Higher company taxes hit wages

The left generally favours higher taxes and some of the left also show an anti-business streak.

That combination can lead to policies which tax businesses more.

But Tim Worstall asks who pays for that:

 The only three groups possible are the shareholders of that company, the customers of it or the workers. At  which point we have an interesting new paper on what that incidence is in the European example:

A stylised model is provided to show how the direct effect of corporate income tax on wages can be identified in a bargaining framework using cross-company variation in tax liabilities, conditional on value added per employee. Using data on 55,082 companies located in nine European countries over the period 1996–2003, we estimate the long run elasticity of the wage bill with respect to taxation to be −0.093. Evaluated at the mean, this implies that an exogenous rise of $1 in tax would reduce the wage bill by 49 cents.

As we can see, the workers are paying 50% of that corporation tax bill. Meaning that anyone (and everyone) shouting that companies must pay more in taxes is in fact saying that they want to reduce the wages of the workers.

The law of unintended consequences at work again – higher company taxes hit wages.

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