A corporate tax is legally paid by a corporation, but a corporation is not a person standing apart from society with an independent capacity to bear economic pain. A firm is a network of workers, owners, consumers, suppliers, and investments. When government taxes corporate profits, the legal liability may appear on the company’s tax return, but the economic burden can be distributed through lower returns to owners, weaker investment, lower wages, fewer jobs, or higher prices. This is why corporate taxation is not a technical argument about whether one sympathizes with “business.” It is a question about capital formation and, ultimately, about the opportunities available to ordinary people.
This distinction matters especially in Spain, where political debate often presents lower business taxation as a concession to the rich. That framing is incomplete. A person on a low income may own no shares and never establish a company, but he or she still needs firms to invest before jobs can be created. A middle-class worker may never appear on a corporation’s list of shareholders, yet productivity-enhancing investment is one of the mechanisms through which wages can rise over time. The relevant question is therefore not whether corporations should contribute to public revenue. They should. The question is how to raise necessary revenue without unnecessarily discouraging the investment, entrepreneurship, and employment on which the tax base itself depends.
First, a Correction About the United States
One claim needs to be corrected before making the broader argument. President Donald Trump has not reduced the U.S. corporate income tax rate to 15 percent, much less to 50 percent. The federal statutory corporate rate remains 21 percent, the rate established by the 2017 Tax Cuts and Jobs Act. During the 2024 campaign and afterward, Trump proposed a 15 percent rate for companies producing in the United States. As of May 2, 2026, that proposal should be described as a policy objective rather than the general federal corporate tax rate. The distinction between a proposal and enacted law is important regardless of whether one supports the policy.
The 2017 reform itself was substantial: it reduced the federal corporate rate from 35 percent to 21 percent. That episode gives us useful evidence because economists can examine what happened to investment, output, wages, and tax revenue rather than relying exclusively on political promises. The evidence is more nuanced than either side of the debate sometimes admits. A major review by Gabriel Chodorow-Reich, Owen Zidar, and Eric Zwick concluded that the business provisions of the 2017 reform increased tangible corporate investment by roughly 11 percent, while the gains in long-run GDP and labor income were positive but considerably smaller than the most optimistic predictions made by advocates of the law. Their review of the evidence is useful precisely because it supports an investment response without pretending that every dollar of corporate tax reduction automatically becomes a dollar of workers’ wages.
Spain, Ireland, and Economies with Greater Economic Freedom
Spain’s standard corporate income tax rate is 25 percent. Recent reforms have introduced lower rates for smaller firms: in 2026, companies with turnover below €1 million face 19 percent on the first €50,000 of taxable income and 21 percent on the remainder, while rates for qualifying SMEs are being reduced progressively. Start-ups can also qualify for a 15 percent rate during their initial profitable years. The OECD’s recent analysis of Spain welcomes efforts to reduce tax cliffs but also warns that complicated size-based rules can themselves discourage firms from growing across regulatory and tax thresholds.
Ireland provides the familiar European contrast. Its standard corporation-tax rate on trading income is 12.5 percent, while non-trading income is generally taxed at 25 percent. Irish Revenue explains the two-rate structure directly. For very large multinational and domestic groups within the OECD/EU Pillar Two regime, the relevant minimum effective rate is 15 percent. Ireland therefore demonstrates an important point that is sometimes lost in slogans: a competitive corporate-tax system can coexist with rules against base erosion and with substantial public spending. The policy question is not simply “tax or no tax,” but the rate, base, predictability, and international structure of the tax system.
The broader comparison is also revealing, although it should not be turned into a simplistic claim that low corporate taxes alone explain national prosperity. Among jurisdictions that rank highly in the Fraser Institute’s Economic Freedom of the World index, Singapore has a headline corporate rate of 17 percent; Hong Kong generally applies 16.5 percent, with a lower first-tier rate for qualifying profits; the Republic of China on Taiwan applies a 20 percent corporate income tax; and Switzerland combines federal, cantonal, and communal taxes, producing effective rates that vary substantially by canton and municipality. The United States combines its 21 percent federal rate with state corporate taxes in many jurisdictions. Ireland’s 12.5 percent trading rate is among the lowest long-standing rates in Western Europe.
