I was very pleased to see Mitt Romney defend his recent observation that “corporations are people.” The line figures prominently in Believe in America, his new jobs plan. Scott McNealy, a Romney backer, contributed a short essay on the theme:

A funny thing happened to Mitt Romney on his way to the White House. Campaigning for the presidency at Iowa’s State Fair in August, he got into a sharp exchange with a heckler about tax policy. In the course of the back-and-forth, Governor Romney exclaimed, in mild exasperation, that “corporations are people.”
To the vast majority of Americans who have held real jobs in the real economy, often in corporations, the point made perfect sense. Indeed, it seemed a statement of the obvious. A corporation, after all, is nothing more than people who have joined together to work cooperatively. The word “corporation” itself means “body of people.” And in fact, corporations consist of two groups of “people”: employees and shareholders. The former work hard to make a profit and earn their salaries and benefits. The latter, now dispersed widely across the economy by means of mutual funds and retirement-plan investment portfolios, provide the capital and can reap the financial benefits while also assuming the financial risks.

McNealy goes on to describe his own experience as an entrepreneur and how it relates to Romney’s approach.

Roberton Williams of the Tax Policy Center wrote a post last month on the same subject. We can all agree that corporations are people, and so corporate income taxes are ultimately paid by people. But which people?

If capital can shift readily from taxed to untaxed businesses—but workers can’t—much of the tax would likely fall on those workers. That’s more likely when capital moves across national borders, making it harder for workers to follow. In a 2006 Congressional Budget Office analysis, Bill Randolph found that international capital mobility could result in American workers bearing 70 percent of U.S. corporate taxes. Other studies have found even higher shares falling on workers. Kevin Hassett and Aparna Mathur, for example, showed that wages could actually fall by more than the amount of the tax increase, suggesting that workers bear more than 100 percent of the burden.
By contrast, a more recent CBO study by Jennifer Gravelle reviewed four papers looking at corporate tax incidence. Applying reasonable estimates of how economic activity changes in response to market changes (what economists refer to as “elasticities”), Gravelle found that the owners of capital likely bear well over half of the corporate tax, particularly in the short run when capital cannot move much. And she argues that the long run—when mobility is greatest—could be very long.
The Tax Policy Center’s model assigns the full cost of the corporate tax to owners of capital, but that assumption is far from settled. Future work may lead to different conclusions.
Regardless of what economists conclude about the burden of the corporate tax, however, Romney was right in his unspoken assertion: Corporations may write the check, but it’s people who ultimately pay corporate taxes.

More recently, Williams wrote a worthwhile post on the effective tax rate on investors, responding in part to a recent argument advanced by Warren Buffett:

The more of your income from gains and dividends, the lower your effective tax rate (ETR). Within the top quintile, for example, people who get less than a tenth of their income from those sources face an ETR of nearly 21 percent, compared with an ETR under 12 percent for those who get more than two-thirds of their income from investments (see graph). The only exception is the lowest-earners, whose effective tax rate is nearly zero, thanks to the earned income credit.
The lower taxes on investment income mean that many high-income taxpayers face a lower ETR than middle- and upper-middle-income people who get almost all of their income from working. People in the top 0.1 percent—those with income over $2.18 million in 2011—who get more than two-thirds of their income from gains and dividends face an ETR of just 12 percent, compared with 16 percent for people in the fourth quintile who get less than 10 percent of their income from investments.
But a lot of high-income taxpayers face higher ETRs. Among those in the top 0.1 percent, people who get less than 10 percent of their income from investments pay an average ETR of 26 percent.
Buffett was right that he pays less of his income in federal taxes than a lot of other Americans with much lower income. He and many other high-income taxpayers benefit greatly from the low tax rates on capital gains and dividends. But regardless of the much higher tax rates on earnings, people throughout the income distribution pay a lot less of their income in taxes than Buffett suggested.

This is important to keep in mind as we debate capital income taxation going forward.