An E.U. Study in 2007 found, for example, that “a ten percentage point increase in the corporate tax rate of high‐income countries reduces mean annual gross wages by seven percent.” A 2009 National Bureau of Economic Research paper analyzing American corporate‐tax rates at the state level found that “workers in a fully unionized firm capture roughly 54 percent of the benefits of low tax rates,” while a more recent analysis found that workers overall bore 30–35 percent of the burden. A 2015 study from Germany indicated “that workers bear about 40% of the total tax burden,” though it acknowledged that this was likely lower in companies with profit‐sharing arrangements. The Congressional Budget Office has even estimated that the proportion of the corporate income‐tax burden borne by labor could be more than 70 percent.
It makes sense that workers would be hurt by high corporate‐tax rates. A lower corporate rate leaves more after‐tax profits for firms and workers to bargain over, which can raise wages directly. And lower rates increase a company’s after‐tax return on investment, encouraging investment relative to consumption. This helps raise capital per worker and hence boosts productivity and wages over time.
At best, then, corporate income taxes are a stealth tax on workers. At worst, they are an investment‐sapping, highly distortionary capital tax. It would be better to reduce or eliminate them and raise revenues in other ways, particularly for the U.S., where the combined federal and state corporate income‐tax rate is almost 40 percent, way higher than the 25 percent OECD average.
Some Democrats are understandably concerned that large tax cuts will substantially worsen America’s fiscal position and lead to cuts to spending programs that help the poor. President Trump has talked of an ambitious plan to get the corporate rate as low as 15 percent. Certainly, in public most Republicans seem to be angling for 25 percent or below.
While such large cuts would lead to an immediate revenue shortfall, the difference could be at least partially made up by eliminating damaging deductions and exemptions in other parts of the federal tax code. A corporate rate cut could also be expected to broaden the tax base, further offsetting its own costs by spurring more investment, the repatriation of profits, the relocation of business headquarters, and a reduction in tax evasion. Britain and Canada, in particular, have shown that it is possible to substantially cut rates without meaningfully reducing corporate revenues as a proportion of GDP.
The key point is that high corporate income taxes are widely viewed as an economic hindrance by economists. Congressional Republicans are constrained, of course, by Senate reconciliation rules, which mandate that they must reduce spending substantially, or eliminate loopholes, to enable big tax cuts. But cutting the corporate‐tax rate in itself will increase GDP, and evidence suggests it will lead to higher wages for workers, too.