One of the most controversial elements of the U.S. tax system is the assessment of corporate income tax. The tax is assessed on the economic profits of a corporation at the conclusion of its fiscal year. However, the question of who, exactly, pays this tax is still debated today by economists. Of course, it can be acknowledged that the corporation writes the check to the IRS, but what is unclear is from whom resources are taken to pay for this burdensome tax.

A corporation ought to be recognized for what it actually is: a socially-engineered conduit that creates value for society. As a result of this value creation, many stakeholders in a corporation can enjoy a commensurate return on their labor and capital. Therefore, when a tax is assessed on corporate earnings, the sacrifice is made either by employees or by investors. As any economist knows, only people can bear taxes.

Before the Tax Cuts and Jobs Act was signed into law in December of 2017, a 35 percent statutory rate was levied on U.S. corporations whose taxable income exceeded $10 million. Consider a small corporation whose ability to take deductions and loopholes is limited, thereby subjecting it to the entire tax. The resources needed to pay this burdensome tax must be gleaned either from the share of earnings paid to labor or from the share paid out to investors through dividends. Or worse, it can be paid with the earned capital of the corporation, which simultaneously hurts investors and deprives the corporation of resources needed to invest in new capital assets, thus restraining economic growth. For a small corporation that is growing and thus delivering increasing rates of output, a tax as large as 35 percent is detrimental not only to the corporation in question, but to the entire U.S. economy. If this small corporation represents thousands of other domestic companies, then this tax can potentially erode domestic investment by billions of dollars.

As international investment is becoming more prevalent, the incidence of the tax is shifting to labor, as investors are pulling out their capital from domestic companies and investing it abroad. Essentially, the ability of an investor to escape the tax is far greater than the ability of an employee to quit his or her job and work elsewhere. Thus, employees are almost powerless to defect from the company if they are hit with lower paychecks, whereas investors can easily threaten to divest from the company. As a result, investors remain largely unscathed by the tax.

At one time, investors did bear the burden of the corporate income tax, but that was when investment abroad was unprofitable. Today, prosperous and growing foreign companies that are in lower tax jurisdictions can offer their investors higher returns. These foreign investment opportunities are the reason why investors escape the tax, maintaining their given level of dividends and return, while employees are stuck with falling real wages. If evidence continues to build in support of this realization, then any proponent of a high corporate income tax is really in support of punitively taxing labor.

It is largely evident that corporate investors are typically individuals in the upper 10 percent of the income distribution, whereas laborers are predominantly in the bottom half. Therefore, the conclusion that a high corporate income tax is regressive is not far-fetched, considering that laborers suffer the incidence of the tax and are in the lower half of the income distribution.

This conclusion is what creates the stigma that is attached to being a Progressive. The left desires to lessen income inequality by taxing wealth, but in the process of doing so, it ends up penalizing the very people it is trying to help. The left condemns conservatives for not deferring to the authority of scientists concerning climate change, but commits the same atrocity when not deferring to the authority of legitimate economists whose studies reveal the erroneous nature of their ideology concerning corporate taxation.

Without question, income inequality is a problem that needs to be addressed. However, that does not merit nonsensical thinking that yields impractical or ideological solutions. There are other mechanisms that can be employed to reduce income inequality without destroying economic value in such a sinister and deceptive way.