[lbo-talk] Kerry's Tax Cut Makes Me Wanna Ralph

dks dkslbo at yahoo.com
Fri Apr 2 19:54:10 PST 2004


Yoshie wrote: "Whether the corporate taxes are borne by workers (lower wages) or consumers (higher prices) or investors (lower dividends) cannot be theoretically decided in advance. It all depends on which sector -- workers, consumers, or investors -- is best organized, can decrease elasticity, and has more power to stick it to the others."

If the point here is that theorizing is irrelevant or useless, I disagree. You're mostly correct that the relative power of capital and labor could have a decisive impact in determining who pays the corporate income tax. However, the point of theory in this case is to come up with conclusions that are robust for a variety of circumstances and, more importantly, to allow us to compare different options.

The theory concludes that labor will probably eat most of the corporate income tax, but all kinds of factors could mitigate or exacerbate that, so of course we don't know for sure--theory is a blunt instrument at best. But it's useful, because it allows us to say that if our goal is progressive taxation, then there's less room for things to go wrong if we tax the rich directly instead of using indirect corporate income taxes whose distributional effects are *probably* the opposite of what we want.

(But note that one impetus of the corporate income tax is to prevent the rich from sheltering income within corporate entities, so that's a loophole that would have to be closed.)

Cheers, Dan



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