Corporations don't pay taxes. People do.

January 7, 2008 5:07 PM

Who bears the burden of a corporate income tax? Certainly not corporations. Instead, the incidence might fall largely on labor, according to a new survey of three recent empirical studies published by the U.S. Treasury Department's Office of Tax Analysis.

From the Congressional Budget Office report in the first link:

A corporation may write its check to the Internal Revenue Service for payment of the corporate income tax, but that money must come from somewhere: from reduced returns to investors in the company, lower wages to its workers, or higher prices that consumers pay for the products the company produces.

From the Office of Tax Analysis survey in the second link:

Distributional tables often assume that the incidence of the corporate income tax falls on the owners of capital but there is considerable uncertainty amongst economists about who bears the burden of the corporate income tax. This paper reviews the evidence on the incidence of the corporate income tax, especially in light of recent empirical studies that focus on the relationship between the corporate income tax and wages. While further research is necessary to draw definitive conclusions, these studies suggest that labor may bear a substantial burden from the corporate income tax.

If this is all gibberish, Wikipedia is a good start, and while this overview of tax incidence gets political toward the end, it has some good background material.

posted by "Tex" Connor and the Wily Roundup Boys (74 comments total)

Boy, this 'trickle-down economics' is suspiciously warm and salty.
posted by mullingitover at 5:16 PM on January 7, 2008 [11 favorites]

these studies suggest that labor may bear a substantial burden from the corporate income tax.

Join a good, strong union, boys!


posted by John of Michigan at 5:23 PM on January 7, 2008 [4 favorites]

Erm, I was paraphrasing Mother Jones, there. My <> tag got cut off.

Sorry for the confusion.
posted by John of Michigan at 5:24 PM on January 7, 2008

A corporation may write its check to the Internal Revenue Service for payment of the corporate income tax, but that money must come from somewhere: from reduced returns to investors in the company, lower wages to its workers, or higher prices that consumers pay for the products the company produces.

What kind of warmed over bullshit is this? Tax money comes from somewhere, and obviously corporations are just collections of people, so the tax money reduces the money that people in that collection end up getting. If that surprises you, well, I don't know what to say, but you might want to try thinking things through a little more rationally.

Anyway, The question is who actually pays a higher burden, the shareholders, the customers, or the workers? How that burden gets distributed depends on various economic factors they teach you about in econ 101.

Here is the thing about Taxes and money. It's not money that's taxed, it's the transfer of money between parties. If $100 gets passed between 10 people, in theory it should get taxed each time, and each transaction is a 'burden'.

It's a drag on the economy, but less of a drag on the economy then not having roads you can drive on, for example.
posted by delmoi at 5:35 PM on January 7, 2008 [3 favorites]

I can understand how increases in corporate tax rates could have trickle-down effects that fall on individual consumers, but couldn't these effects be offset by reductions in individual tax rates or sales tax rates?

All I know is that, if somebody proposed raising corporate tax rates in conjunction with lowering individual tax rates, I'm not sure I'd object. These analyses seem a little too "all things being equal" when, in the real world, raising taxes on somebody else is usually done to lighten the tax burden on somebody else.
posted by jonp72 at 5:42 PM on January 7, 2008

Bush's Treasury Department is arguing against corporate income taxes? How surprising.
posted by grouse at 5:44 PM on January 7, 2008 [5 favorites]

A corporation may write its check to the Internal Revenue Service for payment of the corporate income tax, but that money must come from somewhere: from reduced returns to investors in the company, lower wages to its workers, or higher prices that consumers pay for the products the company produces.

...or- dare I say it- their profits?
posted by foxy_hedgehog at 5:44 PM on January 7, 2008 [1 favorite]

foxy_hedgehog, "reduced returns to investors in the company" is just a fancy way of saying profits.

Some of the incidence may be falling on labor, but if you eliminate corporate income tax and increase personal income tax to raise the same revenue, that means all of the incidence will be falling on labor.
posted by grouse at 5:48 PM on January 7, 2008 [4 favorites]

Thanks, grouse- totally missed that. I think your point is critical here.
posted by foxy_hedgehog at 5:49 PM on January 7, 2008

It's a little surprising that Bush's Treasury Dept is admitting that corporations gleefully abuse their workers.
posted by stavrogin at 5:50 PM on January 7, 2008 [1 favorite]

From Wikipedia linked above:

If the government requires employers to provide employees with health care, the burden of this will fall almost entirely on the employee because the employer will pass on the burden in the form of lower wages.

Thanks for helping me find another argument for universal single-payer healthcare, Tex!
posted by StrikeTheViol at 5:56 PM on January 7, 2008 [1 favorite]

Obviously, someone pays the taxes. At first I thought this was a rant on how corporations don't pay taxes, but I seem to be mistaken.

It's not just money that is taxed, either. Real and personal property is taxed. Buy a piece of property once, get taxed on it for the rest of your ownership of said property (ownership of capital). Value added taxes tax your additions to a product's value (utility?).

