January 28, 2015

Corporations Are Gov’t Tax Collectors

Walter E. Williams: “This year’s congressional efforts to reduce corporate income tax will create great opportunities for demagogues. The United States has the highest corporate income tax rate among the 34 industrialized nations of the Organisation for Economic Co-operation and Development. The effect of high corporate taxes gives corporations incentives to lower their effective tax rates by engaging in activities that lower their competitiveness and to shift profits to foreign subsidiaries. Demagogues will claim that corporations should pay their fair share of taxes. The fact of the matter, which even MIT economists understand but might not publicly admit, is corporations do not pay taxes. An important subject area in economics, called tax incidence, says the entity upon whom a tax is levied does not necessarily bear the full burden of the tax. Some of the tax burden is shifted to another party. If a tax is levied on a corporation – and if the corporation is to survive – it will have one of three responses or some combination thereof. It will raise the price of its product, lower dividends or lay off workers. The important point is that only people, not some legal fiction called a corporation, bear the burden of any tax. Corporations are merely government tax collectors.”

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