Tuesday, January 22, 2013

Tax incidence: is the corporate income tax progressive?

We missed this, last September. From the nonpartisan Urban-Brookings in the U.S., a study of the 'incidence' of corporate taxes.



Their conclusion? They have somewhat reduced their earlier estimate of the progressivity of the tax, estimating now that 20 percent of the corporate income tax burden as falling on labor, 20 percent on the normal return to all capital, and 60 percent on the supernormal returns to corporate equity (shareholders.) Overall:
"The corporate income tax remains a very progressive component of the federal tax system."
Which shouldn't really surprise anyone. Tax corporations, and you are effectively taxing their mostly wealthy owners (OK, OK, some are pension funds, but ownership as we all know is concentrated at the very top of the wealth and income scales). This table above is of course overly precise, and is modeled only on the United States. Other jurisdictions would face different assumptions and rates and so on. And results are likely to vary, sector by sector, company by company. No wonder there's so much disagreement on this topic.

But this kind of study is important, because it helps rebut the lobbyists' routine claim that "most economists agree that the burden of corporate taxes falls on workers." Which is total nonsense.

More on tax incidence here, here, here, here and here.


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