From my experience as a tax CPA, the owners of the capital take the hit in lower salaries and distributions from profits when taxes are high. My experience, however, is limited to closely held C-Corps, S-Corps and Partnerships. Just as with any cost, we do what we can to limit the impact taxes have on the bottom line, but directly passing on the cost of taxes to someone else is not as easy as it may sound. Certainly, it is possible to come up with some reasonable sounding allocation of taxes to various products, but consumers would balk at higher prices.

Passing on the cost of taxes to employees? "Joe, the company's income taxes are real high this year, so we're going to reduce your pay $1.00 an hour." (Hope you don't mind, Joe.)
posted by Mojojojo at 5:58 PM on January 7, 2008 [1 favorite]

Here is the thing about Taxes and money. It's not money that's taxed, it's the transfer of money between parties. If $100 gets passed between 10 people, in theory it should get taxed each time, and each transaction is a 'burden'.

Except that things (personal property, etc.) get taxed, too. And no sane system purely taxes transfers, it taxes exchange, or value added. Taxing transfer would be often be supremely stupid, for reasons I'm sure that you can figure out.
posted by Kwantsar at 6:04 PM on January 7, 2008

Erm, I was paraphrasing Mother Jones, there. My <> tag got cut off.

Damned Pinkertons will even mess with our HTML in order to do the bosses dirty work for 'em.
posted by PeterMcDermott at 6:06 PM on January 7, 2008 [1 favorite]

Dear god this post sucks some serious ass. Best of the web? No way, when I can grind an axe instead!
posted by SeizeTheDay at 6:06 PM on January 7, 2008

And I'm not really sure that over the long run the burden of the corporate income tax falls much on capital. A lot of levers move in a lot of different directions (what might happen to real rates? I think I had that on an intermediate macro test once), but the predominant result is a haircut on capital assets equal to the present value of future taxes.
posted by Kwantsar at 6:09 PM on January 7, 2008

jonp72: I can understand how increases in corporate tax rates could have trickle-down effects that fall on individual consumers, but couldn't these effects be offset by reductions in individual tax rates or sales tax rates?

The corporate tax burden doesn't merely "trickle-down" to individuals, though. The entire burden falls on individuals. One can argue that a two-level corporate income tax just encourages capital flight, creates excess burden, and is imprecise (as exhibited by the fact that people are still arguing about where the incidence falls).

Since the corporate income tax incidence is borne by individuals, perhaps it would be a better idea just to directly tax the individuals we actually wanted to burden? I'm not advancing a particular tax policy here. If you want to tax the fatcats, pass a fatcat tax, but don't just shoot wildly into the dark hoping to hit a fatcat.

grouse: Some of the incidence may be falling on labor, but if you eliminate corporate income tax and increase personal income tax to raise the same revenue, that means all of the incidence will be falling on labor.

This is surely wrong. Corporate profits accrue to individuals and can be (and are, of course) taxed at the individual level. In fact, the assumption that the corporate tax incidence falls on investors has justified reduced individual income tax rates on dividends and gain on the sale of corporate stock, which becomes pretty hard to justify if labor is actually bearing 70% of the incidence.

Also, the mobility of capital makes a tax on capital (like a corporate income tax) particularly likely to generate an excess burden, much of which gets shifted to, you guessed it, labor.
posted by "Tex" Connor and the Wily Roundup Boys at 6:17 PM on January 7, 2008 [1 favorite]

the assumption that the corporate tax incidence falls on investors has justified reduced individual income tax rates on dividends and gain on the sale of corporate stock, which becomes pretty hard to justify if labor is actually bearing 70% of the incidence.

You're right, that is pretty hard to justify. Let's raise the tax rate on dividends and capital gains to make it right.
posted by grouse at 6:23 PM on January 7, 2008 [1 favorite]

I decided this year I would'nt pay taxes to our government. I'm no longer paying for bombs, for killing, for the impending attack on Iran, for all of the bullshit that mefi and everywhere else records so well.

I'm no longer paying for my Social Security. The Social Security administration recently mailed me something saying that by the time I retire, there'll be no money left for me.

I'll go to jail for all of this, for not paying taxes, I think it'd be great for me. (I'd probably cut back on my cigarette intake, and maybe meet some HAWT guys..)

On the other hand, because the IRS is slower than molasses in sub-zero weather, it'll be unfortunate when they discover that I didn't pay my taxes for 2008 in 2015, after the war has long ended and jail me then. THAT would be real effective.

Either way, I'm as prepared for gulag (or whatever not paying the IRS gets you) as an individual could be. I've talked about this with many of my friends and family, and we all agree that paying taxes to this government is down-right immoral.

Because I have no wife or kids, and because its pretty certain I won't ever, I can do this to myself without putting those around me into a bad situation.

The only reasonable actions are: breaking some tax laws or leaving the country. I'd rather stay here, where I was born, and endure the consequences of my actions, and when the IRS shows up at my door in 2012 or whenever they figure out I've been not paying, I'll be glad to follow them to the pound.
posted by localhuman at 6:23 PM on January 7, 2008 [1 favorite]

If the government taxes me as a citizen, it will only hurt the corporations, because the salary I keep ends up going to pay for goods and services provided by corporations. Thank God, the government doles out corporate welfare to restore the rightful balance. (I should start my own thinque tanque.)
posted by dances_with_sneetches at 6:25 PM on January 7, 2008 [4 favorites]

Be careful with the conclusions: this study is actually international, not just about the US tax system. It assumes mobility of capital, that taxes cause companies to either move or lower costs, namely that of wages. "The results in this paper suggest that corporate tax rates affect wage levels across countries. Higher corporate taxes lead to lower wages. A 1 percent increase in corporate tax rates is associated with nearly a 1 percent drop in wage rates."

