Bruce Bartlett has an interesting post on the incidence of the corporate income tax over at the NYT Economix blog. Among the candidates he considers are consumers, shareholders, and workers. Here’s his conclusion:
Finally, four Treasury Department economists detail the method the Treasury uses to allocate the corporate tax in distribution tables. They have the advantage of access to actual corporate tax returns and far greater detail on corporate finances than available to private researchers.
The Treasury economists conclude that 82 percent of the corporate tax falls on capital and 18 percent on labor. This is very close to the methodology of the private Tax Policy Center, whose analyses are frequently cited in policy debates. It assumes that 80 percent of the corporate tax is borne by capital and 20 percent by labor.
One thing not mentioned by Mr. Bartlett is that not all C corporations are on an equal footing with respect to their tax bills. Just as the effective tax rate of the top .1% of earners is significantly lower than the nominal rate, e.g. Warren Buffett’s effective tax rate is 11.6% compared with the nominal topmost personal income tax rate of 39.6%, the very largest corporations pay a lot less of their income than smaller ones do. General Electric, for example, has a tax department of 1,000 people and lobbies aggressively. Consequently, it has an effective global tax rate of 9% and, by some accounts, a U. S. effective tax rate of 0. Those aren’t alternatives open to smaller companies, whose tax department consists of the president of the company and whose lobbying efforts consist of occasional calls to its Congressman and, possibly, a small political donation or two. In other words GE’s smaller competitors probably pay taxes while GE does not. The tax code is, therefore, a competitive advantage to GE.
Taxing capital and labor does not encourage new job formation. If anything, it discourages it. Taking the corporate income tax as an article of faith requires:
- Animus against shareholders and workers.
- Indifference to shareholders and workers in the light of all of the grand things the federal government will do with the money.< ?li>
- Animus against small companies.
- Animus against new companies (more likely to produce new jobs).
- Indifference to small or new companies in the light, etc.
- Fondness for the largest companies. The largest companies have been shedding jobs at a furious rate for the last several decades.
- Some combination of the above.
One thing I think was can say with some confidence is that wanting to increase the corporate income tax on the one hand while wanting to create more jobs on the other is cognitive dissonance at the very least.
More efficient would be abolishing the corporate income tax and adding a new, higher multi-millionaire bracket for individuals with incomes of more than $10 million per year. More efficient yet would be abolishing both the corporate and individual income tax and imposing a consumption tax.