"John K. Taber" <jktaber@onramp.net> wrote:

>I came across this quote:

>"Bartlett and Steele, in their book, "America: Who Really Pays
>the Taxes," show that corporations now pay a much smaller share of
>overall taxes, while the tax burden for individuals has increased.
>
> During the 1940s, corporate taxes accounted for 33 percent of
> the federal government's general fund tax collections.
>This proportion has dropped to 15 percent in the 1990s.

> In the 1940s, individual income taxes accounted for 44 percent of
>the government's general fund tax collections. This figure has risen to
>73 percent in the 1990s."

>Would you guys comment on this quote, please. Is it correct? Is there
>more to the story than this?

Reply from OldNasty@mindspring.com (Grinch):


It's a fact that corporate taxes have declined significantly as a
percentage of total federal income tax collections over the last 50
years, while the corresponding figure for personal income taxes has
risen. But it's not quite correct to jump to the conclusion that
individuals are paying more as a result -- that individuals now are
paying taxes "instead of" corporations.

Of course, this is because corporate taxes pass through to individuals
in one way or another -- to consumers through higher prices or lower
product supply; to employees through lower wages or reduced
employment, to investors through lower return to capital. The relative
impact that a corporate tax will have on these different groups will
depend upon relevant elasticities, and may vary a lot from business to
business.

For instance, there have already been economic studies done of the
proposed tobacco settlement which predict that the cost of the
hundreds of millions of dollars that the tobacco companies would pay
under it (which may be considered a tax on the industry) would be
passed through almost entirely to consumers.
    The elasticity of demand for cigarettes is very low (a formal way
of saying nicotine addicts will pay anything for a smoke) which will
enable price increases to cover the bulk of the cost of the settlement
and leave tobacco company investors and employees relatively unscathed
-- so the studies say. And the recent performance of tobacco company
stocks seems to confirm this view.

Considerations of economic efficiency argue that tax regimes should be
as "transparent" as possible, meaning that it should be very clear who
is really paying any tax. Corporate taxes score low in this regard
because it is never clear and is often hard to figure out who is
paying how much at the bottom line, and because who is really paying
can vary so much from business to business.
   If you want to tax a particular group such as investors or
employees or consumers, things are much clearer if you enact a capital
levy, or an employment tax, or a sales tax. But, of course, when such
taxes are proposed people quickly recognize how much they would pay
under them and are likely to mobilize to resist.

The claim that "corporations should pay more taxes" often is made in
the naive belief that somehow this presents a free lunch for
individuals, that corporations pay taxes "instead of" individuals;  or
as a left-handed way of taxing rich corporate shareholders, although
it is not at all clear how much of the cost of such taxes really falls
on shareholders. And what might be called "obscurantist" taxes also
often are very convenient for politicians and interest groups.

Consider the tobacco settlement again. Assume for argument's sake that
it's true that its entire cost will be passed through to consumers.
In that case it is effectively a tax on the tobacco companies that
they will pass through to smokers at a rate of about 80 cents to $1
per pack of cigarettes (a regressive tax, since smokers tend to come
from lower income groups) with the proceeds earmarked to pay the
societal expenses of smoking.
   Now it is not unreasonable to tax cigarettes to pay for the
societal costs of smoking, especially since such a tax may in the
future deter potential smokers from picking up the practice to begin
with.
   But I think it's clear that the politics of a $1-per-pack tax on
cigarettes, which would be felt in large measure by the poor, would be
entirely different from the current politics of "punishing the tobacco
companies" (who may not be being punished much at all).

  To the extent that corporate taxes obscure the issue of who is
really paying them, and enable poltical arguments to diverge from the
consideration of economic reality, their decline may be a good thing.
Transparent taxes are better. Let people know what they're paying.
    
One person's opinion.

Regards.