This indicates that it might be better to either tax income directly (and progressively) or to institute a VAT. One would expect corporate taxes to have an effect on the way corporations spend money...
posted by blahblahblah at 6:27 PM on January 7, 2008

Corporations may be collections of people, but they function like profit making machines. They are amoral and unfeeling. Any appearance of morality turns out to be something that's expected to improve the bottom line. Machines need to be regulated, but taxing them distorts their effectiveness. If all taxes were fair and progressive personal income taxes, corporations would not go through the expensive, inefficient gyrations they now use to avoid taxes, and wouldn't waste the money they do in 'expenses' that help them reduce taxes. This might lead to more prosperity, fewer overseas headquarters, etc. This would be very difficult to achieve politically, but that doesn't mean it isn't true. We'd all probably wind up with about the same burden we have now (given the perhaps unlikely event of a well designed income tax), but we'd actually know how much we really pay.
posted by Jimmet at 6:29 PM on January 7, 2008 [1 favorite]

You're right, that is pretty hard to justify. Let's raise the tax rate on dividends and capital gains to make it right.

I think you're being flippant, but a single-level tax on corporate profits imposed at the individual level could probably raise the same revenue for a lot cheaper, and much more transparently.
posted by "Tex" Connor and the Wily Roundup Boys at 6:31 PM on January 7, 2008 [1 favorite]

Would anyone here care to elaborate here on why they think Huckabee's national sales tax // removal of the irs wouldn't be a bad idea? I don't like Huckabee, but I think it makes sense to tax spending rather than work.

Of course he'd never make it work with congress, and perhaps his idea is quite moot.

But I'd love to see the resident mefi tax/finance experts with much more skills than I discuss this proposal of his.
posted by localhuman at 6:34 PM on January 7, 2008

Apparently, "Tex" Connor got the tax bill for "Wily Roundup Boys, Inc.", the corporation he created with himself as sole owner in order to avoid personal liability for the lead content in his Wily Roundup Toys manufactured in China and immediately consulted his Tax Lawyer Bruce to find more ways to use his Corporate Status to avoid more responsibility and pass the tax burden onto others.

Of course, the irony is that once you "pass on" the tax burden incurred by a company, whether corporation, partnership or sole proprietorship, to customers through higher prices or employees through lower wages and reduced benefits, you end up increasing the profits/taxable income of the company for NEXT year, thus making it a win-win for the company and the taxing governmental entity and a big lose for everybody else.
posted by wendell at 6:37 PM on January 7, 2008 [1 favorite]

I don't think it's particularly controversial to say that the most efficient tax is a tax on consumption. In the US, a consumption tax would also have some great incentive effects; it might increase the savings rate in this country a bit. The only problem is figuring out how to do it progressively. You could do what they do in France, with an extra tax on people making above a certain income. Or you could offer a refund to people below a certain income...

But I think there's a point that the corporate income tax makes a bit of a mess of things. It encourages all sorts of game playing and evasion, and the incentives aren't in the right direction.
posted by mr_roboto at 6:37 PM on January 7, 2008

We shoudl all just build a city under the sea where there are no taxes.
posted by Artw at 6:37 PM on January 7, 2008 [2 favorites]

Corporation's lackeys get all uppity when you even mention taking away their precious personhood. ("We are a person, We must limit our liability. This stifles growth. Anticompetitive. Historical preedence").

But when you want to treat them like said person and tax them for one of the few times they are moderately liable for the vast costs they incur on people, the environment and the world, they and their goverment apologists and puppets scream bloody murder ("We are a not a person, We must limit our liability. This stifles growth. Anticompetitive. Unfair. Think of the workers").

FUCK THIS SHIT.

When the invisible hand chips a nail crushing the weak there's always someone around to give the poor appendage a manicure in the name of efficiency and justice and freedom.


Note that turn of phrase isn't mine. I don't know where I saw it.....
posted by lalochezia at 6:39 PM on January 7, 2008 [2 favorites]

Can someone make/recommend a comic that's been written which can elicidate, so I can understand it better?

