Who Pays Corporate Taxes 101

[NCVol]

I've read this lie too many times to count:

In the same vein, JPMorgan Chase  ( JPM  -  news  -  people ) Chief Executive Jamie Dimon  has spoken out against an Obama proposal to levy a special tax on banks to recoup bailout costs. "Using tax policy to punish people is a bad idea," said Dimon. "All businesses tend to pass costs on to customers."

Just to be clear, if Jamie "I love socialism for rich bankers" Dimon could pass taxes onto his customers, he wouldn't give a shiate if taxes go up on his taxpayer subsidized banking operations.  He's not paid to care about the tax burdens on his clients, so why does he fight tax increase?  Here's why.  Taxes on a business can get paid by:

1) Customers
2) Employees
3) Owners
4) Combination of two or more of the above.

In the case of a special tax only on big TBTF banks, just about the entire tax will be absorbed by employees and owners - aka people like Jamie Dimon who is both.  Customers won't feel much since if Jamie Dimon could raise prices in a competitive environment he'd do it today, and not wait for a tax increase to give him an excuse.  But he can't raise prices in a competitive environment, and the special tax won't be levied on small banks, only the TBTF socialism for the rich recipients like him.  So TBTF banks like his will eat almost all the tax with lower profits, lower bonus pools and therefore the poor banksters get a smaller paycheck.  Shareholders will feel some impact too.  Customers very little if any. 

So next time you hear a CEO claim he just passes taxes to customers, know he's lying.  Period. 

[The One Man Gang]

Good Lord, ALL corporate taxes are passed on to the customers and stockholders.  Anyone who doesn't realize that is perfectly qualified to be an EGP Congresscritter or sit in a high position in the Hoaxandchange administration.

BTW, most corporations are publicly owned and the vast majority of stockholders are ordinary people with 401k funds or other retirement plans.  They are the OWNERS who WILL also pay the vast majority of this tax. 

One small example:  In 1978, the Democrats and the Carter administration worked themselves into high dudgeon over "windfall" oil company profits as US wells were producing at about $5 less per bbl than OPEC was charging for its oil.

In typical socialist fashion, the Democrats imposed a "windfall profits tax" on the difference between the foreign and domestic crude oil prices.  The problem was that most of those domestic wells were owned directly by the stockholders and the leaseholders received their checks based on what the company was setting as the price for that oil. Oil is like money in that it is "fungible" and whatever is being charged for crude in one place is what the price is everywhere. They tried to explain this to the Democrats but got shouted down by the likes of Ted Kennedy and other EGP millionaires. The end result? Many, many retirees and farmers (read: ordinary people) in East Texas and Oklahoma suddenly saw their quarterly dividend checks from the oil company profits or from production of the wells on their property slashed by as much as 50%.

It didn't take them long to figure out who to blame for this.

I was assigned to work Northeast Texas by the Carter campaign in 1980.  At times I felt like a Klansman at a Black Panther rally. The Carter people finally figured out it was a lost cause and transferred me elsewhere.

Carter carried Texas by a wide margin '76. 

He got blown out in 1980.

[NCVol]

Good Lord, ALL corporate taxes are passed on to the customers and stockholders.  Anyone who doesn't realize that is perfectly qualified to be an EGP Congresscritter or sit in a high position in the Hoaxandchange administration.

That's just wrong.  Period.  End of sentence.  Taxes are a cost of doing business, like raw materials, rent, utilities, employee benefits, interest on loans...  If you increase costs of ANY of those items, including taxes, there is less income to distribute in the form of wages OR dividends.  Some cost increases are of course passed to consumers, especially in the long run.

Do I have to remind you that one of the right wingers favorite talking points is tax cuts on rich people lead to more hiring (there is of course some truth in this statement).  You're saying that this economic effect, taxes affect hiring and wages, ONLY works with tax cuts, but not tax increases?  Sorry, try again.  If tax cuts lead to more hiring and more pay, then tax increases do in fact lead to less hiring and/or lower pay.  

OR we can look at a simple scenario. Let's say Kenyan Commie levies a a "tax" of $10,000, on Company A, let's call it a TBTF tax.  And there is a debate in the board room - should we lower wages for our employees or lower the dividend check for the owner, the guy who hired us as board members.  Tell the class who wins that debate.  The owner, or his employees?  I pick.....OWNER!  Or at the very least the owner "asks" the employees to "share" in that evil tax burden.  

BTW, most corporations are publicly owned and the vast majority of stockholders are ordinary people with 401k funds or other retirement plans.  They are the OWNERS who WILL also pay the vast majority of this tax.  

Wrong on the first part, misleading as heck on the second.  

Almost all companies are privately owned.  About 2.5 million corporate returns were filed in 2008 just a few thousand, are publicly owned.  

It is true that there are lots of small stockholders, those with 401(k) plans and IRAs and what not.  But the fact is the wealth, and therefore stock ownership, in this country is incredibly skewed to the top.  There are many measures of wealth, but most show the top 1% owns about 30-40% of all wealth.  The top 20% owns up to 90%.  The bottom EIGHTY percent has maybe 10% of the wealth, and this includes housing etc.  So the bottom 80% own directly or indirectly a trivial amount of stocks.  

This study (see page 10) shows that the top quartile (25%) owns about 87% of the wealth.  The next 25% own 10%.  The bottom HALF own 3% (or the same amount as the Forbes 400 richest families).  And again, as you go down the scale, the more of our wealth is tied up in our houses and CDs and cars and land and the less is in stocks.  That's just fact. 



The example with oil and gas is interesting but that industry is unique in all kinds of ways.  We subsidize the daylights out of oil and gas with all kinds of credits and special depreciation provisions and ways to account for oil inventories, then tax the daylights out of users of it with excise taxes and with taxes to fund the military which protects our worldwide supplies.  It's really a perfect example of modern "capitalism" in this country which means the line between gubment and the executive offices and board rooms of the big boys is all but obliterated.  

[Sasquatch]

If tax cuts lead to more hiring and more pay, then tax increases do in fact lead to less hiring and/or lower pay. 

So we can expect an increase in the unemployment rate and a decrease in wages. Awesome. 

[NCVol]

We're talking micro versus macro for that question.

Short answer is there could be a difference between the effect on a particular firm and the overall economy, and it depends on who pays the tax and who benefits from the gubment spending.  For example, if you levy a tax that falls on the top 1/10th of 1%, who save the vast majority of their income, and transfer it to the bottom half, who spend all their income, with gubment workers collecting their cut, there is some evidence that the wealth "transfer" can provide an economic boost.  It's the same effect as an increase in the minimum wage or wage increases as a result of collective bargaining. 

As our wealth has concentrated, the income gains for average workers have disappeared.  Less income to spend, less robust economy, more bubbles, less real growth.  This is our recent past in a nutshell.