Meanwhile, the following is a brief summary of the current consensus on the theoretical side of things. In short: "most economists today seem to accept the idea that capital escapes most of the burden in the long run" and that the corporate income tax is instead born by labor, consumers, and landowners. There's also some interesting info on some of the political controversies surrounding CIT indidence within gov't accounting offices, phrased in that amusingly detached tone that only an economist can muster.
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>From "Who Bears the Burden of the Corporate Tax in the Open Economy?"
Jane Gravelle, Kent Smetters
<www.nber.org/papers/w8280>
The controversial nature of the incidence of the tax was especially evident during the last major tax reform, the Tax Reform Act of 1986 (TRA86), which cut the individual tax and raised the corporate tax. The Joint Committe on Taxation (JCT), which is responsible for distributional analysis of proposed legislation for the Congress, avoided the incidence controversy altogether by ignoring the corporate tax in its distributional analysis of the 1986 legislation that allocated the corporate tax to capital. Bradford (1995) also criticized JCT's work as being incomplete. (The JCT still does not allocate the corporate income tax in its distributional analysis.) At one time, the Congressional Budget Office (CBO) prepared two distributional estimates: one assigned all the incidence to labor and the other assigned all the incidence to capital. Later, the CBO simplified their analysis, and avoided some political pressure, by dividing the incidence evenly between capital and labor. (Note: Citing this paper, the CBO recently announced it will now allocate the full incidence to capital.) The Treasury Department's Office of Tax Analysis (OTA) takes a more traditional view and allocates the full incidence to capital. Interestingly, the political "conservatives" inside the Washington Beltway sometimes prefer assigning the full incidence to capital, thereby allowing them to claim that the tax code is sufficiently progressive.
Among academics, Harberger's (1962) closed-economy model dominated the understanding of the incidence of a corporate tax for several years. That paper argued that the corporate income tax tends to fall completely on capital.
The model's incidence results have largely withstood modifications in modeling the corporate sector (Gravelle and Kotlikoff, 1989). It is this view that guided OTA's decision to allocate the full incidence of the corporate tax to capital.
By the mid 1970s, Harberger's 1962 incidence result, however, was drawn into question in several studies when the closed-economy assumption was relaxed. Indeed, every major study that we are aware of argues that immobile factors (labor and/or land) bear most, if not all, of the long-run incidence of the corporate tax in the open economy due to capital flows across borders. Some notable studies include Bradford (1978), Kotlikoff and Summers (1987), Mutti and Grubert (1985), and, interestingly, Harberger (1995). Harberger (1995) argues that, in fact, labor bears more than 100 percent of a corporate tax burden once open economy considerations are taken into account. Moreover, most related textbooks suggest that domestic labor bears the capital income tax, especially in a small open economy.
Indeed, while there is little debate among economists that capital, being immobile in the short run, bears the burden of the coprorate income tax in the short run, most economists today seem to accept the idea that capital escapes most of the burden in the long run. Fuchs, Krueger, and Poterba (1997) report that economists at the top 40 universities estimate, on average, that capital bears only 40 percent of the tax. The authors suggest that these views reflect uncertainties about the degree of openness of world capital markets and the interest elasticity of savings. Slemrod (1995b) surveying members of the National Tax Association, reports that among academic economists, over half believe that non-capital factors (labor and consumers) largely bear the tax. Auerbach and Slemrod (1997, p. 621) refer to an assumption that 100 percent of the tax falls on capital as "extreme," even though such an assumption would have been a central tendency in Harberger's model, where some reasonable assumptions about elasticities could have caused capital to bear more than 100 percent of the tax. It is safe to conclude, therefore, that the original Harberger (1962) argument that the incidence is born mainly by capital is now dead among academics.
[Note that this paper goes on to conclude that they believe the opposite is the case based on their model (click the link above to see the abstract), but it hasn't been verified with empirical data and such a conclusion is still not widely accepted among economists.]
Cheers, Dan