Even knowing how broad-reaching the implications of these issues are, I can't read two sentences without getting all drowsy, like I'm being given a lecture by Garrison Keillor in Greek, and it's really warm in the room.
[Not sarcastic]
posted by not_on_display at 6:41 PM on January 7, 2008

The corporate tax burden doesn't merely "trickle-down" to individuals, though. The entire burden falls on individuals. One can argue that a two-level corporate income tax just encourages capital flight, creates excess burden

This seems a little reductive, because I don't think we're addressing how increasing or decreasing the corporate tax affects the distribution of other taxes, if we have to keep things revenue neutral. If taxes are to be paid, then somebody must pay them. A decrease in the taxes on corporations means that an increase must be placed on something or somebody else. The trickle-down effects of lower corporate taxes won't mean much to me or any other individual taxpayer if any positive trickle-down effects are swallowed up by higher sales taxes, payroll taxes, or personal income taxes. If tax revenues are not made revenue neutral, then either the government goes into deficit, or the government might cut spending on public goods that I enjoy (e.g., national parks, infrastructure that doesn't collapse). Either way, the "benefit" I get from lower corporate tax rates might still be overwhelmed by "costs" I have incurred in higher taxes, higher deficits, or fewer government services.
posted by jonp72 at 6:47 PM on January 7, 2008 [1 favorite]

But when you want to treat them like said person and tax them for one of the few times they are moderately liable for the vast costs they incur on people, the environment and the world, they and their goverment apologists and puppets scream bloody murder.

I don't think that's quite the point. The incidence of a tax cannot falls on a corporation in any meaningful sense, and there's no way to change this. The incidence of a tax always falls on individuals, and it's important to actually make sure we burden the individuals that we intend to, because good intentions do not necessarily make good policy.

The articles I linked are merely trying to sort out who the corporate tax ultimately hurts, and how much, and this is not an easy question to answer, but we need to answer it or our tax policy will never serve our social goals (whatever they are!) as much as it might.
posted by "Tex" Connor and the Wily Roundup Boys at 6:52 PM on January 7, 2008 [1 favorite]

Of course, the irony is that once you "pass on" the tax burden incurred by a company, whether corporation, partnership or sole proprietorship, to customers through higher prices or employees through lower wages and reduced benefits, you end up increasing the profits/taxable income of the company for NEXT year,

which are then taxed, aren't they?

but the REAL irony is that the taxes that are passed on are in the price of everything we buy - but WE don't know exactly how much we're paying, so we really have no idea what the burden of government is

----

The trickle-down effects of lower corporate taxes won't mean much to me or any other individual taxpayer if any positive trickle-down effects are swallowed up by higher sales taxes, payroll taxes, or personal income taxes.

how do you know when you don't know what percentage of the price of the goods you pay is being sent to the government?

the great advantage of the so-called fair tax - which needs adjusting from the way it's currently being proposed - is TRANSPARENCY - you'll KNOW how much of your money is eventually going to the government

you don't know now, do you?

needless to say, that's the way the government wants it
posted by pyramid termite at 6:55 PM on January 7, 2008

localhuman: "I decided this year I would'nt pay taxes to our government. I'm no longer paying for bombs, for killing, for the impending attack on Iran, for all of the bullshit that mefi and everywhere else records so well....I'll go to jail for all of this, for not paying taxes, I think it'd be great for me."

Err, you're joking, right? Right? Yes, you're joking.

And, to be fair, only 17% of your taxes go to defense.

lalochezia:Corporation's lackeys get all uppity when you even mention taking away their precious personhood...when you do tax them for one of the few times they are moderately liable for the vast costs they incur on people, the environment and the world

This really has nothing to do with corporate personhood or fees like carbon credits. The question here is whether you tax corporations' incomes. There is good reason to argue (as do many of the posts) that taxing corporations is bad, and it would be better to direct tax the income of the people earning from corporations, be they stockholders, CEOs, or employees. Corporations and other firms should also have to pay something closer to the true costs for things like carbon output, but that also is unrelated to taxes.
posted by blahblahblah at 6:55 PM on January 7, 2008 [1 favorite]

To be more concise than I was before, I'd like to know from the relevant professionals in the field:
why tax work instead of spending? (whether it be on a corporate level or personal one)
posted by localhuman at 6:56 PM on January 7, 2008

localhuman writes "why tax work instead of spending?"

One reason: it's easier to set up a system of progressive taxation by taxing work (income). You just do what we do in the U.S.: the more you make, the higher your rate, and voilà! a progressive tax scheme.

Not so simple when you're taxing consumption (spending), especially since the very rich tend to save or invest larger fractions of their income than the poor and middle class. If your tax scheme is regressive, then you risk developing an economically stratified society, and locking in the stratification.
posted by mr_roboto at 7:01 PM on January 7, 2008

Shouldn't it be possible to tax only goods valued at over a certain amount? Cars, luxury goods, large houses, clothes worth over a dollar amount, etc. -- the things that wealthy people are likely to buy. Tax profits on investments for extra effect. I don't see why the lowest income strata should be having to bother with taxes at all... the strain of trying to move to a higher income is enough as is.
posted by mazatec at 7:10 PM on January 7, 2008

Would anyone here care to elaborate here on why they think Huckabee's national sales tax // removal of the irs wouldn't be a bad idea? I don't like Huckabee, but I think it makes sense to tax spending rather than work.

Well the main problem is that it hits the poor more than the rich. As mr_roboto pointed out above, someone who makes $100 million a year spends what percentage of that? Maybe 10 percent if they're frugal? 52 percent -- which would be 1 million a week? Obviously that person is living large -- but they're still saving or investing the other 48%. So they're really only paying taxes on the 50% or so that they spend.

