The Humble Libertarian

Peaceful solutions to social problems.

Monday, April 2, 2012

Corporate Taxes Trickle Down

Yes, there is really no such thing as a corporate tax and all corporate taxes are indirect consumer taxes that are economically destructive.
Yesterday the United States achieved the distinction of having the highest corporate tax rate of any country in the world. Given the shaky state of our economy, it’s not a distinction worth celebrating. We got here because politicians have exploited voters’ false belief that corporations pay taxes. Yes, corporations hand over tax money to Uncle Sam, but the money ultimately comes out of your pocket. There are only three ways a corporation can come up with the money it needs to pay a corporate tax: It can raise the price of its product; it can pay its workers less; or it can pay the tax out of its profits. In the first case, you and I pay the tax; in the second case, the corporations’ workers pay the tax. In the last case, the stockholders pay the tax — and before you start equating “stockholders” with corporate fat cats, remember that over half of Americans own stock. In each example, ordinary people like you and me shoulder the burden. And this isn’t just a harmless transfer of money from one group to another. When corporations pass the tax on to consumers in the form of higher prices, consumers buy less of the stuff the corporations make and so the corporations cut back on hiring. Jobs disappear. When corporations pass the tax on to workers in the form of lower wages, people earn less money. When people earn less money, they cut back on their spending, which means that they buy less stuff from corporations and, again, corporations cut back on hiring. Jobs disappear. When corporations pass the tax on to stockholders in the form of lower dividends and capital gains, people see their retirement portfolios stagnate and so they cut back on their spending in an attempt to bolster their retirement savings. More importantly, budding young entrepreneurs lose some of the incentive to take on the risk and headache of starting new businesses and nurturing new ideas. Again, jobs disappear.
Read the rest here
Bastiat Institute