Is the Corporate Income Tax Regressive?
September 22, 2011
There is good reason to believe that it is workers, not the owners of corporations, who ultimately pay much, if not all, of the corporate income tax. And not just workers employed by corporations -- all workers throughout the country, says Laurence Kotlikoff, a senior fellow at the National Center for Policy Analysis.
The U.S. corporate tax income is relatively high compared to many other countries.
- Our statutory tax rate is 35 percent, but our effective rate is lower -- 28 percent -- due to subsidies and tax credits and other tax breaks that corporations receive on their investments.
- Japan has a much higher effective rate -- 39 percent.
- But some countries have much lower effective rates; for example, Portugal's effective corporate tax rate is about 19 percent.
High corporate taxes encourage U.S. corporations to invest overseas and discourage foreigners from investing in the United States. This reduces demand for U.S. workers, compared to what it would be if U.S. tax rates were lower. As a result, American workers' wages are lower than they otherwise would be. Conversely, increased overseas investment raises the wages of workers abroad.
If cutting the U.S. corporate income tax would help workers and the economy, why not do it yesterday? For two reasons:
- First, the United States needs tax revenue.
- Second cutting the corporate tax on its own can impact revenues from the personal income tax -- if corporate tax rates are lower than personal income tax rates, people have an incentive to shelter their self-employment income (lower their personal tax bill) by incorporating.
Source: Laurence Kotlikoff, "Is the Corporate Income Tax Regressive?" National Center for Policy Analysis, September 21, 2011.
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