Poor folks (and now middle-class folks), on the other hand spend almost everything they earn. I'm a student (currently below the poverty line) and I live paycheck to paycheck. So do all the middle-class folks (including my bosses) that I work with. So, if I spend virtually 100% of my paycheck every two weeks (which I almost always do), I'd be paying taxes on 100% of my income. Hence, under a NRST, the rich get vastly richer, while the poor remain poor, and, in many ways, get even poorer. I know if I had to add on 30% of the price of my groceries, I would be having ramen for dinner quite a bit.

Also, the "refund for the poor" bit doesn't work if you want to get rid of the IRS, since you would need an absoutely vast organization to administer the claims and benefits of the refund. So, you'd really have an IRS in all but name. Also, poor folks would need to keep a year's worth of receipts in a trash bag or something to send in every April 15.

Anyway, the FPP is crap. Yes, high taxes against businesses and the rich can raise prices and stifle growth. Low taxes and shitty infrastructure/government services can do the same -- and do it even faster.
posted by Avenger at 7:26 PM on January 7, 2008 [1 favorite]

Bush Treasury Department publishes study arguing that corporate income tax hurts liberal constituencies.

mmmmmmhmmm . . . . .
posted by Ironmouth at 7:28 PM on January 7, 2008

I think you're being flippant, but a single-level tax on corporate profits imposed at the individual level could probably raise the same revenue for a lot cheaper, and much more transparently.

I'm not, actually. I'm just distrustful of efforts to reduce taxes on corporations (or investors) with the justification that it's really better for the workers, when I find that that is usually not the primary concern of those making such arguments. Where the money will come from is usually conveniently omitted.
posted by grouse at 7:31 PM on January 7, 2008

Avenger: Anyway, the FPP is crap. Yes, high taxes against businesses and the rich can raise prices and stifle growth. Low taxes and shitty infrastructure/government services can do the same -- and do it even faster.

That's an odd response. The FPP doesn't advocate lowering tax revenues, or shifting tax burdens to the lower or middle class, for that matter.

grouse: I'm just distrustful of efforts to reduce taxes on corporations (or investors) with the justification that it's really better for the workers, when I find that that is usually not the primary concern of those making such arguments.

I understand your distrust, but I think it's pretty well accepted that under open economy models (which approximate mobile capital much better) and what little empirical evidence there is, that a corporate income tax burdens labor significantly, and quite likely substantially. Intuitively, it really does seem like a corporate income tax must fall most heavily on corporate investors, but this intuition doesn't make it so.

In any event, the corporate income tax still accounts for a substantial amount of the United States' tax revenue, and it could not be repealed without being replaced. The replacement would practically have to be more transparent, and consequently more progressive. It's easy to sneak by hidden regressive tax incidences in a complicated double-tier system, but it gets harder the more the system is simplified.

Being opposed to the corporate income tax isn't really a left or right wing issue. In fact, because there is almost certainly some hidden incidence falling on the lower and middle classes, and it is eminently manipulable, an evil fatcat would actually prefer the current regime to a single level income tax.
posted by "Tex" Connor and the Wily Roundup Boys at 7:50 PM on January 7, 2008

from reduced returns to investors in the company, lower wages to its workers, or higher prices that consumers pay

As a unrepentant Georgist I can say they forgot one . . . land rent expenses.

I don't think it's particularly controversial to say that the most efficient tax is a tax on consumption

And . . . you'd be wrong. The LVT is demonstrably the most efficient (least worse) tax available to man at the moment [1].
posted by panamax at 7:53 PM on January 7, 2008 [1 favorite]

localhuman writes "why tax work instead of spending?"

Because work is the curse of the drinking class (Wilde, et al). We tax the things we want people to cease doing: tobacco, alcohol, gambling, and work. Why do you think there's no tax on dividends? We reward people who are smart enough to make money without working for it.
posted by mullingitover at 7:54 PM on January 7, 2008 [2 favorites]

Avenger: Yeah I could see how it could be made to be very un-progressive. But at the same time I can see a system which wasn't.

I don't make very much money each year, but more importantly I don't buy a whole lot. I'd rather be taxed on what I buy (rent, food, smokes, beer) than what I make.

And if I did make a lot of money, I'd probably buy the same things (rent//mortgage, food, smokes, beer), but at the same time be rewarded for working more and buying less.

Our current economy encourages buying and discourages earning//saving. Check out all the relevant information about savings rates in the US. Our current policies suck, and they have not only been leading to but are probably responsible for the impending recession that will occur (damn, I'm glad I didn't buy a house in the last 2 yrs..)

I think we are smart enough as a nation to implement it without making it non-progressive. But that's just my faith in all the smart people in 'merica.

Won't be surprised when that idea of mine is again proved wrong again, though...
posted by localhuman at 7:56 PM on January 7, 2008

Tobin, Baumol, Modigliani-- I have long been an LVT fan but I did not know it was supported by such luminaries. Nice link, panamax.
posted by Kwantsar at 8:01 PM on January 7, 2008

After the first several million, when you're past the point where the money is used for your personal consumption, the rest is just power and control. The difference between a $200 million net worth person and a $2 billion net worth person isn't that great in terms of their personal consumption. Might be pretty true down to even a $50 million person. The difference is the huge amount of the economy that the richer person controls and directs. Therefor, if you don't income-tax corporations, they can be used as shells from which the single shareholder directs the wealth and gets "richer" tax free. As long as the corp isn't sold, there is no personal income.
posted by a robot made out of meat at 8:02 PM on January 7, 2008 [1 favorite]

Intuitively, it really does seem like a corporate income tax must fall most heavily on corporate investors, but this intuition doesn't make it so.

