—-
Who Pays the Corporate Income Tax?
I’ve been arguing against Biden’s proposed increase in business taxation by pointing out that higher corporate taxes will be bad news for workers, consumers, and shareholders.
Everyone agrees that shareholders get hurt. After all, they’re the owners of the businesses. Higher corporate taxes directly reduce the amount of money available to be paid as dividends.
But we also should recognize that higher corporate taxes can be passed along to consumers, so they also lose. Even more important, we should recognize that higher tax burdens also reduce incentives for business investment, and this can have a negative impact on worker compensation.
A 2017 study from the Tax Foundation, authored by Steve Entin, thoroughly explored this question and included a table summarizing the academic research.
Alex Durante updated the Tax Foundation’s summary of the research in a just-released report.
Here are the results of two new studies.
In a large study of German municipalities over a 20-year period, Fuest et al. (2018) find that slightly more than half of the corporate tax burden falls on workers. …Baker et al. (2020) find that consumers could also be impacted by corporate tax changes.Looking at specific product prices with linked survey and administrative data at the state level, the authors found that a 1 percentage-point increase in the corporate tax rate increased retail prices by 0.17 percent. Combining this estimate with the wage response estimated in Fuest et al., the authors calculated that 31 percent of the corporate tax incidence falls on consumers, 38 percent on workers, and 31 percent on shareholders.
If you want more information about the German study, I wrote about it a couple of years ago. Solid research.
Here’s my two cents on the issue: Shareholders pay 100 percent of the direct costs of the corporate tax. But we need to also consider the indirect costs, most notably who bears the burden when there’s less investment and slower wage growth.
If you ask five economists for their estimates of indirect costs, you’ll probably get nine different answers. So it’s no surprise that there’s no agreement about magnitudes in the academic research cited above.
But they all agree that workers lose when corporate rates increase, and that’s a big reason why we can confidently state that Biden’s class-warfare agenda is bad for ordinary people.
The bottom line is that the person (or business) writing a check to the IRS isn’t the only person who suffers because of a tax.
And the lesson to learn is that we should be lowering the corporate, not increasing it.
P.S. Here’s my primer on the overall issue of corporate taxation.
P.P.S. Here’s some research about the link between corporate tax and investment.
APRIL 29, 2021 5:03PM
Middle Class Tax Hikes: Political Rhetoric vs. Economic Reality
Dylan Matthews
Would lowering the 6 percent [payroll tax] rate but extending it to higher incomes (up to $50,000 or $100,000, or what have you) violate Joe Biden’s pledge to not raise taxes on couples earning under $400,000? The tax is formally paid by businesses; does that make the individual tax pledge by Biden not applicable?
Ron Wyden
Yeah, we don’t think that’s applicable, because [the] $400,000 [pledge] is on the individual side.
[F]or the payroll tax, virtually all applied incidence studies assume that both the employee share and the employer share are borne by the employee (through a fall in the net wage by the full amount of payroll tax). This assumption has been tested and confirmed repeatedly, going back to Brittain (1971) who used a 1958 cross‐section of 13 industries in 64 nations and found full burdens on labor. Gruber (1997) reviews other more recent empirical studies that use both cross‐section and time‐series data, consistently finding full burdens on labor. Gruber (1997) himself uses data from a survey of manufacturing plants in Chile over the 1979–86 period to estimate the effects of dramatic 1981 cuts in that country’s payroll tax, and finds that “the reduced costs of payroll taxation to firms appear to have been fully passed on to workers in the form of higher wages …”
For more on the reality of who really pays payroll taxes or corporate taxes or tariffs(aka “incidence”), click on the links provided.
—
Milton Friedman – A Conversation On Minimum Wage FREE TO CHOOSE
April 8, 2021
Office of Barack and Michelle Obama
P.O. Box 91000
Washington, DC 20066
Dear President Obama,
I wrote you over 700 letters while you were President and I mailed them to the White House and also published them on my blog http://www.thedailyhatch.org .I received several letters back from your staff and I wanted to thank you for those letters.
