Capital Income Taxation and Progressivity in a Global Economy

Corporate level income taxes encourage the outflow of capital and the shifting of reported profits to other jurisdictions. The outflow of capital shifts some of the burden of the tax from owners of capital to workers. In contrast, individual level taxes on corporate income lower the after-tax return to saving, but have less effect than corporate level taxes on the location of investment. Reversing recent cuts in the tax rates on capital gains and dividends would finance a substantial cut in the corporate tax rate, reduce the outflow of capital, and make the tax system more progressive.