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Corporate Tax Hikes Lower Employee Wages: Think Tank

by Mike Godfrey, Tax-News.com, Washington

19 January 2016


The Fraser Institute, a Canadian think tank, has released a study that is said to debunk a long-held misperception in public policy debates about who ultimately bears the burden of business taxes.

The study points out that the tax incidence is determined by the group that ultimately bears the burden of the tax, which can be different from the entity responsible for collecting and remitting the revenue to government. It says: "When it comes to corporate taxes, some simply – and wrongly – assume that corporations pay them in an economic sense, leading to inaccurate claims about the desirability of raising such taxes. And, when it comes to payroll taxes, those levied on employers are assumed – again, incorrectly – to be paid by employers."

The corporate income tax (CIT) is ultimately "paid" for by individuals, it says, either by: workers through lower wages; consumers, through higher prices; and/or corporate owners (shareholders), through lower profits and returns on investment.

"While the objective of groups pushing for a higher CIT may be to increase the tax burden on owners of capital, taxes shifted to consumers or workers are clearly not paid by 'corporations,' even in the loosest meaning of the term," it says.

"With respect to payroll taxes, an increase in the total cost of labour is not always and easily absorbed by employers, meaning increased payroll taxes can result in a reduction in compensation (either wages or fringe benefits, or a combination of both). Thus, studying the incidence of corporate income and payroll taxes is important for an informed public-policy debate."

"In practice, empirical evidence suggests that the burden of both taxes is partly shifted to workers."

TAGS: individuals | tax | investment | business | fringe benefits | corporation tax | payroll | Canada

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