There are several issues raised in your book that I would like to discuss with you such as the minimum wage law, the liberal press, the cause of 2007 financial meltdown, and especially your pro-choice (what I call pro-abortion) view which I strongly object to on both religious and scientific grounds, Two of the most impressive things in your book were your dedication to both the National Prayer Breakfast (which spoke at 8 times and your many visits to the sides of wounded warriors!!
I have been reading your autobiography A PROMISED LAND and I have been enjoying it.
Let me make a few comments on it, and here is the first quote of yours I want to comment on:
I was campaigning to push the country in the opposite direction. I didn’t think America could roll back automation or sever the global supply chain (though I did think we could negotiate stronger labor and environmental provisions in our trade agreements). But I was certain we could adapt our laws and institutions, just as we’d done in the past, to make sure that folks willing to work could get a fair shake. At every stop I made, in every city and small town, my message was the same. I promised to raise taxes on high-income Americans to pay for vital investments in education, research, and infrastructure. I promised to strengthen unions and raise the minimum wage as well as to deliver universal healthcare and make college more affordable.
I wanted people to understand that there was a precedent for bold government action. FDR had saved capitalism from itself, laying the foundation for a post–World War II boom.
—-
The minimum wage has hurt young people as they seek to enter the job market and prove themselves and start heading up the financial ladder of opportunity and by cutting the bottom of the ladder off it is difficult for the most unskilled and disadvantaged to compete!
Real-World Examples of How the Minimum Wage Destroys Jobs and Hurts Workers
Politicians can interfere with the laws of supply and demand (and they do, with distressing regularity), but they can’t repeal them.
The minimum wage issue is a tragic example. If lawmakers pass a law mandating wages of $10 per hour, that is going to have a very bad effect on low-skilled workers who can only generate, say, $8 of revenue per hour.
You don’t need to be a libertarian to realize this is a problem.
Catherine Rampell leans to the left, but she warned last year in the Washington Post about the danger of “helping” workers to the unemployment line.
…the left needs to think harder about the unintended consequences of…benevolent-seeming proposals. In isolation, each of these policies has the potential to make workers more costly to hire. Cumulatively, they almost certainly do. Which means that, unless carefully designed,a lefty “pro-labor” platform might actually encourage firms to hire less labor… It’s easier, or perhaps more politically convenient, to assume that “pro-worker” policies never hurt the workers they’re intended to help. Take the proposal to raise the federal minimum wage to $15 an hour… raising wages in Seattle to $13 has produced sharp cuts in hours, leaving low-wage workers with smaller paychecks. And that’s in a high-cost city. Imagine what would happen if Congress raised the minimum wage to $15 nationwide. …Why wouldn’t you want to improve the living standards of as many people as possible? The answer: You won’t actually be helping them if making their labor much more expensive, much too quickly, results in their getting fired.
By the way, while I’m glad Ms. Rampell recognizes how big increases in the minimum wage will have an adverse impact, I think she is rather naive to believe that there are “carefully designed” options that wouldn’t be harmful.
Or does she have a cutoff point for acceptable casualties? Maybe she thinks that an increase in the minimum wage is bad if it throws 500,000 people into unemployment, but a small increase that leads to 200,000 fewer jobs is acceptable?
In any event, the voters of DC apparently didn’t read her column and they voted earlier this year to restrict the freedom of employers and employees in the restaurant sector to engage in voluntary exchange.
But then something interesting happened. Workers and owners united together and urged DC’s government to reverse the referendum.
The Wall Street Journal opined on this development.
…last week Washington, D.C.’s Democratic city councillors moved to overturn a mandatory minimum wage for tipped workers after bartenders, waiters and restaurant managers served up a lesson in economics. …The wage hike was billed as a way to give workers financial stability…But tipped workers realized the policy came with serious unintended consequences. …workers pushed for repeal. Though restaurants pay a $3.89 hourly wage to tipped workers, “we choose these jobs because we make far more than the standard minimum wage” from tips, bartender Valerie Graham told the City Council. …“Increasing the base wage for tipped workers who already make well above minimum wage threatens those who do not make tips,” such as cooks, dishwashers and table bussers, Rose’s Luxury bartender Chelsea Silber told the City Council. …Repeal requires a second council vote, but Democratic Mayor Muriel Bowser says she agrees. Congratulations on the revolt of the restaurant masses.
