Articles – The Centre for Independent Studies

Company taxes do harm wages

Michael Potter

13 May 2016 | Ideas@TheCentre

tax-wagesWhere is the evidence of the benefits of a company tax cut for workers? Clearly non-existent, according to some commentators , with one even arguing there was NO evidence from ANYWHERE IN THE WORLD that company tax cuts help wages [commentator’s emphasis, not mine].

But it is incredibly easy to find this evidence — even studies showing that workers bear a greater burden of company tax than shareholders. Here is a sample.

One 2012 study found that about half of the burden of European company taxes was borne by workers. A 2013 paper found every €1 increase in German company tax yields a €0.77 decline in wages, while other German studies found workers bear 40% of the burden and another 28 to 46%. The UK Treasury in 2013 estimated that 40% of the benefit of a company tax cut was provided to workers.

A 2013 paper argued that every $1 increase in US company tax leads to a $0.60 decline in wages.  A 2009 paper found that wages bore 52% of the burden of US State company taxes in the most recent years studied (1992 to 2005), while another 2009 study found that the burden was 54% for unionised workers. A 2014 study found workers bore 30-35% of the burden of US company tax, while the US Congressional Budget Office in 2010 suggested about 40% of the burden in the US is borne by workers.

Note that the estimates from larger economies such as the US and Germany would underestimate the burden on Australian workers. This is broadly because Australia is more dependent on foreign investment which is more sensitive to tax rates.

And all this evidence is in addition to the many Australian experts (including numerous Treasury officials) arguing that company taxes harm workers generally more than the adverse effect on shareholders.

So perhaps those commentators claiming company tax has no impact on wages need to learn how to use internet search engines. Here’s a link to save them some precious keystrokes.

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