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In a current one New York Times
There is way to make clear in these results, but let’s give attention to one pillar of Zucman’s argument – his controversial claim (explained in additional detail in a Book 2019 (along along with his frequent research partner Emmanuel Saez) that capital owners enjoy all the advantages of corporate tax cuts.
Who pays, who advantages?
Almost all economists agree that the burden of corporate taxes doesn’t fall on the businesses themselves. While corporations will pay taxes to the IRS, the tax is ultimately paid by a mixture of employees and capital owners.
But how do you distribute the tax burden or the advantages of tax cuts?
Zucman and Saez found a pointy decline within the share of income paid in taxes by the wealthiest 400 U.S. households, from 56% in 1960 to 30% in 2017 and 23% in 2018, after the law’s passage Tax Cuts and Jobs Act of 2017 (TCJA). Zucman argues that the decline from 2017 to 2018 was largely because of shareholders benefiting from the TCJA’s significant corporate tax cuts.
However, other economists consider that when employer taxes fall, employees also get some profit through higher wages. Lower taxes give corporations extra money to speculate in capital goods, which in turn increases employee productivity and ultimately results in higher wages. Lower taxes could also stimulate foreign investment, which in turn may lead to higher wages.
Even when corporate taxes are increased, employees bear a number of the burden.
Alternative views
When he worked on the American Enterprise Institute, the economist Kevin Hassett has taken this argument to its extreme. He concluded that employees profit greater than 200% from corporate tax cuts. Later, as a top adviser within the Trump White House, Hassett predicted that the TCJA’s corporate tax rate cuts would increase annual wages by a mean of $4,000.
These estimates were already valid back then seemed implausibleAnd the evidence suggests that recent wage increases usually tend to reflect a decent labor market, because the mechanism by which investment-driven wages should rise Productivity growth is stagnating.
Most analysts land somewhere between Hassett and Zucman, although much closer to Zucman.
In 1962, UCLA economist Arnold Harberger concluded that virtually all corporate taxes were paid by owners of capital. More recent assumptions recognize a certain burden on employees.
The Congressional Budget Office, the Congressional Joint Committee on Taxation, the U.S. Treasury Department, the Penn-Wharton Budget Model, and my colleagues at TPC consider so that no less than three quarters of the company tax burden falls on shareholders and other recipients of capital gains. The rest falls on the staff. The Tax Foundation distributes the tax burden evenly between employees and capital owners.
In its modeling, TPC initially assigned corporate tax to capital. But a couple of decade ago It updated its long-term incidence assumptionsToday, TPC assumes that 60% of the burden is borne by shareholders, 20% by all capital owners and 20% by employees. And it’s consistently revising these assumptions.
Who pays and when?
But that raises one other query: Which employees ultimately pay corporate tax?
In 2022 my TPC colleague Bill Gale and co-author Sam Thorpe concluded that highly paid employees bear a much greater burden than their lower-level colleagues. As a result, they profit more from the reduction in corporate taxes.
To make matters worse, the burden of corporate taxes can shift over time. First, corporate tax cuts could primarily profit shareholders. But once corporations implement productivity-enhancing investments, employees are rewarded.
Likewise, higher corporate tax rates could encourage corporations to shift profits abroad or to non-corporate forms, thereby reducing the tax burden on corporate shareholders. However, this could occur over several years.
One solution may be to indicate how distributional effects change over time. The challenge is that economists don’t yet understand how long this transition will take.
Perspective matters
Finally, the query arises as to which shareholders will profit from the reduction in corporate tax or will bear the burden of tax increases. Current research by my TPC colleagues Steve Rosenthal and Livia Mucciolo revealed that only about 28% of publicly traded corporate shares are held by taxable corporations.
The debate about corporate tax incidence is vital and ongoing. When Congress considers the fate of the TCJA next 12 months, Democrats will probably seek to lift the company tax. And how you are feeling about these efforts may depend heavily on who you think that will ultimately pay these higher corporate taxes.
