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Tuesday, August 26, 2014

'Who Pays Corporate Taxes?'

Justin Fox

Who Pays Corporate Taxes? Possibly You: Who pays corporate income taxes? Just one thing’s for sure: it’s not corporations. ...
For a long time it was thought the owners paid the tax. That belief can be traced largely to a classic 1962 theoretical analysis by economist Arnold Harberger...
Harberger saw this as a bad thing. By taking money away from capital owners, the corporate income tax was depressing investment and distorting the economy. But for those more concerned with the distributional effects of taxation, Harberger’s model at least showed the burden landing on people who were wealthier than average.
His theoretical model, however, assumed a closed economy... As the world’s economies became more intertwined in recent decades, economists — Harberger among them — began constructing open-economy models that showed workers bearing a larger share of the burden. ...
So in the past few years there’s been a determined attempt to answer the question empirically... Gravelle has a 2011 summary of this work, and her chief conclusions are that the results are all over the place and the most dramatic ones just aren’t credible. But most of these studies do show some significant chunk of the corporate tax burden landing on workers, which is perhaps not yet conclusive but is really interesting.
Most public discussions of corporate taxes in the U.S., however, still ignore the possibility that workers might actually be the ones bearing the burden. ... Perhaps it’s ... just that, if corporations pay lower taxes, individuals have to pick up the slack. And even if you understand tax incidence perfectly well, a direct tax is still more noticeable than an indirect one.

    Posted by on Tuesday, August 26, 2014 at 06:51 AM in Economics, Taxes | Permalink  Comments (57)



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