Tax Incidence, Tax Incidence

Gaaaah! Richard Murphy again on a US proposal to reduce the corporate income tax:

Yet again, the corporate world seeks to lower its tax bill by shifting it onto ordinary people with a smaller capacity to pay.

It\’s not even controversial, it\’s a well known fact, that corporations do not in fact bear the burden of the corporate income tax. The actual burden is carried by some combination of the workers, in lower wages, the customers in higher prices and investors in lower returns.

The Congressional budget office saya that, in the US, more than 50% is bourne by the workers. Another more recent international paper says that in the long term, a $ 1 raised in corporate income tax reduces the workers\’ wages by more than $ 1.

Lowering the corporate income tax therefore benefits the incomes of the workers.

Does Murphy simply not know this basic point?

11 thoughts on “Tax Incidence, Tax Incidence”

  1. Yes he knows what is claimed

    And he knows it is wrong

    It is myth that works on the blackborad and not in practice

    In truth it’s promulgated simply to make the wealthiest wealthier

    But I guess that is your aim

  2. “It is myth ”

    Wow. So there really ARE people who think companies pay taxes.

    Until now, I always suspected such people were just pretending to believe that – you know, for the politics of it. Now I see that some, at least, really believe this particular myth that is, after all, concocted to deceive others. How smart can one be if fooled by one’s own propaganda?

    And may I add that finally understanding this gives me no pleasure, sir.

  3. Who is this Richard Murphy person? At first glance, he would seem to fit into the category of persons are not able to grasp the complexity involved in economic relationships but comment as though they do.

  4. Murphy has the perfect rebuttal arguement-that any evidence one can present to him is simply a myth or “ doesn’t actually work that way…” thus, he avoids presenting any evidence in support of his position. There is one form of corporation-a publicly regulated utility of one sort or another -that can “profit” from a lowering of corporate tax rates. If, and only if, their present rates are not subject to periodic review, but such are certainly a very small minority.

  5. You’re very kind to let the Murphy oik comment on your website, Tim, he is often not so kind. You should rather send him a snotty e-mail telling him his comment does not meet the rules of your website. In his case, the rule appears to be: You may not make valid comments that are opposed to my rigid, unsupported, highly politicised views and for which I cannot even use the myth rebuttal.

    Simple common sense says that a company exists to make, as a minimum, what its investors and management consider to be an acceptible level of profit. Tax is in essence a cost, same as any other. If the tax cost rises, it must be compensated for elsewhere.

  6. In spite of his confession, I still don’t think Mr Murphy actually believes this.

    I’m no economist, but I always thought business tax was to prevent business owners evading tax by not paying themselves taxable income?

  7. Tim, you’re making it far too complicated.

    A business has income of £x, tax of £y and net income of £z, which is divvied out somehow between owners and workers, there being huge overlaps between the two and all manner of different tax rates, depending on how it is paid out (dividends, wages, interest, rent etc).

    So it is blindingly obvious that £1 in the overall tax on the business (whether it is corp tax, PAYE, VAT) is being taken out of the collective pockets of owners and workers (VAT being borne by business and customer), quite what the ratio is, who cares?

    So Richard Murphy can stick that in his pipe and smoke it.

    Anyway, VAT is far worse than corporation tax, why is everybody so obsessed with corporation tax?

  8. There’s no VAT in the United States, thank goodness.

    I have always, always tried to make people understand that companies don’t really exist, except as a legal entity serving the needs of investors, employees and customers.

    There is no giant black machine at Exxon cackling maniacally as it directs its human minions to do its nefarious bidding.

    The corporation – just another bogey man for the credulous left.

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  10. I am an economist. The idea that the tax incidence might be shifted, in some circumstances, from shareholders to workers or consumers, is based on very specific assumptions relating to the nature of the economy in question (i.e. it is a closed economy), the structure of the labour force (full employment is assumed) and the capital market (assumed to be perfectly competitive). Back here on planet Earth, we recognise that these assumptions don’t apply, and the model is merely an exercise in academic guesswork. In real life very economies (other than North Korea) operate as closed economies, and companies do pay tax on behalf of their shareholders: hence the huge effort made by the corporate sector to avoid paying taxes and lobby for tax breaks. Greetings from planet Earth. John

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