Who ultimately pays the corporate income tax? (Again.)

   0   0 Blog, Corporate Tax, Inequality & Tax Havens
clausing07

Kimberly Clausing, US tax academic

We have written many times about the ‘incidence’ (or, if you like) burden of the corporate income tax. When you tax corporations, who ultimately pays it: the workers, through lower wages? The consumers, through higher prices? Or is it the shareholders and owners of capital?

It’s a crucial question. Defenders of wealth and entrenched privilege love to argue that it’s ‘workers’ who ultimately pay the tax: if they can persuade people that that is true then they can argue that it’s a pointless, regressive tax and should just be abolished.  It’s often accompanied by sniggering about ‘lefties’ hitting the wrong targets and confidently delivered statements like “most economists agree that the burden falls on workers.”

We have long argued – and pointed to copious quantities of evidence – that it is largely the shareholders and owners of capital who ultimately pay the corporate income tax.  (The most fun example illustrating this may be this one, but for a more comprehensive set of arguments see our document Ten Reasons to Defend the Corporate Income Tax.)

In any case, the main point of this blog is to point to a new paper by Kimberly Clausing, one of the best-known U.S. experts on taxing multinational corporations, in which she states:

“Most relevant evidence suggests that the corporate tax falls largely on capital or shareholders, but even if one assigns a fraction of the burden of the corporate tax to workers, it is still a more progressive tax instrument than other major sources of revenue, including the individual income tax, the payroll tax, and the VAT.”

She writes in more detail on the incidence question here (“a review of the prior empirical work in this area fails to reveal persuasive empirical evidence of adverse effects on labor,” 2012) and here “there is no robust evidence that corporate tax burdens have large depressing effects on wages.” She provides a range of reasons why previous studies in this area may have got it wrong.

And now let’s ask: if the corporate income tax burden falls on shareholders, then who are those shareholders? Is it you and me (or ‘workers), via our pension funds? Well, there’s a bit of that. But here’s an interesting graphic, from our corporate tax document:

Corp stock ownership US

Source: Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007, Arthur B. Kennickell, U.S. Federal Reserve; graphical representation created by the Institute for Taxation and Economic Policy (ITEP), Guide to Fair State and Local Taxes, p45

This is of course a rather US-focused blog, but the same essential conclusions will apply in many other countries. As Clausing notes, at the end of the day it’s rich people who pay the corporate income tax. It’s a tax to fight for.

For a fuller set of arguments about why the ‘incidence’ of corporate income taxes tends to fall on shareholders rather than workers (particularly for larger countries) then see Section 3.2 on page 7 here. See our earlier articles on this here.

On a separate but somewhat related matter, this fine article by John Kay in the Financial Times backs up a lot of what we’ve written about company shareholders, including the fact that company directors have no fidicuary duty to their shareholders forcing them to engage in tax avoidance.

 


Related Posts

UN must defend target to curtail multinational companies’ tax abuse

Photo by Luca Santori, Creative Commons LicenseThe Tax Justice Network, The Independent Commission for the Reform of International Corporate Taxation, and the Global Alliance for Tax Justice call on the UN Secretary General to make sure the commitment to action on tax abuses by multinational companies remains part of the new UN Sustainable Development Goals.

READ MORE →

The BVI: Responsible for worldwide tax losses of $37.5 billion a year

BVI report blogAn extraordinary report by consultants Capital Economics, for BVI Finance, claims that the British Virgin Islands are responsible for $1.5 trillion of assets invested around the world, and that these result in 2.2 million jobs and $15 billion in tax revenue. A better approximation would be that the BVI imposes global tax losses of $37.5 […]

READ MORE →

Event: Making Tax Work for Women in the UK and Globally

Invitation_ Tax and Gender eventOn Wednesday 28th June 2017 at 16.30 our very own Liz Nelson will be speaking at an event in London that aims to bring together gender and tax justice advocates to highlight the need for coherent and gender-responsive fiscal policies to safeguard the rights of women and girls both in the UK and globally. The […]

READ MORE →

Historic event on women, human rights and tax justice in Bogota

BogotaLast week civil society organisations, researchers, labour union activists and policy makers met in Bogota, Colombia to explore how tax justice issues can ensure governments, multinational corporations and others meet their obligations to women in order to secure their full range of human rights. The Women’s Rights and Tax Justice conference opened with a conversation […]

READ MORE →

The Offshore Wrapper: the Panama Papers, one year on

Photos from the Protest outside PwC 1 Embankment Place, part of the Global week of action for tax justiceWelcome to the Offshore Wrapper – your weekly update from TJN.  Happy Paniversary! This week it’s been one year since the Panama Papers were leaked, and a number of organisations around the world have been marking the occasion though the global week of action for tax justice. In London, activists from the TJN and the […]

READ MORE →

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to Top