by Philip Cross
February 12, 2014
Whenever governments are strapped for cash, eyes quickly turn to corporate income taxes as an expedient and presumed painless way to help balance their books. The erroneous thinking behind raising corporate income taxes, however, is that corporations and not people bear their burden. Economic theory and common sense both argue that corporate taxes are actually paid by consumers, workers, and/or investors. Every percentage-point increase in corporate tax rates leads to a significant erosion of the tax base. In addition, keeping corporate income taxes as low as possible minimizes the distorting impact they have on economic behavior, a rationale that applies to all taxes. Ultimately, the obstacle to lowering or eliminating corporate income taxes comes down to public perception of equity. Given the difficult optics of abolishing the corporate income tax, the next best alternative is to lower the rate as much as possible.