TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, December 21, 2017

AT&T's Tax Cut Bonus Isn't Just A Gimmick

AT&T LogoBloomberg View:  AT&T's Tax Cut Bonus Isn't Just a Gimmick, by Justin Fox:

Yes, AT&T chief executive Randall Stephenson's announcement that his company will be paying out $1,000 bonuses to 200,000 workers in the wake of the passage of a big corporate tax cut is probably to some extent a lobbying ploy. AT&T, as many, many people have noted this afternoon, has a giant acquisition (of Time Warner) currently being held up by antitrust regulators. It has every reason, then, to want to curry favor with the man for whom the tax bill represents a first major legislative victory, President Donald Trump.

But Stephenson's move is also a simple representation of what a lot of economists think is the natural result of a cut in corporate taxes. Corporations themselves don't ultimately pay taxes.

As veteran tax wonk Bruce Bartlett put it a few years ago:

They are legal entities that exist only because governments permit them to and are artificial vehicles through which sales, wages and profits flow. Hence, the actual burden of the corporate tax may fall on any of the groups that receive such flows; namely, customers, workers and shareholders.

It was once believed that shareholders bore almost all of that burden. In recent decades, though, economists have increasingly come around to the idea that workers shoulder much or even most of it. That's because, as my Bloomberg View colleague Mihir Desai (of Harvard Business School and Harvard Law School) put it to me in 2014, "Those other folks are pretty mobile. The workers aren’t." That is, investors can choose to buy shares in firms operating in countries with lower corporate taxes. Customers can choose to buy things from firms in other countries. Workers can migrate, but it's a lot harder.

http://taxprof.typepad.com/taxprof_blog/2017/12/atts-tax-cut-bonus-isnt-just-a-gimmick.html

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Comments

I disagree with the Harvard Prof. The shareholders own the company and the profits belong to them. what they choose to do with profits is their business. If they believe it is better to put it in their pocket to invest in some other company that is their right if they believe it is best to put it back in the company that is there right if they believe it is best to reward their employees that is their right but is the owner's decision expressed through management. Do taxes impact employees and customers as well as shareholders? Yes. But that has no bearing on what should be done with new profits as a result of tax reform.

Posted by: Bo | Dec 21, 2017 11:38:27 AM

Tax incidence is heavily dependent upon demand elasticity. Again, not a topic the public generally understands. Gallup did a study and noted that firm exits had exceeded firm entries in 2008, for the first time in 30 some years. And it has remained that way since. However more troubling was the 30 year downward trend in entries while the exits remained fairly constant. Thus we’re becoming less competitive and as such, reduced competition from market entry gives firms already established, and certainly the larger firms, greater market leverage. And thus the ability to pass on taxation to customers and their labor resources. It’s is perhaps why the corporate trend of supporting democrats has been so pronounced. They don’t pay taxes. We do. And taxes and other barriers restrict competition. For them, it’s win/win. For us...it isn’t good.

Posted by: Frederick Bastiat | Dec 21, 2017 11:47:02 AM

Good article. And he is right, corps dont really pay corp taxes, their workers customers, and shareholders do, and most of them are not rich. So this dem talking apoint that the entire corp tax cut goes to the rich is BS.

Posted by: richard40 | Dec 22, 2017 1:00:16 PM