Econ 101 for Progressives: Corporations Never Pay Any Taxes – WP Original

By: Mark Glennon*

It’s not opinion or economic theory, but undeniable fact: Corporations don’t pay any taxes. They collect them.

With the chorus on the left in Illinois growing ever louder to address income and wealth disparity by taxing corporations, that fact should be kept paramount, no matter what one’s politics.

It make no more sense to deny that people, not corporations, ultimately pay corporate taxes than to deny that people pay taxes on houses, dogs or anything else. Exactly who ultimately pays corporate taxes is debated, and the answer can vary with the industry, but it’s some combination of shareholders, workers and customers who ultimately pay.

And the corporate tax burden is not rationally distributed based on wealth or income. It’s a shotgun blast that hits both rich and poor among those shareholders, workers and customers. That’s one reason why plenty of liberal economists, including Robert Reich and Lester Thurow, would like to see the corporate income tax entirely replaced with something else.

Capital, not labor, may bear most of the corporate income tax burden, but that doesn’t make it progressive. A 2013 study by the Joint Committee on Taxation came to the conclusions shown in the table on the right. It shows the percentage increase in actual tax burden, for different income groups, when you add the impact of the Federal corporate income tax. The rich do pay more, but lower income groups are hit hardest.

Inequality in the distribution of income and wealth is a “central issue of our time,” as the Financial Times said today in an excellent piece about Chicago. But it won’t be solved by populist demagoguery, including calls to soak corporations.

*Mark Glennon is founder of Wirepoints