Indeed, but you (or the Bush administration) saying that doesn't make it not so either.

Being opposed to the corporate income tax isn't really a left or right wing issue.

Says you. The devil is really in the details. If you replace it with more borrowing, or higher taxes on earned income, then it's a lot more consistent with Bush conservatism. That's why we should reject any calls to eliminate the corporate tax system without a plan on where the money will come from, or any false urgency about this situation.
posted by grouse at 8:08 PM on January 7, 2008

The only thing that hasn't been mentioned is that corporations, are you and I. Our retirements plans, union pensions etc are the corporations that often times are painted as being owned by rich fat cats that are not pulling their fair share. The fat cats do get a free ride, but they ride along with anyone else that's looking after their retirement, whether it's a pension or in mutual funds.

Ben Stein, while contentious around here and wrong about many things is very instructive on econmics, says,"I remember my beloved genius economics professor, C. Lowell Harriss, at Columbia, saying in 1963, “When you say ‘corporations’ you should be thinking ‘the widows and orphans who actually own the stock and the company.’ ”
posted by Keith Talent at 8:10 PM on January 7, 2008

Well, frankly, while I'm open to the discussion of re-ordering the apparatus through which taxes are administered, I'm having a fundamental trust falter—after report after report has been doctored by the Bush administration to support its policy goals (and only a fucking moron or liar would posit no political agenda to a report that just happens to show that taxes on corporations really only burden labor—there's a pretty explicit argument against corporate taxes there, and when coupled with an anti-tax program, it's pretty understandable that people would be dubious), I don't trust them, and frankly, after reading through the commenting history of "Tex" (and President Steve etc. etc., who I strongly suspect of being his prior identity), including an agenda to "stir up" liberals, I don't trust his analysis to be either agenda-free or open about his agenda. That, combined with the fact that I'm unable, without a lot of independent research, to verify or critique the claims made by this study, means that I'm left with the distinct pong of ideological astroturfing and can't take this FPP seriously.

I mean, Christ, I keep hoping that Kwantsar will take a real run at these .pdfs, because while I don't always agree with him, I trust him and feel like I can converse with him. As it stands? Fuck, probably more crypto-con trolling from Tex.
posted by klangklangston at 8:15 PM on January 7, 2008 [1 favorite]

who I strongly suspect of being his prior identity

chuain'tdeonlyone ;)

I like President Tex tho. Somebody's gotta man the cannons on the other side. . .
posted by panamax at 8:24 PM on January 7, 2008

When the invisible hand chips a nail crushing the weak there's always someone around to give the poor appendage a manicure in the name of efficiency and justice and freedom.


Note that turn of phrase isn't mine. I don't know where I saw it.....


Adam Smith used that phrase exactly once in Wealth of Nations:

"By preferring the support of domestic to that of foreign industry, he intends only his own security, and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."

He explicitly assumed that capital was rooted to the locality where the owner (and laborers) lived. Therefore, decisions that were beneficial to the corporation were beneficial to the community, and vice versa.

Multinational corporations and conglomerates long ago destroyed this notion. And yet free marketers still cling to "let the market decide". The game has been rigged and prostituted. Corporations must be held accountable for the true costs of their enterprises. If they can't pay their way and still make a profit, then fuck 'em - let 'em die.
posted by Benny Andajetz at 8:26 PM on January 7, 2008 [2 favorites]

grouse: That's why we should reject any calls to eliminate the corporate tax system without a plan on where the money will come from, or any false urgency about this situation.

The first point goes without saying, and is actually enforced by Congress's PAYGO rules. I guess I'm having trouble taking the prospect of the corporate income tax being repealed with no replacement as serious as you apparently are, because it seems vanishingly unlikely to me.

It was no my intention to create false urgency, and I don't think there is any urgency. The corporate income tax is being dismantled piecemeal anyway (e.g. the LLC). Moreover, I'd like to see any empirical studies showing that the incidence of the corporate income tax falls primarily on equity. I don't know of any, but this sort of thing interests me.

As a final note, the recent article actually summarizes papers written by academics, many of them from outside the US. It's not simply a White House press piece. It's quite possible that contrary views were excluded, but I don't know of any papers articulating these views. If you do, again, I'd love to see them.

Keith Talent: The only thing that hasn't been mentioned is that corporations, are you and I. Our retirements plans, union pensions etc are the corporations that often times are painted as being owned by rich fat cats that are not pulling their fair share.

This is true. Institutional investors such as mutual funds and retirement and pension plans own a truly staggering amount of publicly traded stock. This is indeed another reason why targeting corporate earnings to get at the fat cats is a bad idea, but I didn't want to get into it in this post.
posted by "Tex" Connor and the Wily Roundup Boys at 8:34 PM on January 7, 2008

Benny Andajetz writes "Corporations must be held accountable for the true costs of their enterprises."

