Who’s Paying Corporate Taxes? Definitely Not Corporations

Harvard Business Review: “Who pays corporate income taxes? Just one thing’s for sure: it’s not corporations.”

“This is because, as Mitt Romney famously put it, ‘corporations are people, my friend.’ They also sell to people, buy from people, and are owned by people. Yes, sometimes you have to dig through layers of other corporations … and the like to get to these people. But they’re there somewhere, trying to avoid getting smacked by corporate taxes.”

“In econospeak, where the burden lands is called tax incidence … What [UC Berkeley economist Alan] Auerbach did write in 2005 was that ‘the cardinal rule of incidence analysis’ is ‘that only individuals can bear the burden of taxation and that all tax burdens should be traced back to individuals.’”

“In the case of the corporate income tax … that tax is going to be borne by shareholders, workers, or customers.”

“This makes intuitive sense. If a country allows free capital flows and free trade and has a corporate tax rate much higher than that of its neighbors … corporate management can choose to move operations abroad … By comparison, workers are pretty immobile. It’s hard for them to switch employers, let alone countries. So the tax lands on them.”

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