Fox Business' Francis Ignores Economic Reality Of Abolishing Corporate Taxes

Blog ››› ››› ALBERT KLEINE

Fox Business anchor Melissa Francis suggested that the United States should eliminate the corporate tax because "companies don't pay taxes, their customers do" -- a statement of considerable debate among economists -- while overlooking potential revenue losses and negative economic effects if the tax were abolished.

In the Bulls & Bears segment, Francis claims that the burden of taxes levied on corporations is ultimately shifted to consumers. While economists have long realized that tax incidence can fall to other parties as Francis described, they are unable to agree who truly bears the burden for corporate taxes. From a New York Times article explaining the corporate tax debate:

Economists are divided on the issue. Some (including Gregory Mankiw) are persuaded that the corporate income tax ultimately falls mainly on labor, rather than on the presumably wealthier owners of capital. One can actually make a case for cutting the tax in the name of a more progressive income-tax structure, which should appeal to voters and politicians left of center.

Other economists, including the authors of the surveys cited above (Jane Gravelle, Jennifer Gravelle and Thomas Hungerford), are persuaded by the available empirical evidence on the five factors I note that the burden of the corporate tax ultimately rests mainly on the owners of capital. That also appears to be the operative assumption of the Congressional Budget Office, the Treasury and other agencies when they analyze the distributional impact of various forms of taxation. (The New York Times, 7/23/10)

While Francis never acknowledges this reality, more important is the fact that she completely overlooks the potential revenue loss from abolishing corporate taxes, claiming "the government doesn't need any more of your money." According to analysis from the Center on Budget and Policy Priorities, the corporate income tax is the third largest single tax contributor to the federal budget:


(Center on Budget and Policy Priorities, 8/20/12)

Abolishing the corporate income tax, a small percentage compared to revenue raised by income and payroll taxes, would still result in a substantial loss (about $184 billion in 2011 according to the graph above). Francis never addressed how to account for this lost revenue, which could negatively affect economic growth. The Financial Times further elaborates on potential revenue losses and negative economic effects:

But lowering the corporate tax rate is expensive - each percentage point reduction would cut revenues by about $120bn over 10 years. Scaling back the three largest corporate tax expenditures to pay for a cut could increase the cost of capital, thereby reducing investment and growth. (Financial Times, 9/17/12)

The share of federal revenues accounted for by the corporate tax has been on a consistent decline since the 1950s, made up for by increases in payroll tax revenues:


(Center on Budget and Policy Priorities, 8/20/12)

While increasing payroll taxes may help offset corporate tax revenues, the net effect on the economy could be largely negative. As previous Media Matters research points out, many economists believe that low payroll taxes will lead to jobs and economic growth.

Instead, many economists who are in favor of abolishing corporate taxes on efficiency grounds recommend abolishing preferential taxation of capital gains in order to make up for revenue shortfalls. However, given the right-wing media's unabashed defense of low capital gains tax rates, it is unlikely that would enter the discussion.

Posted In
Economy, Taxes
Melissa Francis
Bulls & Bears
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