dry material, you get the meat at the end:

"Given that even economists cannot agree on who actually bears the burden of the corporate income tax, why not abolish the tax altogether and instead tax human beings directly? The arguments against such a move are twofold.

First, even bringing in only 12 percent or so of total federal taxes, the corporate income tax represents the third-largest source of federal revenue and could not easily be replaced with an alternative source, especially in these times of fiscal pressures.

Second, if the profits of corporations were not taxed, the corporate form of enterprise would become one more major tax shelter through which wealthy people could shield their income from taxation. That probably is the main reason why abolishing the corporate tax has never had any political traction, in the United States or abroad."

Indeed. Also see this CBO paper whose abstract states that, if you explore the ramifications just inside nation states, "capital bears the majority of the corporate tax burden" and if you explore on a global level, "capital bears the full burden of the worldwide average corporate tax."


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