But a straight tax on profits doesn't necessarily accomplish this. The only way to account for "true costs" is with a regulatory mechanism that monitors those costs: environmental damage, etc.
posted by mr_roboto at 8:34 PM on January 7, 2008

I guess I'm having trouble taking the prospect of the corporate income tax being repealed with no replacement as serious as you apparently are, because it seems vanishingly unlikely to me.

I didn't say there would be no replacement. I said the replacement might end up being something undesirable.
posted by grouse at 8:40 PM on January 7, 2008

Regarding Avenger, et al, and whether consumption taxes would hit the poor disproportionately hard:

I don't see why you assume that it would be so bad on the poor and middle class, compared to the rich, if it was based on the absolute value of the money spent, and not on a percent-of-income. Sure, a rich person probably spends a smaller percent of their income than a poor person does (e.g.: someone living paycheck-to-paycheck spends 100%, someone very rich may only spend a few percent) but unless that rich person is living like a poor person, in absolute terms they have to be spending more. That's what you tax.

And beyond that, I don't see why it's really necessary or important to tax income just because they're making it. Okay, so they're making it -- great. So what? You can't eat money; you can't live in it; you can't do much of anything to it. As soon as they go to use it, it'll be taxed. Let them keep it in the bank for a while -- whenever it gets spent, it gets taxed. (And encouraging people to keep more money in the bank -- higher savings -- is generally considered to be a fairly good thing.)

You could easily create a consumption-based tax scheme that was revenue-neutral and tax-bracket-neutral once it got into a 'steady state.' There seems to be a feeling that if someone is making money, they ought to be taxed immediately, and I don't really see why that makes a difference. Tax it coming, tax it going; you'll get it either way.
posted by Kadin2048 at 9:39 PM on January 7, 2008 [2 favorites]

I'm in favor of the Babylon Lottery system.
posted by wobh at 9:51 PM on January 7, 2008 [1 favorite]

grouse: I didn't say there would be no replacement. I said the replacement might end up being something undesirable.

I suppose that's possible, but I really don't see what bearing it has on the analysis of the incidence of a corporate income tax. The economics of taxation are what they are, and we should be able to talk about them without getting bogged down in the politics of whether appropriate reform could be achieved right now. That's a separate question.

If you don't want to talk about whether or not the corporate income tax does what it's supposed to do, that's fine, but we're just going to be talking past each other.
posted by "Tex" Connor and the Wily Roundup Boys at 10:02 PM on January 7, 2008

why it's really necessary or important to tax income just because they're making it

It's very difficult getting past the present FICA cutoff ($102,500) without receiving economic rents of one kind or another, either from IP protection, law enforcement, or scarcity rents.

The scarcity rents are interesting. Some are due to God-given or self-developed talents (Picasso, A-Rod), and some are due to rent-seeking professional guilds like medical doctors and lawyers.

Wearing my left-lib hat I don't mind taxing economic rents, they're there for the taking, and I don't have a moral problem with this taking as long as these monies are invested wisely in our nation's human capital (universal, womb-to-grave access to health services, education, public transit).
posted by panamax at 10:24 PM on January 7, 2008 [1 favorite]

panamax writes "And . . . you'd be wrong. The LVT is demonstrably the most efficient (least worse) tax available to man at the moment [1]."

Man, your link could have been better, but thanks for this. I just did some googling and had some really interesting reading.

You might have a convert.
posted by mr_roboto at 10:37 PM on January 7, 2008

hey panamax, thanks for the info. could you explain to me what you mean by "economic rents"? Not snark, just genuine interest...
posted by localhuman at 11:01 PM on January 7, 2008

I'm not panamax, but an economic rent is the excess of the income derived from a factor of production over the minimum income necessary to keep that factor of production in its current use. Think of this in terms of opportunity costs.

A factor of production is land, labor, or capital. Some people add the entrepreneurial drive to that list.

Economic rents are seen as a sign of imperfect competition, and since they aren't figured into production decisions (seemingly by definition), they can be taxed with impunity. Of course identify just what part of, say, a doctor's income is economic rent is not exactly straightforward.
posted by "Tex" Connor and the Wily Roundup Boys at 11:21 PM on January 7, 2008

Neo-Keynesians (mostly Marxist oriented) agreed in the 1970s and 80s that taxes on corporations are simply passed on to non-corporate taxpayers (i.e., consumers, workers, etc.) -- "Corporations get what they spend, workers spend what they get." -- so they proposed VAT or giant sales taxes instead (what we in Canada call GST). Were they right? I look at figures resulting from cuts to corporate taxes in Canada and the US and I wonder. Seems to me heavy corporate tax cuts do not result in a higher standard of living (or real wage increase or what have you) for the majority of folks. But I don't claim to know more than professional economists (that is, the dickhead entrail readers pretending to be scientists who are beholden to the government policymakers that hire them). No.
posted by CCBC at 12:50 AM on January 8, 2008 [1 favorite]

Kadin2048: You could easily create a consumption-based tax scheme that was revenue-neutral and tax-bracket-neutral once it got into a 'steady state.'

