New York Times: A New View of the Corporate Income Tax, by Bruce Bartlett:
Calculating the distribution of the federal income tax is relatively
straightforward, with the raw data coming directly from federal tax
returns. But calculating the distribution of the corporate income tax is
much more difficult. That is because corporations are artificial
entities and all taxes must ultimately be paid by people. The question
For many years, economists assumed that the corporate tax is paid
almost entirely by shareholders. This is unquestionably true when a
corporate income tax is first introduced. But over time, corporations
adjust their affairs so as to minimize the tax, causing the burden to be
shifted. For example, companies may try to raise prices to compensate
for the corporate income tax, thus shifting some of the burden onto
Most economists don’t believe that much, if any, of the corporate tax
is shifted onto consumers this way. ... While economists still believe that the bulk of corporate income
taxes is paid by the owners of capital, in recent years they have come to believe
that workers ultimately pay much of the tax in the form of lower wages.
This results from lower capital investment due to a higher cost of
capital, which reduces productivity and hence wages, and because capital
investment moves to other countries where corporate income taxes are
Economists have known about these effects for a long time; the trick
has been estimating the effect precisely enough to incorporate the
burden of the corporate tax into distribution tables. The Joint
Committee on Taxation now believes that it understands the incidence of
the corporate income tax well enough to do so and issued a study explaining its new methodology on Oct. 16.
The table shows the impact on the distribution of aggregate taxes,
including the payroll and other taxes, by including the corporate tax,
which was previously excluded from the calculation. The new methodology
increases the overall tax burden by $216 billion, the revenue raised by
the corporate income tax — an increase of 10.4 percent overall.
This is an important development, because cutting the corporate
income tax is a bipartisan goal for tax reform. According to the Organization for Economic Cooperation and Development,
the United States has the highest statutory corporate tax rate among
advanced economies. This is widely believed to reduce investment in the
United States, costing jobs and income for Americans.
Politically, it is now easier to show that a cut in the corporate tax
rate will have benefits that are broadly shared, especially by those
with incomes below $30,000. Conversely, it means that the Obama
administration’s plan to raise new revenue by closing corporate tax
loopholes will have a harder time gaining traction, because much of the
burden will fall on those with low incomes.