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

dks dkslbo at yahoo.com
Fri Apr 2 19:55:19 PST 2004


Michael Perelman wrote: "My initial question from a couple of days ago was why corps oppose corporate tax hikes if others bear the burden?"

I think that's exactly the right question to ask, and it makes the absence of conclusive empirical research on the tax incidence even more frustrating.

I don't have a definitive answer for you, but here are a few possibilities:

1) Theory predicts that labor will bear most of the tax burden in the *long run* but that capital will probably absorb most or all of it in the short run. Businesses, and more specifically executives who must answer to their boards, are not very good at making decisions based on the long run. They see only the immediate impact, which hurts them, and so they lobby to avoid it.

2) Similarly, corporations and financial markets might wrongly believe that capital bears the brunt of corporate income taxes. Expectations are really all that matter, and since executives have perverse incentives to protect the stock price of their company regardless of whether market perceptions are accurate, they attempt to prevent corporate tax hikes to avoid setting off this negative expectation.

3) After so many victories over labor in the past few decades (deunionization, increasing contingent/contract work, etc.), corporations now prefer to avoid putting more downward pressure on wages if they can in order to prevent organized labor from rebounding. In other words, corporations must still use a bit of "political capital" (for lack of a better term in the corporate arena) to shift the long-run tax burden onto labor. Even if labor pays the tax, corporations don't *gain* anything from a tax hike, so they would prefer to avoid it in order to conserve their political capital.

Cheers, Dan



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