Revenue-neutral is the wrong term to use over anything other than the short term. If the creation of this new tax system causes a collapse in Government revenues for ten years, it's not revenue-neutral, even if after ten years it delivers exactly the same amount of cash for the Treasury.

The problems with consumption-only taxation are:

1. It's very regressive, and poor people pay more of their income in tax proportionately than rich people do. This is the measure that matters, not absolute tax bills, because if I'm living from hand to mouth, $5 of tax on my groceries is a lot, but if I earn high seven figures, $50,000 tax on my

2. It's hard to collect properly and evasion or fraud is easy (particularly in the decentralised approach that Huckabee suggests). Maybe shops wouldn't be able to get away with not charging the tax, but service companies, plumbers, etc., would be able to do a good deal of stuff cash-in-hand, and there's no way of policing that without a vast federal bureacracy.

3. Consumption taxes are pro-cyclical. Imagine there's a recession or a financial crisis, and people - even though most of them are earning the same or similar amounts of money - rein in their spending and start saving (or paying back credit card debt). The Government's revenue starts to fall, and it has to shed jobs or increase borrowing, both of which exacerbate the incipient recession. In normal tax regimes, you have lots of different taxes to take the strain if consumption tax revenue falls - in a consumption-tax-only regime, all your eggs are in one basket.
posted by athenian at 1:02 AM on January 8, 2008 [1 favorite]

Also, when the government taxes individuals, this lowers their spending power, which means the burden also falls on corporations.

Won't somebody think of the corporations and tax people less?
posted by TheophileEscargot at 1:26 AM on January 8, 2008

localhuman, I guess you've been reading your Bertrand Russell

"In view of the fact that the bulk of the public expenditure of most civilized Governments consists in payment for past wars or preparation for future wars, the man who lends his money to a Government is in the same position as the bad men in Shakespeare who hire murderers."

With respect to the consumption tax question, it need not be regressive for the majority of the population. eg by refraining from taxing staple foods, the first x dollars of domestic fuel spend, clothing items below y dollars etc.

Of course, the super-rich won't feel too much pain from this, but I think you'll find that they're doing OK under the present system, thank you, and will arrange such a state of affairs regardless of the philosophy of the tax regime.
posted by Jakey at 5:43 AM on January 8, 2008

The real problem with taxes: the government is too big and expensive.

As such, somebody will always be getting completely screwed by the system, because it just requires more money than it really should. Thus everybody lobbies that everybody else should pay more, they come up with dishonest ploys to argue that it's good for them to pay less, etc.

But the whole thing would be vastly more bearable if we'd quit pretending we're the world's beat cop, and got rid of all the expensive nonsense.
posted by Tacos Are Pretty Great at 6:26 AM on January 8, 2008

"Tax it coming, tax it going; you'll get it either way."

Nope. Today's corporations and the affluent people who are their chief beneficiaries have become much better at squirreling away their money, to better retain their grasp on power and wealth. Trickle-down has stopped 'cos the rich are better at building dams, to get all metaphorical. The gap between the rich and (working) poor keeps growing.

At one time there were more "widows and orphans" who were stockholders or beneficiaries of stock-holding in some fashion, but that's less likely today, since fewer people choose (or are even able) to save.
posted by Artful Codger at 8:53 AM on January 8, 2008 [1 favorite]

this is capitalism 101. the bosses will privatise the benefits and externalize the costs (onto labor, consumers, working ecosystems, etc).

It doesn't mean the public should shrink from corporate taxes, it means the public should advocate for a strengthened NLRB and strengthened unions to guard against these kinds of abuses.
posted by eustatic at 9:10 AM on January 8, 2008

How about pigovian taxes targetting energy use and environmental damage, coupled with LVT, property tax, and maybe a consumption tax with a flat per capita rebate. Of course, then I'd be out of a job.
posted by BrotherCaine at 9:12 AM on January 8, 2008

Unions seem to have a life cycle only the first phase of which actually helps the worker much.
posted by BrotherCaine at 9:13 AM on January 8, 2008 [1 favorite]

Let's just go back to serfdom. We're halfway there already.
posted by Blazecock Pileon at 9:40 AM on January 8, 2008

Why the Fair Tax won't work (pdf) by Bruce Bartlett. It also references to more studies of the incidence of corporate taxation (see footnote 65).
posted by patricio at 10:00 AM on January 8, 2008

Bruce Bartlett doesn't know what he's talking about.
posted by tadellin at 10:40 AM on January 8, 2008

A worker may write a check to the Internal Revenue Service for payment of the personal income tax, but that money must come from somewhere: from reduced purchases at retail outlets, reduced use of or lower rates negotiated for services paid from the employee's income, reduced rent, mortgage, or utility payments, reduced savings or investment, or a demand for higher wages demanded by employees to compensate for the purchasing power lost to taxes. . . .

This analysis suggests that corporations, which employ many of the nation's workers, provide most of the goods, services, housing, utilities purchased by workers, and and benefit directly from savings and investment, may bear a substantial burden from the personal income tax.
posted by flug at 11:07 AM on January 8, 2008

tadellin: in what particular way?
posted by patricio at 1:23 PM on January 8, 2008