Writing for the Cato Institute where he holds the R. Evan Scharf Chair for the Public Understanding of Economics, Ryan Bourne explains that there will be many winners if corporate tax rates are cut. Shareholders, employees and consumers will share the spoils, but the proportion of the benefit each group receives is harder to predict. He writes:
Cutting the corporate income-tax rate seems a rare area of consensus for Republican lawmakers considering tax reform, which is good news for working Americans. Despite opponents’ attempts to suggest otherwise, there is reason to be confident that cutting the corporate tax rate will raise the wages of millions of workers.
How can this be? Progressive groups like “Americans for Tax Fairness” paint corporate tax cuts as a giveaway to wealthy corporations and their shareholders, which will reduce government revenues and, in time, lead to fewer government services for the poor. This messaging seems to resonate with the public. Yesterday, a WSJ/NBC poll found that 55 percent of Americans wanted to increase taxes on corporations and another 25 percent wanted to keep such taxes as they are.
Corporations might “pay” the corporate tax in a legal sense. But its cost is ultimately borne by some combination of shareholders (through lower dividends or less valuable shares), workers (through lower wages), and consumers (through higher prices). Economists have argued for decades about how big a share of the tax burden each group absorbs, with different results depending on assumptions about the openness of the economy, the mobility of capital, the degree of competition in labor markets, and a host of other factors. More recent empirical work suggests that workers and shareholders share the brunt of the tax, with the former often taking a much bigger hit than the latter.
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E.J. Smith