These figures should be interpreted alongside institutions rather than in isolation. Economically free jurisdictions tend to combine relatively secure property rights, openness to exchange, monetary stability, and regulatory environments that leave greater room for private decision-making. Corporate taxation is one component of that environment. A country does not become Switzerland or Singapore merely by changing one tax rate, and a poorly governed country will not suddenly attract productive investment because its statutory rate is low. Capital responds to the whole institutional package: taxes, legal certainty, skills, infrastructure, market access, regulation, political stability, and the expectation that today’s rules will still be intelligible tomorrow.
Why the Corporate Tax Can Reach the Worker
The central economic point is tax incidence. The person or organization that sends money to the tax authority is not necessarily the person who ultimately bears the cost. If a higher corporate tax reduces the expected after-tax return on a new factory, machine, logistics center, software system, or research project, some marginal investments cease to be worthwhile. With less capital per worker, productivity can be lower than it otherwise would have been. Since sustainable real wage growth is closely connected to productivity, part of the burden can eventually reach labor.
This mechanism is not simply an argument from free-market theory. OECD research using aggregate and firm-level data finds that business investment rates are negatively related to forward-looking effective corporate tax rates, although the sensitivity varies considerably across firms, assets, and tax-system design and has weakened since the global financial crisis. Earlier cross-country OECD work likewise found negative effects of corporate taxation on firm-level investment and productivity. These findings do not imply that the revenue-maximizing or welfare-maximizing corporate rate is zero. They do tell us that corporate taxation changes economic behavior.
Research on incidence also shows why the language of “taxing companies rather than workers” is misleading. Juan Carlos Suárez Serrato and Owen Zidar, using U.S. state-level variation, estimate that firm owners bear a substantial part of the corporate-tax burden but that workers also bear a meaningful share. Their later estimates place roughly 35–40 percent of the incidence on workers, with the remainder falling principally on owners and, to a smaller degree, landowners. The research therefore gives us a more realistic picture than either extreme: corporate taxes do not fall entirely on workers, but neither are workers insulated from them.
Lower Taxes Can Encourage Investment, but There Is No Free Lunch
The case for lower corporate taxation should not be exaggerated. Tax cuts have a fiscal cost unless they generate enough additional activity or are accompanied by spending restraint or other revenue changes. The claim that every corporate tax cut “pays for itself” is not supported by the evidence. The 2017 U.S. reform, for example, stimulated investment, but the resulting growth was not large enough to erase the revenue cost. A classical-liberal case for competitive taxation should therefore be based on incentives, economic freedom, and the quality of public finance rather than on an implausible promise that arithmetic no longer matters.
There is also an important difference between cutting a statutory rate and improving the tax base. Full or accelerated expensing of investment can sometimes provide stronger investment incentives per unit of lost revenue than a broad rate reduction because it directly lowers the tax cost of new capital. Predictability matters as well. A nominally low rate embedded in a system of constant legislative changes, complicated deductions, surtaxes, and discretionary exemptions may be less attractive than a somewhat higher but stable and neutral system.
This is one reason I am skeptical of tax systems built around dozens of politically selected privileges. If government first imposes a high general burden and then gives favored sectors deductions, credits, or exemptions, firms have an incentive to devote resources to tax engineering and political influence rather than entrepreneurship. Public Choice theory reminds us that tax complexity can become a field for rent-seeking: concentrated groups lobby for narrow benefits while the costs are dispersed among taxpayers who have less incentive to organize. A lower, broader, and more predictable system can reduce both economic distortion and political discretion.
Ireland and the Political Economy of Competitive Taxation
Ireland is particularly interesting because its corporate-tax strategy has often been criticized by larger European economies while simultaneously helping the country establish itself as a major location for multinational investment. It would be careless to attribute Ireland’s development solely to the 12.5 percent rate. Its English-speaking workforce, EU membership, access to the Single Market, legal institutions, education, and links to the United States all matter. Yet it would be equally careless to pretend that corporate taxation played no role in firms’ location decisions.
The Irish experience also demonstrates the difference between a tax rate and tax revenue. A lower rate does not mechanically imply proportionately lower revenue because the tax base is endogenous: investment, reported profits, business location, and economic activity can respond. This does not mean that every rate reduction raises revenue; that would be another unjustified leap. It means that policymakers should not model the corporate tax base as though firms and capital remain completely motionless when the tax price of locating and investing changes.
