Bruce Bartlett in The New York Times investigates who really pays the corporate income tax, workers or investors. He outlines the views of four sets of researchers whose papers appear in a new issue of The National Tax Journal. Estimates certainly vary, with one study finding workers bear 60% of the burden, another finding capital bears 80%. Still, I think you can argue two reasonable conclusions from the data:
1. Lowering corporate taxes would help workers. As Bartlett explains: “A $1 increase in corporate taxes will reduce wages by about 60 cents.”
2. Corporate taxes and investment taxes should be considered together as a joint, integrated tax on capital. So even if we were to eliminate investment taxes to boost savings, investment, and growth, investors would still bear a healthy share of the corporate tax burden. There is no free lunch here for them. This is why someone whose income is mostly capital income, such as Mitt Romney, may on paper pay a 15% tax rate, his or her real rate could be three times higher. When you combine current investment taxes with corporate tax rates, the US might well be taxing capital income in the 50% to 60% range. The current tax code’s (increasing) bias against investment is terrible for long-run economic growth.