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Pepperdine University School of Law

Wednesday, February 20, 2013

Bartlett: Who Pays the Corporate Income Tax?

New York Times:  Who Pays the Corporate Income Tax?, by Bruce Bartlett:

The United States has had a corporate income tax since 1909, but in all the years since there is a major question about it that economists haven’t been able to answer satisfactorily: who pays it? The possibility that Congress may act on corporate tax reform this year makes this a highly salient question. ...

Probably most people assume that the corporate income tax is largely paid by consumers of its products or services. That is, they assume that although the tax is nominally levied on the corporation as a whole, in fact the burden of the tax is shifted onto customers in the form of higher prices. All economists reject that idea. ...

That leaves two remaining groups that may bear the burden of the corporate tax: workers and shareholders.

Most economists now agree that the burden of the corporate income tax falls on labor to some extent, but there is disagreement over the degree. This is important because the political prospects for cutting the statutory corporate tax rate, a goal shared by all tax reformers, may depend on the extent to which it can be shown that workers will benefit.

The just-published March 2013 issue of The National Tax Journal, the principal academic journal devoted to tax analysis, contains four articles by top scholars who have sought to clarify the incidence of the corporate income tax. Unfortunately, there is no consensus.

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Every valuation analysis that I know says to take earnings minus taxes as cash flow and then discount to get the value of the enterprise. Well, if buyers of the enterprise are only paying earnings net of taxes are not the capital owners paying the tax?

Posted by: Mike Maloney | Feb 25, 2013 1:56:13 PM