Who Makes Policy Campaign 2016 Edition

Op-Ed:“The Cure for Wage Stagnation”

“The Cure for Wage Stagnation” This is an Op-ed in the Wall Street Journal by Kevin Hassett and Aparna Mathur from the American Enterprise Institute. This article argues that lowering the corporate income tax raises wages because, “lower corporate rates create the right incentives for firms to give workers better tools. Workers become more productive when they acquire better skills or have better tools and more productive workers earn higher wages.”

The authors use the sales tax analogy to back their argument by proposing we look at the corporate income tax the same way we look at sales tax stating, “It is widely accepted that sales taxes are not necessarily paid by consumers. If the government charges a 10% sales tax, goods prices go up 10%, in which case consumers would pay the whole tax. In the same way- If a higher corporate tax reduces the return to capital, then capital may move abroad. This outflow could reduce the productivity and compensation for domestic workers, who are relatively immobile. So just as a sales tax might have an impact on the final goods price, a higher corporate tax might have an impact on wages. If wages go down when corporate taxes go up, the worker is left holding the tax bag.”

Their findings are also based on empirical analysis of a data gathered on international tax rates and manufacturing wages in 72 countries over 22 years.

This is a very logical argument and I might have to agree in the absence of any evidence proving otherwise. Although there has been research conducted by the Congressional Budget office and other organizations estimates that 75% to 82% of the burden of the corporate income tax falls to capital, there is no research on who the other 18% to 25% of tax burden affect.

Author: o.oyewo


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