Let’s review another example.
There’s now a mandate for a higher minimum wage in New York. Ellie Bufkin explains some of the consequences in a column for the Federalist.
This minimum wage spike has forced several New York City businesses to shutter their doors and will claim many more victims soon. Businesses must meet the $15 wage by the end of 2018, the culmination of mandatory increment increases that began in 2016. …For many businesses, this egregious law is not just an inconvenience,it is simply unaffordable. The most recent victim is long-time staple, The Coffee Shop… In explaining his decision to close following 28 years of high-volume business, owner Charles Milite told the New York Post, “The times have changed in our industry. The rents are very high and now the minimum wage is going up and we have a huge number of employees.” …Of all affected businesses, restaurants are at the greatest risk of losing their ability to operate under the strain of crushing financial demands. They run at the highest day-to-day operational costs of any business, partly because they must employ more people to run efficiently. …Eventually, minimum wage laws and other prohibitive regulations will cause the world-renowned restaurant life in cities like New York, DC, and San Francisco to cease to exist.
For what it’s worth, I don’t think restaurants will “cease to exist” because of mandates for higher minimum wages.
But there will definitely be fewer establishments with fewer workers.
Why? Because business aren’t charities. They hire workers to increase profits, so it’s unavoidable that we get bad results when government mandates result in some workers costing more than the revenue they generate.
Which is what we’re now seeing in Seattle.
I’ll close by recycling this debate clip from a few years ago. I made the point that faster growth is the right way to boost wages.
And I also gave a plug for federalism. If some states want to throw low-skilled workers out of jobs, I think that will be an awful outcome. But it won’t be as bad as a nationwide scheme to increase unemployment (especially for minorities).
P.S. As is so often the case, the “sensible Swiss” have the right perspective.
P.P.S. Here’s a video making the case against government wage mandates. And here’s another interview I did on the topic.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733 everettehatcher@gmail.com
Related posts:
Open letter to President Obama (Part 293) (Founding Fathers’ view on Christianity, Elbridge Gerry of MA)
President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here. There have […]By Everette Hatcher III | Posted in David Barton, Founding Fathers, President Obama | Edit |Comments (0)
The Founding Fathers views concerning Jesus, Christianity and the Bible (Part 5, John Hancock)
There have been many articles written by evangelicals like me who fear that our founding fathers would not recognize our country today because secular humanism has rid our nation of spiritual roots. I am deeply troubled by the secular agenda of those who are at war with religion in our public life. Lillian Kwon quoted somebody […]By Everette Hatcher III | Posted in David Barton, Founding Fathers | Edit | Comments (0)
The Founding Fathers views concerning Jesus, Christianity and the Bible (Part 4, Elbridge Gerry)
There have been many articles written by evangelicals like me who fear that our founding fathers would not recognize our country today because secular humanism has rid our nation of spiritual roots. I am deeply troubled by the secular agenda of those who are at war with religion in our public life. Lillian Kwon quoted somebody […]By Everette Hatcher III | Posted in David Barton, Founding Fathers | Edit | Comments (0)
The Founding Fathers views concerning Jesus, Christianity and the Bible (Part 3, Samuel Adams)
There have been many articles written by evangelicals like me who fear that our founding fathers would not recognize our country today because secular humanism has rid our nation of spiritual roots. I am deeply troubled by the secular agenda of those who are at war with religion in our public life. Lillian Kwon quoted somebody […]By Everette Hatcher III | Posted in David Barton, Founding Fathers | Edit | Comments (0)
The Founding Fathers views concerning Jesus, Christianity and the Bible (Part 2, John Quincy Adams)
There have been many articles written by evangelicals like me who fear that our founding fathers would not recognize our country today because secular humanism has rid our nation of spiritual roots. I am deeply troubled by the secular agenda of those who are at war with religion in our public life. Lillian Kwon quoted somebody […]By Everette Hatcher III | Posted in David Barton, Founding Fathers | Edit | Comments (0)
