Adam Smith Institute

I've touched on this idea here before, that we should abolish corporation tax. It's not just that the costs of collection are so high (think of all those tax advisors, not just what it costs the government) but that in reality, companies don't actually pay the tax. They can't, for they're a fiction, a legal one to be sure, but a fiction all the same. The tax is actually paid by some combination of the investors in lower returns, the customers in higher prices, and the workforce in lower wages.

Unfortunately, we've been slightly limited in that the empirical research into just who of those three groups does pay it has been very America specific. Until now, that is, with this paper from earlier in the year. Looking at data from 10 countries and 23,000 companies:
        Our central estimate is that 54 percent of any additional tax is passed on in lower wages, even in the short run...

That's not all:
        In the longer run, a $1 rise in the tax liability results in a fall in total employee compensation in excess of $1.

That is, that for every pound taken from the companies in the taxation of their profits, the workers lose more than one pound in income.

This, of course, isn't what we want to happen at all and it most certainly isn't progressive in any sense of the word. So instead of worrying about having a common tax base (as the EU is doing), or whether the rate should be this little bit lower or higher, what allowances should be available and so on, wouldn't it be rather better simply to abolish the whole thing?

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