December 30, 2022

Hostile takeover: why corporation tax hurts everyone

Hostile takeover: why corporation tax hurts everyone

Politicians prefer to hike corporate taxes because of the myth that these don't affect ordinary citizens.

Yet the harmful effects of increased corporate taxes fall mainly on workers and consumers.

About one third of the impact of increased corporate taxes falls on consumers, according to surveys of barcode-level product prices. The effects are regressive – they are larger for lower-price items and products purchased by low-income households.

The bulk of the impact of corporate tax increases falls on workers. Research shows that for every £1 increase in corporate tax revenues there is a reduction in aggregate wages of £1.50 or more. Research has also demonstrated that for every 1% increase in the UK corporation tax rate there is a yearly reduction in employment of circa 100,000.

There are other negative effects of increased corporate taxes harming everyone. Research shows a 10% increase in the effective corporate tax rate reduces the aggregate investment to GDP ratio by 2%, hobbling the economic growth politicians desire.

There are also significant adverse effects on foreign direct investment, entrepreneurial activity, and even firm-level innovation.

So those who think "Yeah, they can increase corporate taxes because it doesn't affect me", are sadly and dangerously wrong. Increased taxes on corporate income result in lower wages, fewer jobs, higher consumer prices and lower or stagnated growth.