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November 14. 2013

New JCT Report Shows Corporate Income Tax Rate’s Effect on Average Americans

The Joint Committee on Taxation (JCT) recently released a report that illustrates how America’s 35% corporate income tax rate – the highest in the developed world – hurts American workers. This report, titled Modeling the Distribution of Taxes on Business Income, supports the long-held findings of economists that corporate taxes are a burden on all Americans.

The JCT report announces a significant change in how they will show the burden of the corporate income tax system for taxpayers in different income classes. Going forward, the Committee will show 25% of the long-term corporate tax burden falls on workers, not capital owners. The new JCT methodology recognizes that our outdated, complex, and uncompetitive tax system is bad for all Americans – whether they are working or saving for retirement.

The report states that the economics literature has reached consensus on two key points: “One is that the burden of the corporate income tax falls largely on domestic individuals, and therefore the corporate income tax does impact the well-being of these individuals. The second is that the burden of corporate income taxes is not borne entirely by capital owners, and is instead shared between capital owners and labor with the share borne by each being the subject of ongoing debate.”

JCT’s new income distribution methodology is in line with the US Treasury Department and the Congressional Budget Office, which assign 18% and 25%, respectively, of the corporate tax burden to workers.

In a recent New York Times article on the JCT report, former Ronald Reagan and George H.W. Bush economic policy advisor Bruce Bartlett notes, “While economists still believe that the bulk of corporate income taxes is paid by the owners of capital, in recent years they have come to believe that workers ultimately pay much of the tax in the form of lower wages. This results from lower capital investment due to a higher cost of capital, which reduces productivity and hence wages, and because capital investment moves to other countries where corporate income taxes are lower.”

We need comprehensive tax reform that lowers the US corporate rate – now the highest among major industrial countries — ends tax breaks and preferences, and creates a modern, international tax system so American businesses can compete, grow and hire workers.

You can read the full report here.