Saturday, July 28, 2007

Workers Pay the Corporate Tax With Lower Wages

Economist and Columbia Business School Dean R. Glen Hubbard writes in the WSJ that workers actually bear most of the corporate tax burden in the form of lower wages, and cutting the corporate tax rates would increase wages:

Who bears the corporate tax burden? Some may be tempted with a quick answer, "corporations." But that is clearly wrong. The Econ 101 admonition that people pay taxes -- in this case, suppliers of capital through lower returns, workers through lower wages, and/or consumers through higher prices -- remains true even when the tax is aimed at capital.

Recent research has cast an eye in a somewhat different direction, showing that the corporate tax may be borne not entirely (or even principally) by owners of capital, but by workers. Globalization plays a role. In an open economy, with mobile capital, a source-based tax like the corporate tax will lead to a capital outflow, reducing investment and productivity and wages.

A recent paper by the American Enterprise Institute analyzes data across countries and over time, concluding that for OECD countries, a 1% increase in corporate tax rates results in a 0.8% decrease in manufacturing wage rates.

Wage effects of this size suggest labor bears much of the burden of the corporate tax. In fact, workers collectively would be better off if they voted for higher taxes on labor with corresponding cuts in the corporate tax.

Cutting the corporate tax rate would be positive for investment, productivity and economic growth. It would also reduce a tax burden now borne in large part (or even entirely) by labor, bolstering wages.


At 7/28/2007 3:05 PM, Blogger juandos said...

My first guess is that the consumer of the corporate entity's goods or services would be paying the corporate taxes...

At 7/28/2007 7:08 PM, Anonymous Anonymous said...

This comment has been removed by a blog administrator.

At 7/29/2007 11:24 PM, Anonymous Anonymous said...

What a load of drivel... This corporate propoganda isn't going to work much longer and I can only imagine why the blog admin removed a comment... I'm so mad about this kinda blatant lies that the American Worker has it so good isn't working... consider Fones-Wolf "Selling FreeEnterprise" to learn exactly how this reporting is so diruptive to our harmony and UNamerican.

At 7/30/2007 8:06 AM, Blogger Mark J. Perry said...

Note: Comment was deleted because it was spam/advertising.


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