The company remits it; but the cost shows up in prices and wages

At the supermarket checkout, there is no line labeled ‘corporate income tax.’ A pay stub does not show how our wages would have changed if a company had paid less tax on its profits, either. That invisibility allows for a comforting idea: because a corporation files the return, the bill stays inside the corporation.

But the economy does not work in such neat compartments. Just as water seeps through and damp patches turn up in unexpected places, so do taxes.

  • Those in government win over voters by declaring their intention to impose ever higher taxes on companies. One specific example is the tax on profits through corporate income tax.
  • But the people who ultimately pay that tax are citizens, all of us.

There is a legal question and an economic one.

  • The first identifies the taxpayer required to file the return and remit the tax.
  • The second asks who loses purchasing power when the tax changes.

These are different questions. Spain's Tax Agency explains that corporate income tax is levied on the income of legal entities.

  • Corporations pay the tax authorities.
  • Afterward, their owners, employees, suppliers, and customers may bear part of the cost through different adjustments.
  • The share depends on the market, the timing, and the available alternatives.

The company writes the check; people bear the adjustments

A corporation is an organization, not a person capable of consuming or forgoing consumption. Behind it are owners who provide capital, workers who provide their time, suppliers who sell resources, and buyers who pay for products.

When taxes on profits change, the company must decide

  • which investments to make,
  • what prices to charge,
  • what wages it can negotiate, and
  • what return it delivers to its shareholders.

This does not mean it can raise prices at will. A customer can choose a competitor, buy less, or stop consuming the product. Contracts may also prevent immediate changes. The ability to pass on a cost depends on competition, how sensitive demand is, the international market, and the time available to adapt. Sometimes owners bear more of it. In other circumstances it reaches wages or prices. It is almost always shared.

Corporate income tax is levied on profits calculated under the law, not on each sale. Treating it as a fixed surcharge on the price of every product would be a mistake. A tax increase does not automatically add the same amount to the cost of producing each unit.

  • Its effects may appear through decisions about investment, market entry and exit, margins, or wage bargaining.
  • That is why it matters to observe actual responses instead of simply drawing an arrow from the tax to the product's price tag.

What a U.S. study found

Scott Baker, Stephen Teng Sun, and Constantine Yannelis studied changes in state corporate taxes and retail product prices in the United States.

  • They compared goods sold in the same markets whose manufacturers faced different tax rates because of their locations.
  • In the March 2023 revision of their paper, they find a significant effect on prices: part of the burden reaches consumers.

Under the authors' central calibration, the estimated distribution of the marginal burden is

  • 52% for consumers,
  • 28% for workers, and
  • 20% for shareholders.

With additional controls, the calculation changes to 43%, 36%, and 21%. The wage effect is not observed directly in those data: it is inferred through the model used to distribute the burden. The numbers matter, but they are not a snapshot of three separate payments or a universal law. They describe an estimate for a specific setting and assumptions.

The study identifies an average price elasticity with respect to the net corporate tax rate of -0.24. This describes a price response to changes in corporate income tax.

  • These results come from changes in U.S. state taxes and a sample of products.
  • The paper itself warns that extrapolation to other sectors, services, or national changes calls for caution.
  • Applying the 52% to Spain, to every company, or to each individual purchase would turn a study into dogma.

The conclusion that does hold up is more precise: consumers may bear a substantial share, even when the tax is presented as a burden borne exclusively by capital.

In the end, 80% of corporate income tax is a cost to citizens.

If we extend this conclusion

  • from the United States to Spain,
  • if, in addition to the marginal analysis (an increase in corporate income tax), we apply it to the entire tax, and
  • if we assume that elasticity remains constant (the average price elasticity with respect to the net corporate tax rate of -0.24),

then in Spain:

  • Theoretical corporate income tax: 25% on average
  • Effective corporate income tax: 5% on average (20% of 25%)

Other estimates matter too

The U.S. Congressional Budget Office, or CBO, uses a different allocation for its long-term distributional analyses: it assigns 75% of the burden to capital and 25% to labor.

  • It is a modeling assumption, not a direct measurement that settles the debate.
  • The CBO itself notes that shareholders could receive much of the benefit of a tax cut in the very short term and acknowledges that a particular reform may have different effects.
  • Its approach does not include a consumer share like the one estimated by Baker and his coauthors.

The divergence should make us more demanding, not indifferent. Studies and agencies address different questions using different methods. Some observe product prices; others allocate burdens to households within a distributional model.

David López Rodríguez, writing on the Bank of Spain's blog, points out that there are few empirical studies in our country on tax incidence and that pass-through depends on competition, capital mobility, and labor market conditions. The sources cited do not provide a comparable allocation for Spain.

There is evidence beyond the United States. A study by Dedola, Osbat, and Reinelt, published by the Federal Reserve Bank of San Francisco in 2025 and using changes in a German local tax, finds price increases for goods made by affected producers. Another study of German municipalities, by Fuest, Peichl, and Siegloch, attributes a substantial share of the burden to wages. These are evidence that both channels exist in specific settings. Their percentages cannot simply be added together or transferred to a Spanish national tax.

A tax cut does not have just one destination, either

If an increase can be shared through several channels, a cut also opens up several options. The company can lower prices, raise wages, invest, pay down debt, or increase dividends. Where the benefit goes depends on competition and the opportunities it sees ahead. Symmetry is not guaranteed: contracts take time to revise, and companies may respond differently to a loss than to an improvement in their margins.

That is why it is inadequate to defend an increase by saying that it ‘only affects companies’ or to promise a cut as though it will make every product cheaper tomorrow. Both claims need evidence. A serious evaluation specifies the time frame, identifies the affected sectors, and distinguishes immediate changes from those that emerge as investment and the entry of competitors change. Incidence is studied by comparing behavior, not by reciting the statutory tax rate.

The full political question

Incidence matters because it changes the public debate. A proposal promising to place the entire cost on ‘companies’ may reach households that buy, work, and save. Presenting that cost as invisible prevents an honest discussion of it.

Nor is it enough to identify who loses because of the tax.

  • Tax revenue funds public spending; its usefulness, its beneficiaries, and the cost of administering it are part of the balance.
  • An allocation of burdens does not, by itself, show whether a particular tax should be kept, reduced, or replaced.

The underlying question is: how much does a decision presented as a burden on others really cost citizens? To assess a reform, we must ask four questions:

  • how much revenue it actually raises;
  • who bears the adjustments;
  • what services or transfers it funds; and
  • what alternatives would produce better results.

The answer may vary with the tax's design and the quality of public spending. If we want to help citizens, we need to follow the entire chain, from the corporation's tax return to the consequences for households and economic activity.

Saying ‘you too’ sums up one verifiable part of the story and leaves room for what we still need to measure.

  • The company remits the tax (the administrative part of tax collection).
  • Ultimately, consumers and workers bear part of the cost (80%, according to the available studies);
  • Owners and shareholders also contribute something (around 20%).

Anyone who promises that only one of these groups will pay has to prove it. The first intellectual obligation is to make the whole bill visible.

References

  • Baker, Scott R.; Sun, Stephen Teng; Yannelis, Constantine (2020, revised March 2023). ‘Corporate Taxes and Retail Prices.’ NBER Working Paper 27058, especially pp. 4, 19–20, and 25 of the printed pagination. DOI: 10.3386/w27058.