Lefties love corporate taxation and want to increase it at every turn. The idea is, if you tax companies, the fatcats get fewer profits, which they somehow don’t deserve, and with the difference they’ll somehow be able to grow just as well without. But here’s a little of what really happens according to this study cited in a post by Greg Mankiw (courtesy of Jon Henke):
Burdens are measured in a numerical example by substituting factor shares and output shares that are reasonable for the U.S. economy. Given those values, domestic labor bears slightly more than 70 percent of the burden of the corporate income tax. The domestic owners of capital bear slightly more than 30 percent of the burden. Domestic landowners receive a small benefit. At the same time, the foreign owners of capital bear slightly more than 70 percent of the burden, but their burden is exactly offset by the benefits received by foreign workers and landowners.
In effect, it looks like soaking the fatcats actually drives down wages. From the comments section:
If we abolished corporate taxation, or brought it down to an internationally competitive 10%, US based corporate income would be vastly more profitable in the short run. This would spur new competition and reduce profit margins by producing lower prices and also by bidding up wages. Thus the initially huge increase in profitability would arbitrage down to a profitability closer to where we are now, albeit a bit higher. (If it arbitraged to exactly where we are now, what is the incentive for the increased new business formation?)
Thus, even though the Ted Kennedy’s of the demogogic Left would scream about it being a giveaway to the rich to slash or abolish corporate income taxes, and they’d be right in the short run (although the middle class mutual fund owners would get a huge amount of that too, and troubled pension funds would get a much needed boost), in the long run it would mean a large raise for the average American worker and a large raise for the average American consumer as well.
The average American pays the bulk of the corporate income tax in the long run in terms of lost wages and higher prices.
Discussion