Michael Perelman's "more factoids" reminds me of an important point. As Mike Meeropol and others have pointed out, barriers to entry and exit prevent equalization of the profit rate between sectors. But I'm not sure that it's that specific version of the profit rate that's relevant to the issue of whether the corporate tax is passed on to workers & consumers or not. The alternative to making workers & consumers pay for the corporate tax (through lower wages or higher prices) is for the stockholders/owners to pay, through lower after- tax dividends or capital gains. But the stockholders (and, for that matter, the bondholders) do not face the same extent of barriers to mobility that the corporations themselves (and the industrial capitalists) do. The main barriers I can think of (with insufficient amounts of caffeine in my blood) are the existence of privately-held companies (like Coors?) and government-imposed capital controls. In the absence of these barriers, all else equal the rate of return on equity ownership after taxes should be the same in the US as in the tax havens that Michael describes (adjusted for transactions costs). In other words, a company that does not succeed in passing the tax onto consumers or workers would pay fewer dividends than others or enjoy fewer capital gains, and would thus find its stock prices falling. This would raise the rate of return on equity. Now, a newly-imposed tax would hurt existing stockholders (if they didn't anticipate its imposition), but this is a relatively short-term event. Most stockholders have diversified portfolios and so wouldn't care unless it was a tax with extremely broad coverage. Anyway, it fits with the idea I put forth that the short-term incidence was different from the long-term incidence of the tax. Of course, this story is changed given the various speculative orgies and hangovers that occur with individual stocks. But I can't think of any reason this would lead to systematic effects changing my story. I'm not a tax incidence expert. I would like to hear from one to see if I'm right. in pen-l solidarity, Jim Devine [EMAIL PROTECTED] or [EMAIL PROTECTED] Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA 310/338-2948 (daytime, during workweek); FAX: 310/338-1950
