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AT&T's Tax Cut Bonus Isn't Just a Gimmick

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The cost of corporate taxes is ultimately borne by workers, shareholders and customers. Especially by workers.
Yes, AT&T Inc. chief executive Randall Stephenson’s announcement that his company will be paying out $1,000 bonuses to 200,000 workers in the wake of the passage of a big corporate tax cut is probably to some extent a lobbying ploy.
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AT&T, as many, many people have noted this afternoon, has a giant acquisition (of Time Warner Inc.) currently being held up by antitrust regulators. It has every reason, then, to want to curry favor with the man for whom the tax bill represents a first major legislative victory, President Donald Trump.
But Stephenson’s move is also a simple representation of what a lot of economists think is the natural result of a cut in corporate taxes. Corporations themselves don’t ultimately pay taxes. As veteran tax wonk Bruce Bartlett put it a few years ago:
It was once believed that shareholders bore almost all of that burden. In recent decades, though, economists have increasingly come around to the idea that workers shoulder much or even most of it. That’s because, as my Bloomberg View colleague Mihir Desai (of Harvard Business School and Harvard Law School) put it to me in 2014, “those other folks are pretty mobile. The workers aren’t.” That is, investors can choose to buy shares in firms operating in countries with lower corporate taxes. Customers can choose to buy things from firms in other countries. Workers can migrate, but it’s a lot harder.
So that’s the theory. There is some evidence too: One 2009 empirical study of 55,082 European companies by economists from the U. K. and Germany found that “an exogenous rise of $1 in tax would reduce the wage bill by 49 cents.” A new study of businesses in Germany, where municipalities levy corporate taxes at different rates, came to the similar conclusion that “51 percent of the corporate tax burden is passed onto workers.” Kevin Hassett, the chairman of President Trump’s Council of Economic Advisers, took a lot of flak from other economists (and from me) for a report that seemed to claim that workers would get a wage boost 2.5 to 5.6 times bigger than the actual corporate tax cut. But the assertion that some of the corporate tax cut will flow to workers actually isn’t controversial at all.
And in general, the corporate section of the new tax legislation is, as my Bloomberg View colleague Noah Smith wrote in October, the part most grounded in economic research and good sense. AT&T workers likely won’t be the only ones getting pay boosts as a result of it. The question is whether the rest of this inequality-increasing, deficit-boosting, tax-gamesmanship-encouraging law will cancel out those gains.
To contact the author of this story: Justin Fox at justinfox@bloomberg.net
To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net

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