Study Shows Corporate Tax is Borne by Consumers Through Higher Prices

Share on Facebook
Tweet this Story
Pin this Image

Posted by Isabelle Morales on Monday, May 10th, 2021, 4:30 PM PERMALINK

Biden is pushing for $2 trillion in higher corporate taxes, including raising the corporate income tax rate from 21 to 28 percent. This will harm consumers and workers, according to a recent National Bureau of Economic Research paper. This study found that 31 percent of the corporate tax rate is borne by consumers through higher prices and that 38 percent of the corporate tax is borne by workers through lower wages or less jobs. Despite the Biden administration's assertions, tax hikes won't just hurt the wealthy – it will harm everyday Americans. 

According to the study's findings, nearly 70 percent of the cost of the corporate tax is borne by working families and consumers. This is hardly the crackdown on corporate America the Left promised.

This study was published in April 2020, conducted by Scott R. Baker of Northwestern University, Stephen Teng Sun of the City University of Hong Kong, and Constantine Yannelis of the University of Chicago. In describing their results, they asserted that the findings “suggested that models used by policymakers significantly underestimate the incidence of corporate taxes on consumers.”  

In their breakdown of who is impacted by corporate taxes, they found the incidence on consumers, workers, and shareholders was 31 percent, 38 percent, and 31 percent, respectively. The study also found that increasing the corporate tax rate by one percentage point leads to a 0.17 percent increase in retail product prices.

Working families spend a significant portion of each paycheck on goods and services. In this way, rising costs disproportionately hurt low- and middle-income Americans. According to the OECD, core goods and services make up more than half of middle-class spending. As the OECD describes it, there is a “rising cost of the middle-class lifestyle.”  

As the NBER paper notes, many studies operate under the assumption that product prices should not be considered when analyzing corporate tax incidence. In this way, the effects of corporate tax hikes on product prices have been largely left out of academic discourse. This study gives us valuable insight which had been lacking in research before. 

Interestingly, voters already understand that Biden’s tax increases will harm them. In a poll conducted by HarrisX and commissioned by ATR, 58 percent of respondents said that raising taxes on businesses will harm the cost of goods and services, with 22 percent saying it would help the cost of goods and services, and 19 percent saying it would make no difference. 

This study is one of many that shows how working families will be harmed by corporate tax increases.

Photo Credit: Dave MacFarlane

More from Americans for Tax Reform

×