More Evidence That Corporate Tax Cuts Help Workers

March 18, 2008

A new study from three prominent economists finds that employees suffer most when their corporate employers must pay high corporate taxes. That contradicts the theory that has prevailed for decades — that corporate taxes mainly hurt investors — but it supports a recent CBO study by Randolph that found workers bearing 70 percent of the burden of corporate income taxes.

The new study’s authors are Fritz Foley and Mihir Desai of Harvard and James Hines of the Univ. of Michigan, and their study is titled “Labor and Capital Shares of the Corporate Tax Burden: International Evidence.” They first presented it to the Brookings Institution in December, and yesterday, March 17, they presented it to the American Enterprise Institute.

They find that the workers’ share of the corporate tax burden ranges from 45 to 75 percent. This provides more intellectual ammunition to the growing group of lawmakers who are arguing that the U.S. needs a lower corporate income tax rate, a group that includes Ways and Means Committee Chairman Charles Rangel (D) and Senator John McCain (R).

The Tax Foundation has recently compared U.S. corporate income tax rates, both federal and state, to the rates levied around the world, finding that U.S. taxes are either highest (federal only) or second highest (federal plus state).

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