The Founding Fathers views concerning Jesus, Christianity and the Bible (Part 1, John Adams)
There have been many articles written by evangelicals like me who fear that our founding fathers would not recognize our country today because secular humanism has rid our nation of spiritual roots. I am deeply troubled by the secular agenda of those who are at war with religion in our public life. Lillian Kwon quoted somebody […]By Everette Hatcher III | Posted in Founding Fathers | Edit | Comments (0)
President Obama and the Founding Fathers
President Obama Speaks at The Ohio State University Commencement Ceremony Published on May 5, 2013 President Obama delivers the commencement address at The Ohio State University. May 5, 2013. You can learn a lot about what President Obama thinks the founding fathers were all about from his recent speech at Ohio State. May 7, 2013, […]By Everette Hatcher III | Posted in Founding Fathers, President Obama | Edit | Comments (0)
Francis Schaeffer’s own words concerning the founding fathers and their belief in inalienable rights
Dr. C. Everett Koop with Bill Graham. Francis Schaeffer: “Whatever Happened to the Human Race” (Episode 4) THE BASIS FOR HUMAN DIGNITY Published on Oct 7, 2012 by AdamMetropolis The 45 minute video above is from the film series created from Francis Schaeffer’s book “Whatever Happened to the Human Race?” with Dr. C. Everett Koop. This […]By Everette Hatcher III | Posted in Founding Fathers, Francis Schaeffer, Prolife | Edit |Comments (1)
David Barton: In their words, did the Founding Fathers put their faith in Christ? (Part 4)
America’s Founding Fathers Deist or Christian? – David Barton 4/6 There have been many articles written by evangelicals like me who fear that our founding fathers would not recognize our country today because secular humanism has rid our nation of spiritual roots. I am deeply troubled by the secular agenda of those who are at […]By Everette Hatcher III | Posted in David Barton, Founding Fathers | Tagged governor of connecticut, john witherspoon, jonathan trumbull | Edit | Comments (1)
Were the founding fathers christian?
3 Of 5 / The Bible’s Influence In America / American Heritage Series / David Barton There were 55 gentlemen who put together the constitution and their church affliation is of public record. Greg Koukl notes: Members of the Constitutional Convention, the most influential group of men shaping the political foundations of our nation, were […]By Everette Hatcher III | Posted in Founding Fathers | Edit | Comments (0)
John Quincy Adams a founding father?
I do not think that John Quincy Adams was a founding father in the same sense that his father was. However, I do think he was involved in the early days of our government working with many of the founding fathers. Michele Bachmann got into another history-related tussle on ABC’s “Good Morning America” today, standing […]By Everette Hatcher III | Posted in David Barton, Founding Fathers | Edit | Comments (0)
“Sanctity of Life Saturday” Taking on Ark Times Bloggers on various issues Part E “Moral absolutes and abortion” Francis Schaeffer Quotes part 5(includes the film SLAUGHTER OF THE INNOCENTS) (editorial cartoon)
I have gone back and forth and back and forth with many liberals on the Arkansas Times Blog on many issues such as abortion, human rights, welfare, poverty, gun control and issues dealing with popular culture. Here is another exchange I had with them a while back. My username at the Ark Times Blog is Saline […]By Everette Hatcher III | Posted in Arkansas Times, Francis Schaeffer, Prolife | Edit |Comments (0)
Article from Adrian Rogers, “Bring back the glory”
I truly believe that many of the problems we have today in the USA are due to the advancement of humanism in the last few decades in our society. Ronald Reagan appointed the evangelical Dr. C. Everett Koop to the position of Surgeon General in his administration. He partnered with Dr. Francis Schaeffer in making the […]By Everette Hatcher III | Posted in Adrian Rogers, Francis Schaeffer | Edit | Comments (0)
“Schaeffer Sundays” Francis Schaeffer’s own words concerning the possibility that minorities may be mistreated under 51% rule
Francis Schaeffer: “Whatever Happened to the Human Race” (Episode 4) THE BASIS FOR HUMAN DIGNITY Published on Oct 7, 2012 by AdamMetropolis ____________ The 45 minute video above is from the film series created from Francis Schaeffer’s book “Whatever Happened to the Human Race?” with Dr. C. Everett Koop. This book really helped develop my political […]By Everette Hatcher III | Posted in Francis Schaeffer | Edit | Comments (0)
—-
—
The Daily Hatch 