One point of contention in the North Carolina tax reform debate has been the fate of one particular tax expenditure—the uncapped sales tax refund for nonprofits. The refund applies to "sales of taxable tangible personal...
- The Tax Policy Blog
- What is Corporations' Fair Share of the U.S. Tax Burden?
What is Corporations' Fair Share of the U.S. Tax Burden?
Ask an economist the above question, and you'll get a simple answer: zero percent.
That is, companies themselves are not individuals, so they can't actually feel the loss of economic welfare from taxes. As Prof. John Mikesell explains brilliantly in his recent study, companies are just legal conduits that channel taxes to individuals. So there's no such thing as "companies'" fair share of anything. Only individuals can have a fair or unfair share.
We've posted a new commentary this morning exploring the issue. Specifically, it examines whether a progressive rate structure on a corporate income tax can ever really be justified on equity grounds alone.
Given that the current federal corporate income tax has 8 progressive brackets -- well, progressive over most ranges -- that seems like an important question. Unfortunately, few lawmakers seem to realize that the ethical argument for progressive individual income tax rates -- that those with higher incomes should pay higher tax rates -- doesn't apply to corporate taxes. Why? Because the "ability to pay" of workers, shareholders and customers who bear corporate tax burdens has no necessary relationship with the size of profits of the company being taxed.
Conventional wisdom on taxes these days is that good taxes are progressive taxes. The more we earn, the higher our tax rate should be. And for nearly a century that logic has been etched into federal tax law, with progressive income tax rates rising along with Americans' rising incomes...
So here's a question. If graduated tax rates on people are fair, are they also fair for corporations?
I hope you're sitting down, because the improbable answer is that they're not fair.
Even if we enthusiastically embrace progressive income taxes on people, progressive taxes on corporations don't follow at all. In fact, it turns out today's steeply graduated corporate tax rates—eight brackets ranging from 15 percent to 39 percent—are unfair to a large number of low-income workers and consumers. And once you see why, you might find yourself whispering among friends that maybe, just maybe, the fairest corporate tax rate of all is zero percent. (Read the full piece here.)
By the way, you can find more authoritative version of this argument against progression in corporate tax rates on page 9 of this classic 1958 Tax Foundation study.
Buy this blogger a cup of coffee!
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official weblog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.