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Red Steele
Veteran Advisor

Corporate Income taxes in America

a brief article on where we stand vs. the world

 

Raising corporate taxes will not solve any budget deficits. All that happens is the workers of the corp make less, and less jobs are created or retained. Capital is not something you can fence in at this point in globalization....money will flow to where the net returns are greatest.

 

It is too bad that we have come to the point where the Romans on public support want to kill all the industry in Rome. Someone should look on the 500 year timeline of the Roman Empire and see where that puts us. My guess is that we are in the last 20% of the glory days.

 

 

Reason Magazine
Separating economic myths from economic truths.
 

 

Editor’s Note: Reason columnist and Mercatus Center economist Veronique de Rugy appears weekly on Bloomberg TV to separate economic fact from economic myth.

Myth 1: We can collect more revenue by raising the tax rate on corporations or by increasing the top bracket.

Fact 1:  The wealth of the economy is a much better indicator of corporate tax revenue than tax rates and tax brackets.

This chart shows the corporate tax collection as a share of the economy side by side with the top marginal corporate rate since 1981. During that time, the U.S. corporate tax rate has been as high as 46 percent and has gone down to 34 percent. Since 1993, the top rate has been 35 percent. The level of income covered by the top tax bracket has varied a lot too: from $100,000 in 1981 to $1.4 million in 1984, down to $335,000 in 1987 and up again to $18 million since 1993 (all dollar amounts in nominal terms).

This chart makes clear that the general state of the economy is a much better indicator of the tax collection than rate levels and the top bracket. It is particularly visible since 1993, since the rate and top bracket haven’t changed and yet tax collection varied a great deal, falling during recessions and rising during recoveries.

Myth 2: Corporations pay the corporate income tax.

Fact 2: First, corporations do not pay taxes, only individuals pay taxes. More importantly, economists have shown that a majority of the corporate income tax is borne by labor mainly in the form of lower wages rather than borne by shareholders.

This chart (overly simplified for the Bloomberg discussion) is based on academic work done by Aparna Mathur and Kevin Hassett in December 2010 and shows the link between corporate tax rates and the average manufacturing wage (in U.S. dollars) for 65 countries between 1981 and 2005. It shows a negative link between tax rates and wages, suggesting that higher corporate tax rates lead to lower worker wages. Mathur and Hassett test this point by using regressions controlling for other factors. They find that a 1 percent increase in the corporate income tax leads to almost a 0.5-0.6 percent decrease in hourly wages.

Interestingly, a chart from their original 2006 paper shows that when the sample of countries is restricted to Organization for Economic Cooperation and Development (OECD) member countries, the negative slope is much more pronounced. That implies that higher corporate taxes have a stronger negative impact on wages in developed economies.

This is consistent with a growing body of work [see Arulampalam et al. (2007), Mihir A. Desai, C. Fritz Foley, and James R. Hines (2007), and Felix (2007)] that analyzes actual payroll data to see who in fact is bearing the corporate income tax. Such work finds a large impact of corporate income tax on labor—as high at 200 percent. The theoretical studies that followed found a lower but still large impact on wages from the corporate income tax. These studies show that from 45 to 75 percent of the cost of the corporate tax is borne by labor rather than shareholders, as has long been believed.

Here is the Congressional Budget Office’s William Randolph (2006) for instance:

Burdens are measured in a numerical example by substituting factor shares and output shares that are reasonable for the U.S. economy. Given those values, domestic labor bears slightly more than 70 percent of the burden of the corporate income tax. The domestic owners of capital bear slightly more than 30 percent of the burden. Domestic landowners receive a small benefit. At the same time, the foreign owners of capital bear slightly more than 70 percent of the burden, but their burden is exactly offset by the benefits received by foreign workers and landowners.

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5 Replies
bruce MN
Advisor

Thats a lotta bling there red

What in it are we supposed to be seeing?

 

As for tax rates, they wern't always as they are.  You Pubbies have a geat way of presuming that all you have to say is that "it's always been this way (if it has been for over a year or so ) and all within earshot will take your disingeniuous word for it.

 

I beleive this matches up with your charts actually...if it was the charts we were supposed to see.  I can't tell.

 

SNIP:

 

The current very low rates didn’t happen until 2003; in fact, long-term capital gains were taxed at close to 30 percent from 1986 through 1997, when Clinton cut a deal with Republicans to get an expanded earned-income tax credit. And dividend income also only started receiving privileged status in 2003.

So nothing in our history or experience says that unearned income has to be taxed this lightly. It’s not a time-honored principle; it’s a Bush-era innovation, pushed through the Senate, by the way, using reconciliation.

 

http://krugman.blogs.nytimes.com/2012/01/18/the-history-of-capital-gains-taxes/?gwh=C6B93E879B9ACF6E...

 

You're familiar with the reconciliation process, aren't you?  The one that Harry Reid could have used numerous times and declined to?

Red Steele
Veteran Advisor

Re: Thats a lotta bling there red

focus on the printed word and forget about the "bling", bruce.

 

And this is about taxes levied on the corporation, not the double tax on dividends. You may not understand how the various levels of taxes interplay and duplicate themselves. I doubt if most do.

 

One thing for sure, Mitt understands business and taxation much more than the academic zero does. If somehow the election would hinge on that, I would know which way to bet.

 

But if the Romans just want more stadiums and gladiators killed while they munch on free lunches, your guy is the man.

johnaa
Advisor

Re: That's a lotta bling there red

 "ne thing for sure, Mitt understands business and taxation much more than the academic zero does"

  think you're buying the MSM bull shinola about Oromney's great business knowledge.  He hasn't been builder of a business just a rich boy who made it to the head office because he had the money.   Just watch the first minute of this video from the 08 debates,  He doesn't know the answer, but was honest in that he admitted he would need someone to tell him what to do.  He qualifies as another ventriloquists dummy, like shrub and raygun, America certainly does not need another.  Who do you think will be pulling his strings?  Look at his advisors, neocons from the Cheney gang.  http://www.youtube.com/watch?NR=1&v=ua4inlXnhhc&feature=endscreen

cowfarmer
Senior Contributor

Re: That's a lotta bling there red Johnaa

O'Romney!!! I fell off my chair when I read that. But it's looking like my guy Paul is done, so bring on 2012 and another Obama presidency.

johnaa
Advisor

Re: That's a lotta bling there red Johnaa

  Only the third primary and you're throwing in the towel?  Don't believe what the plutocrat's media tells you.  It takes 1245 votes to win and I think Oromney has under 20(?).   Here's a little info-->http://conservapedia.com/Presidential_Election_2012

  Remember the media claimed Several other candidates where leading and most of those a history, a lot can happen before June.  snip-->"It is virtually impossible for a candidate to win a majority of delegates before June   2012. "