quote:
Can we go a step further and acknowledge that the point of discussing incidence of the corporate tax is to defend the position that cutting it would actually be a tax cut for workers?

Sure, and this is where I get lost in the literature, to be honest. Let's say there are 2 periods, one before the corp tax, one after. I understand why a company can pass on their tax bill to workers in the form of lower wages. What I can't understand in my mind, intuitively, is why cutting the corp tax rate would incentivize them to raise the wages back to what they were before the corp tax was levied.

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Posted by cahoots

Member since Jan 2009

9134 posts

Posted on 11/8/17 at 2:37 pm to HailHailtoMichigan!

quote:
Sure, and this is where I get lost in the literature, to be honest. Let's say there are 2 periods, one before the corp tax, one after. I understand why a company can pass on their tax bill to workers in the form of lower wages. What I can't understand in my mind, intuitively, is why cutting the corp tax rate would incentivize them to raise the wages back to what they were before the corp tax was levied.

The theory would be that investors interested in profitability would incentivize the company to use tax savings to increase wages, thus attracting better talent and/or compelling better employee performance, which would also drive profitability. I guess.

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Posted by 90proofprofessional

Member since Mar 2004

24445 posts

Posted on 11/8/17 at 2:47 pm to HailHailtoMichigan!

quote:
a company can pass on their tax bill to workers in the form of lower wages. What I can't understand in my mind, intuitively, is why cutting the corp tax rate would incentivize them to raise the wages back to what they were before the corp tax was levied

the missing element in both periods is the consideration of whether the employer can get away with passing the tax onto lower wages (and whether they can survive the tax if they can't do that), and whether they can get away with holding on to a windfall from a tax cut

the condition that would bind them would be a truly competitive labor market, as the article brings up. is that market efficient, or is there evidence that one side holds more market power than the other? if one does- say the employer (labor demand side)- you will see marginal cost of an employee (wage) diverge from marginal benefit, tilted in the favor of the corporation

this possibility is why you see libs posting charts like this :