Workers bear the corporate income tax burden
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Donald Marron Guest blogger
Corporations pay income taxes in聽an administrative sense: they聽write checks (or send electrons) to the IRS. But corporations can鈥檛 actually bear the burden 鈥� they are just legal entities, not living and breathing human beings.
So聽who ultimately bears the burden of聽corporate income taxes?聽Shareholders? Employees?聽Customers?
Economists have struggled with this question for decades. When Mick Jagger dropped out of the London School of Economics聽in the 1960s, for example, he allegedly complained that 鈥渆conomists can鈥檛 even tell if corporations pay taxes or pass them on.鈥�
We鈥檝e made some progress since then. Over at the Tax Policy Center, my colleague Jim Nunns what economists have learned over the past five decades and describes TPC鈥檚 new approach to distributing the聽corporate income tax.
As Jim reports, our best estimate is that聽workers bear 20 percent of the corporate income tax,聽 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 bear聽some of the聽corporate income tax聽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 capital聽with which to work)聽and thus聽reduces worker聽wages and benefits. As a result, some of the corporate聽tax burden falls on聽workers.
Investors in general聽bear a portion of the corporate income tax聽for聽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. Much聽of the聽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 鈥渟uper-normal returns鈥� 鈥� 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.
P.S. For another overview, see聽this by Howard Gleckman.
