Third, the IFS claims that even if some revenue could be obtained from increasing taxes on businesses, those tax revenues wouldn’t be coming from business — but in fact from workers, consumers, and shareholders. The specific issue at stake is what economists call the “incidence” of a tax. The government may
say that a tax will be paid by a certain group of people or institutions — big corporations, say. But because that group can change its behavior in response to the tax, someone else may end up actually paying for it.
So, if (say) the government whacks a tax on the producers of boiled sweets, the manufacturers might be able to push up their prices and make sweet-toothed consumers pay for it. In the case of corporation tax, instead of companies paying their tax increases out of profits — currently at record levels in the UK — they would cut or freeze pay for their workers, increase prices for consumers, or squeeze dividends for shareholders. They might not be able to do this – trade unions might block pay cuts, or, more likely, competitive markets for what companies are selling make price rises more difficult.
This is, once again, an empirical question — one to be settled by looking at the evidence. And the evidence, once again, is not favorable to the IFS’s claims.
Recent research found that there is “no robust evidence that corporate tax burdens have large depressing effects on wages.” The Institute of Public Policy Research (IPPR)
looked at the available evidence and found that in larger, developed economies, far less of any corporation tax rises are passed on to workers or consumers than elsewhere and that, overall, there is no clear evidence of impact on wages or consumer prices either way.
