The Fayetteville Observer today published my op-ed on the subject of tax incidence – that is who really feels the impact of taxes versus who just writes the check for the tax.
More specifically, a concept universally accepted by economists is the difference between who remits a tax payment and the actual incidence of the tax burden. In other words, the person or business writing the check may feel less of an impact than other people.
Most notable is the reality that corporations do not pay taxes, people pay taxes. As the Tax Foundation, a Washington, D.C.-based research organization, explains, “People pay all taxes. When the government levies a tax on a corporation, the corporation is more like a tax collector than a taxpayer. The burden of the tax ultimately falls on people – the owners, customers, or workers of the corporation.”
In short, “corporations” can’t pay taxes any more than your house can write a check for the property tax. Corporations are merely a collection of individuals legally organized to produce a good or deliver a service. Taxes on businesses are really taxes on these individuals and consume resources the organization could allocate toward other purposes.
This distinction is of particular importance in light of the current effort in NC to eliminate income taxes. Critics who cry that eliminating personal and corporate income taxes would simply amount to a tax break for wealthy corporations and high-income earners fail to understand who really suffers under our current tax structure.
The real victims of corporate taxation? Workers. As the Tax Foundation states, “New research is indicating that in a global economy, where capital is highly mobile but workers are not, labor is bearing the brunt of corporate taxation.”
For instance, a September 2007 study produced by the Oxford University Centre for Business Taxation studied data from more than 15,000 companies in four countries. The study found that more than 60 percent of corporate taxation is “shifted onto the workforce in the form of lower wages” in the short run, growing to 100 percent in the long run. In other words, over the long haul, every dollar extracted from businesses in the form of taxation reduces worker pay an equal amount.
Making matters worse, the negative effect of corporate taxation on wages falls hardest on lower-skilled workers and those on the margins of employment.
The same concept applies in the attempt to heavily tax high-income earners. They are not stationary targets and will flee to more inviting states and take their business and jobs with them. Left behind are low-income earners and the unemployed who are disproportionately harmed by the lack of opportunities.
Read the whole article here.