She is right on the numbers but wrong that the glory days of the corporate tax are worth recapturing. Here’s why.

The corporate tax is not a tax on corporations

Although corporations bear the legal obligation to fork over the tax, they cannot bear the economic burden because they are not real people — a point progressives are quick to agree with in the contexts of campaign contributions, free speech and criminal liability in fraud and antitrust. More to the point here, the economic burden of the tax (the incidence of the tax, as economists put it) must ultimately fall on corporate stakeholders — principally shareholders and workers.

But figuring out just how that economic burden is divided has proven to be an intellectually challenging and politically polarizing exercise, as a report available from the Urban Institute and Brookings Tax Policy Center details. Economists trying to do the numbers face not only the usual difficulties of identifying the right data and constructing the right econometric model to test alternative theories but some unique problems, too.

The earliest estimates for the United States, made in the early 1960s at the dawn of the era of globalization, concluded that the burden rested almost entirely on shareholders. As the economy became more open to trade and financial flows, however, the assumptions that drove this conclusion became questionable.

Capital can move across national borders much more easily than labor. Thus, if one country imposes a higher corporate tax rate than others, investors will be inclined to decamp but workers will largely stay put. That means less investment per worker in the higher tax country and therefore lower labor productivity and wages. This downward pressure on wages effectively shifts part of the burden of the tax to workers. And, of course, this effect is especially relevant to the United States, which has the highest statutory corporate tax rate of any major economy.

Now, influential studies cited in the aforementioned report from the Tax Policy Center conclude that workers bear as much as 70 percent of the burden — some think even more. But that’s not how harder line progressives read the evidence. The Tax Justice Network, in a report titled “Ten Reasons to Defend the Corporate Tax,” points to work by the Congressional Budget Office, which uses 25 percent for its estimate of labor’s share.

There’s a way to reconcile the two views. The degree to which the corporate tax is shifted to workers seems to depend on the time horizon. Because the global pattern of investment responds fairly slowly to financial incentives, in the short run an increase in the corporate tax rate is likely to be absorbed almost entirely by shareholders. However, the shift of the burden to workers, if and when capital flees, persists once it becomes established.

The time lag is important because, while economists tend to focus on the long run, politicians and CEOs, with their eyes on the next election and the next quarter’s earnings report, tend to focus on the short run. The Tax Justice Foundation notes that corporate executives typically behave as if tax burdens fall on shareholders. “Would they spend so much time and energy finding clever ways to dodge tax,” the report asks, “if they believed that taxes didn’t fall ultimately on their shareholders, to whom they are accountable?”

But it’s the long run that should interest policymakers. And the reality that a significant part of the burden of the tax is probably borne by workers should give pause to progressives, even if no one can pin down the time frame with much confidence. It would be far better to identify an alternative tax that distorts economic incentives less (as conservatives claim is priority one) yet is certain to be borne by shareholders. Fortunately, just such an alternative is available.