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President Trump’s Proposed Corporate Tax Cuts Would Benefit Workers

A tax is a tax is a tax.

Like it or not, all taxes are ultimately borne by individuals, no matter how they’re advertised. We’re all aware that our property doesn’t pay property tax, but when it comes to the corporate income tax, it’s one that liberals often favor to “stick it” to the rich.

But who pays the corporate income tax, really? What is a corporation but a collection of individual shareholders, each of whom bears the burden of an increased corporate tax rate? Granted, most shareholders are well-off financially, but management will often find a way to protect shareholders in the face of a higher corporate tax rate. How? By offsetting their increased tax burden through decreasing the wages of their workers.

I’m not just speculating. When NPR asked a group of economists all along the ideological spectrum to propose six economic reforms they could all agree on, one was to “eliminate the corporate tax rate…. completely.” They added “don’t tax ordinary people in an attempt to tax rich people.” The logic behind their thinking is simple: Taxing corporations essentially takes money away from companies, which were otherwise going to invest in capital. It also discourages domestic investment and encourages companies to invest overseas where the tax climate is more business friendly. This is especially relevant to the United States because it has the highest statutory corporate tax rate in the industrialized world with a rate of almost 40%.

So how much of the burden of the corporate tax do the workers bear? To review the studies (source – pages 100-101):

  • A review of the empirical literature on corporate tax conducted by the U.S Department of the Treasury found that, “labor may bear a substantial portion of the burden from the corporate income tax.”
  • Economist Arnold C. Harberger has found that labor bears over 80% of the corporate tax.
  • Kevin Hassett and Aparna Mathur of the American Enterprise Institute, a conservative think tank, found that for every 1 percent increase in corporate tax rates, wages decrease by nearly 1 percent.
  • Wiji Arulampalam, Michael P. Devereux, and Giorgia Maffini of Oxford University found that for every $1 increase in the corporate income rate, wages are reduced by 92 cents in the long run.
  • According to economist Alison Fenis, a one percentage point increase in the corporate income tax decreases annual wages by 0.7 percent.

So, an array of estimates across studies, but all finding that labor bears well over half the cost of the corporate income tax.

That’s why, as Trump pitches his proposed cut to the corporate tax rate as being pro-businesses, it would be helpful if he also made the case that it’s pro-worker. Trump wants to slash the corporate tax rate nearly in half, from 35 percent down to 20 percent. If the studies are true, that fifteen percentage point cut would translate to a 13.8 percent raise for the average corporate employee, or as “low” as a 10.5 percent raise.

Regardless, both would represent a major boost for the American worker.

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