by Ben Southwood
Adam Smith Institute
April 22, 2014
When economists ask “who pays corporation tax?” they are not asking which firms avoid or evade tax and which do not. They mean “what is the incidence of the tax”—who is made poorer by a tax on the profits of incorporated businesses. Since corporations and firms are merely legal constructs, some combination of capitalists, workers and consumers must pay. Though there is nothing like a consensus in the literature, most economists agree that both capital and labour bear substantial fractions of the burden of the corporate tax, with capital, likely to bear the larger share. Nearly all economists think that the corporate income tax is a bad idea; in the words of Fehr, Jokisch, Kambhampati and Kotlikoff (2013): “Eliminating the US corporate income tax has the potential to raise the welfare of all US generations. This is true even if other regions set their corporate tax rates to zero.”



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