Editor’s Note: Reed Davis has returned with another of his U.S. Bud­get and Econ­omy arti­cles. As always, we wel­come your OpEd submissions.

My prior post looked at the cal­cu­la­tions behind War­ren Buffett’s claim that he paid a lower tax rate than any of the other peo­ple in his office. Specif­i­cally, Buf­fett claims that he paid about 17 per­cent of his tax­able income in tax and his office staff paid per­cent­ages some­where in the 30s. A num­ber of arti­cles dis­puted this claim, stat­ing that, due to the dou­ble tax­a­tion of cap­i­tal gains, Buf­fett actu­ally paid a much higher rate. For exam­ple, a Wall Street Jour­nal edi­to­r­ial states the following:

This is because wealthy tax fil­ers make most of their income from invest­ments. Such income is taxed once at the cor­po­rate rate of 35% and again when it is passed through to the indi­vid­ual as a cap­i­tal gain or div­i­dend at 15%, for a high­est mar­ginal tax rate of about 44.75%.

This rate of 44.75 per­cent equals the top cor­po­rate tax rate of 35 per­cent plus 15 per­cent (the cap­i­tal gains rate) of the remain­ing 65 per­cent. How­ever, the 35 per­cent fig­ure is the top statu­tory cor­po­rate tax rate. The effec­tive or aver­age cor­po­rate tax rate is well below that. In fact, a recent story in The Busi­ness Review ref­er­ences another Wall Street Jour­nal arti­cle as follows:

A busi­ness tax break meant to spur cor­po­rate invest­ment has dropped the effec­tive cor­po­rate tax rate to the low­est level in 40 years, The Wall Street Jour­nal reported, cit­ing data from the Con­gres­sional Bud­get Office.

Total cor­po­rate fed­eral taxes paid fell to 12.1 per­cent of prof­its earned from activ­i­ties within the U.S. in fis­cal 2011, which ended Sept. 30. That is the low­est level since at least 1972, and well below the 25.6 per­cent com­pa­nies paid on aver­age from 1987 to 2008.

Also, a num­ber of sources sug­gest that the bur­den of cor­po­rate taxes do not fall fully on share­hold­ers. For exam­ple, a paper from the Fed­eral Reserve Bank of Kansas City states:

Cor­po­ra­tions are respon­si­ble for remit­ting cor­po­rate taxes to the state, but the actual bur­den of the state cor­po­rate tax falls else­where — on share­hold­ers, con­sumers, work­ers, or some com­bi­na­tion of the three.

Fur­ther on, it states:

The most recent eco­nomic research sug­gests that labor bears the major­ity of the cor­po­rate tax bur­den at the national level. In response to higher state cor­po­rate tax rates, cor­po­ra­tions may lower wages, thereby pass­ing the bur­den onto workers.

Another source, an Amer­i­can Enter­prise Insti­tute arti­cle, states the following:

In this arti­cle, we argue that nei­ther of the agen­cies’ assump­tions — that cap­i­tal bears 100 per­cent or that no one bears the tax — is valid. Both approaches fail to reflect recent empir­i­cal and the­o­retic research that finds work­ers bear a large por­tion of the bur­den of the CIT. In par­tic­u­lar, the empir­i­cal stud­ies sug­gest that dis­tri­b­u­tion tables that allo­cate 50 per­cent or more of the bur­den to labor may be closer to the truth.

Fol­low­ing is an excerpt from an arti­cle by Dean Baker regard­ing the argu­ment that pay­ing taxes on div­i­dends amounts to “double-​​taxation”:

The trick in this argu­ment is that it ignores the enor­mous ben­e­fits that the gov­ern­ment is grant­ing by allow­ing a cor­po­ra­tion to exist as a free stand­ing legal entity. The most impor­tant of these advan­tages is lim­ited lia­bil­ity. If a cor­po­ra­tion pro­duces dan­ger­ous prod­ucts or emits dan­ger­ous sub­stances that result in thou­sands of deaths, share­hold­ers in the cor­po­ra­tion can­not be held per­son­ally respon­si­ble for the dam­age. The cor­po­ra­tion can go bank­rupt, but beyond that point, all the share­hold­ers are off the hook, the vic­tims of the dam­age are just out of luck.

This goes along with the argu­ment that the cor­po­ra­tion and the share­hold­ers are sep­a­rate enti­ties receiv­ing sep­a­rate ben­e­fits and gov­ern­ment ser­vices. The gov­ern­ment helps cre­ate the envi­ron­ment in which the stock mar­ket can func­tion, to the ben­e­fit of the share­holder. It like­wise helps cre­ate the envi­ron­ment in which cor­po­ra­tions can flour­ish and pro­vides cor­po­ra­tions with the ben­e­fit that Dean Baker describes above. It can be argued what level of tax­a­tion these ser­vices merit. But the above argu­ments sug­gest that the taxes on cap­i­tal gains and div­i­dends do not qual­ify as dou­ble taxation.