Roll Call: Latest News on Capitol Hill, Congress, Politics and Elections
September 24, 2014

Who’s Paying Corporate Taxes? Definitely Not Corporations

Harvard Business Review: “Who pays corporate income taxes? Just one thing’s for sure: it’s not corporations.”

“This is because, as Mitt Romney famously put it, ‘corporations are people, my friend.’ They also sell to people, buy from people, and are owned by people. Yes, sometimes you have to dig through layers of other corporations … and the like to get to these people. But they’re there somewhere, trying to avoid getting smacked by corporate taxes.”

“In econospeak, where the burden lands is called tax incidence … What [UC Berkeley economist Alan] Auerbach did write in 2005 was that ‘the cardinal rule of incidence analysis’ is ‘that only individuals can bear the burden of taxation and that all tax burdens should be traced back to individuals.’”

“In the case of the corporate income tax … that tax is going to be borne by shareholders, workers, or customers.”

“This makes intuitive sense. If a country allows free capital flows and free trade and has a corporate tax rate much higher than that of its neighbors … corporate management can choose to move operations abroad … By comparison, workers are pretty immobile. It’s hard for them to switch employers, let alone countries. So the tax lands on them.”

  • Ulrich Brossmann

    There is an issue to consider in the question of corporate taxes: of cause they are finally paid by people (mainly as consumers or shareholders) but unlike payroll tax, this burden is partly shared abroad due exports and withholding taxes on dividends.

  • woodt

    We just need a law that states any Corporation doing business in the US has to pay US corporate tax on the business done in the US That would end at least corporation relocating to tax havens and would also create other tax opportunities with foreign held companies incorporating their US Business with the US government. I can’t imagine one corporation not doing business in the US.
    Just a thought. .

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