crs_reports: R49358

Congressional Research Service reports with summaries, authors, and topic classifications.

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R49358 Analyzing the Incidence of the Corporate Income Tax: Models and Statistical Estimates 2026-09-22T04:00:00Z 2026-09-26T05:52:58Z Active Reports Jane G. Gravelle   Who bears the burden of the corporate income tax (i.e., the incidence of the tax) is a perennial issue in debates about the corporate tax. This issue is crucial for determining the extent to which the corporate tax is progressive or regressive. If the tax falls on capital income, it is progressive because capital income is concentrated in higher incomes. To the extent it falls on wages, it can become a regressive tax, falling more heavily on lower incomes. Corporate taxes can fall on labor if they discourage the inflow of capital from abroad or reduce savings, thus reducing the capital stock and production, and therefore wages. They can also fall on labor if workers share in the taxes on rents (i.e., profits in excess of the amount needed to attract investment). Researchers have used two approaches to estimate the share of the corporate tax burden that falls on wages through capital flows: general equilibrium models and reduced form statistical estimates. General equilibrium models impose a structure on the findings and use estimates of how freely capital flows across borders, how easily capital can be substituted for labor, and how readily imports can be substituted for domestic products to determine labor’s share of the corporate tax burden. Reduced form statistical estimates use regression analysis to estimate the effect on wages of a change in corporate taxes. Rent shares are estimated by statistical methods, although the limits to the share of the burden that can fall on labor can be constructed based on estimates of the share of profits that is rent. Bargaining models indicate that while rents may be shared, the taxes on rent are not. A higher tax reduces the total after-tax rents available for sharing, potentially reducing wages, but also makes it cheaper to pay wages because the value of the tax deduction for wages increases. General equilibrium models of capital flows generally find that, with the assumptions most favorable to the corporate tax burden falling on labor, about 70% can fall on wages. However, using central estimates of the substitutability of capital across countries and in production, and import substitution effects, the share of the burden borne by labor falls to around 20%. It would be smaller and lead to a benefit for wages if other factors were considered, most notably debt finance, where higher tax rates provide a benefit. By contrast, most of the empirical studies find larger shares falling on labor, in some cases many multiples of the tax. Similarly, while rents are estimated to be no more than 20% of profits, studies of rent sharing find much larger shares falling on wages, in some cases more than 100%. The large effects found in some studies may be due to statistical and variable choices, including how to measure wages or not controlling for fixed effects (including variables that are constant across countries and time). Another reason for the limitations of statistical methods is that wages are affected by many factors, and the corporate tax is a small variable by comparison, so it may not be possible to identify the tax’s effects. In addition, a body of statistical studies can suffer from publication bias, where only studies that find statistically significant effects in the expected direction are published; studies that do not find such effects might not be completed if researchers expect they will not be published. A recent examination of the studies on the effect of corporate taxes on wages found and corrected for publication bias; this analysis estimated a small effect that was not statistically significantly different from zero. Compared to statistical studies, the models point to the burden largely falling on capital rather than labor. https://www.congress.gov/crs_external_products/R/PDF/R49358/R49358.3.pdf https://www.congress.gov/crs_external_products/R/HTML/R49358.html

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