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From: mcb@styx.UUCP (Michael C. Berch)
Newsgroups: net.taxes
Subject: Corporate income tax
Message-ID: <6493@styx.UUCP>
Date: Sun, 16-Jun-85 02:18:42 EDT
Article-I.D.: styx.6493
Posted: Sun Jun 16 02:18:42 1985
Date-Received: Tue, 18-Jun-85 05:24:23 EDT
References: <3035@drutx.UUCP>
Organization: Lawrence Livermore Laboratory, Livermore, CA
Lines: 31

The faction that has been clamoring for increased corporate taxes is going
to be rather surprised by the intermediate- and long-term effects of a blanket
increase in corporate tax rates. The fact is that an across the board 
corporate tax increase (that is not easily avoidable through use of income
sheltering and special credits) will ultimately have a REGRESSIVE effect on
the tax structure. (I'm not against this, by the way; I think it will have
the beneficial effect of "flattening" the progressivity of the individual
rate structure.)

Most experts agree that the proposed changes will affect all
firms in the same industry in the same way. (Unlike other tax changes 
which would favor cash-rich firms over cash-poor firms, etc.) This means
that (say) the taxes for all the firms in the general retail business
would go up X%. Since all the firms are operating on essentially the same
profit margin, there is no incentive to do anything other than pass the
entire cost on by way of price increases. (There are exceptions to this,
but they are short-term and not economically meaningful.)
Analyzed in a macroeconomic sense, this means that every
household's purchasing power is diminished approximately the same
amount, which is a regressive outcome.

What the people who want to raise corporate taxes REALLY want to
do is exact a greater amount of taxes from the owners of the
corporations. There are a number of ways of doing this, ranging
from the obvious (eliminating the preference on capital gains
income) to the ridiculous (a special tax on corporate dividends),
but raising the corporate income tax isn't one of them.

Michael C. Berch
mcb@lll-tis-b.ARPA
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