Cutting Corporate Income Taxes Could Benefit Low-Income Americans

July 27, 2007

During yesterday’s Treasury conference on Business Taxation and Global Competitiveness, Oracle Corp. President and Chief Financial Officer Safra Catz made the insightful comment that many Americans see “taxing corporations as a victimless crime” because they view corporations as abstractions and fail to understand that the economic burden of corporate taxes is actually borne by people—customers, workers, or shareholders—not the company.

Economists have traditionally been divided on whether the incidence of corporate taxes fall on consumers through higher prices, workers through lower wages, or shareholders through smaller dividends. Recently, however, research is indicating that in a global economy labor is bearing the lion’s share of corporate taxation. In a working paper for the Congressional Budget Office, William Randolph suggests that 70 percent of the burden of corporate taxes fall on workers while the remaining 30 falls on shareholders.

What this means is that cutting the corporate income tax is not as pro-rich a policy as some may have you believe. In a recent study, Tax Foundation economists Gerald Prante and Andrew Chamberlain found that the typical low-income household (those earning under $23,700) pays $171 in personal income taxes, but $271 in corporate income taxes. As a share of their total tax burden, income taxes comprise just 4 percent while corporate taxes comprise 6.3 percent.

By contrast, personal income taxes comprise nearly 36 percent of a high-income household’s (those earning more than about $99,000) total tax burden while corporate taxes comprise about 8 percent. In dollar terms, the typical high-income household pays $29,257 in income taxes compared to $6,597 in corporate taxes.

These findings indicate that cutting the U.S.’s corporate income tax rate—which is the second highest rate in the OECD—will not only make us more competitive in the global economy, but help low-income wage earners far more than a cut in personal income taxes.


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