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One of President Obama’s campaign promises was not to raise taxes on middle-class Americans. So here’s my question: If there’s a corporate tax increase either in the form of “cap and trade” or income tax, does it turn out to be a middle-class tax increase? Most people would say no but let’s look at it.
There’s a whole subject area in economics known as tax incidence — namely, who bears the burden of a tax? The first thing that should be recognized is that the burden of a tax is not necessarily borne by the party upon whom it is levied. That is, for example, if a sales tax is levied on gasoline retailers, they don’t bear the full burden of the tax. Part of it is shifted to customers in the form of higher gasoline prices.
Suppose your local politician tells you, as a homeowner, “I’m not going to raise taxes on you! I’m going to raise taxes on your land.” You’d probably tell him that he’s an idiot because land does not pay taxes; only people pay taxes. That means a tax on your land is a tax on you. You say, “Williams, that’s pretty elementary, isn’t it?” Not quite.
What about the politician who tells us that he’s not going to raise taxes on the middle class; instead, he’s going to raise corporate income taxes as means to get rich corporations to pay their rightful share of government? If a tax is levied on a corporation, and if it is to survive, it will have one of three responses, or some combination thereof. One response is to raise the price of its product, so who bears the burden? Another response is to lower dividends; again, who bears the burden? Yet another response is to lay off workers. In each case, it is people, not some legal fiction called a corporation, who bear the burden of the tax.
Because corporations have these responses to the imposition of a tax, they are merely government tax collectors.
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