Spain’s Problem Is Broader Than the 25 Percent Rate
For Spain, focusing only on the statutory 25 percent rate would miss much of the problem. The OECD’s 2025 Economic Survey notes that Spain’s tax system places a comparatively heavy burden on labor, particularly through social security contributions, and that this discourages employment and job creation. A firm deciding whether to hire a worker considers the total cost of employment, not only corporate income tax. The relevant burden therefore includes corporate taxation, employer contributions, labor regulation, compliance costs, and the uncertainty surrounding future rules.
Spain has already moved toward lower rates for smaller companies, which is directionally sensible, but the design deserves scrutiny. If a firm receives preferential treatment only while it remains below a particular turnover or employment threshold, the policy can unintentionally create a reason not to grow. A tax system designed to help small firms should not reward them for remaining small. The objective should be a smooth, predictable path in which successful companies can expand without suddenly encountering a regulatory or fiscal wall.
Why This Matters to Low- and Middle-Income Households
The moral and political argument for economic freedom becomes clearest when we stop imagining the corporation as a rich individual. Consider a person who has little savings and needs work. That person benefits when several employers compete for labor rather than when a small number of established firms dominate hiring. New investment can create additional vacancies, increase the demand for skills, and give workers an alternative to an employer they dislike. A more dynamic capital market therefore changes the bargaining environment of people who may never own a company themselves.
For middle-income households, the same mechanism operates through productivity and career mobility. When firms invest in better equipment, software, logistics, training, and new business models, workers can produce more value per hour. Productivity does not guarantee that every gain is immediately transmitted to wages, but over the long run an economy cannot sustain broadly rising real incomes without producing more value. Tax policy that persistently lowers the after-tax return to investment works against one of the mechanisms through which that productivity growth occurs.
There is also a consumer side. Corporate taxes can partly appear in prices, depending on market structure and the mobility of firms and consumers. Research by Scott Baker, Stephen Teng Sun, and Constantine Yannelis finds significant pass-through of corporate taxes into retail prices in their U.S. data. The distributional effects are therefore more complicated than the political slogan that a corporate tax is simply paid by shareholders. Owners, workers, consumers, and landowners can all bear portions of the burden in different circumstances.
Economic Freedom Is Public Policy
This brings me to a broader point. Economic freedom is sometimes discussed as though it were separate from politics and public policy. It is not. The corporate tax rate is set by law. The tax base is defined by law. Depreciation rules, loss offsets, social contributions, licensing, labor regulation, and the treatment of foreign investment are public policies. Whether citizens may invest, hire, contract, save, and build firms under predictable rules is therefore partly a constitutional and institutional question about the boundaries of political power.
A Public Choice perspective is useful because it does not assume that the tax system emerges from an omniscient planner maximizing a social welfare function. Tax rules are negotiated through political institutions in which voters, politicians, bureaucracies, firms, unions, professional associations, and other groups have different information and incentives. Complexity can survive because its costs are dispersed while particular exemptions or barriers provide concentrated benefits. The same analytical realism we apply to corporations should also be applied to government.
At the same time, this perspective does not imply that all taxation is illegitimate. A functioning market order requires institutions that protect property, enforce contracts, administer justice, and provide other public functions that require financing. The serious question is how government can finance those functions while imposing the least destructive burden on exchange, investment, work, and entrepreneurial discovery. Corporate taxation should be evaluated within that institutional trade-off rather than through the moral symbolism of “making companies pay.”
A Better Question Than ‘How Much Can We Tax?’
The most useful question is not how high a corporate tax rate can be before firms disappear, nor how low it can be before government loses revenue. It is what tax structure best allows a society to finance legitimate public functions while preserving incentives to invest, innovate, hire, and compete. That requires attention to effective rather than merely statutory rates, capital allowances, international mobility, compliance costs, neutrality, and the interaction between corporate and labor taxation.
The United States, Ireland, Singapore, Hong Kong, Switzerland, and the Republic of China on Taiwan differ enormously in political institutions, geography, industrial structure, and public spending. Their experiences cannot be reduced to one tax number. Yet their relatively competitive business environments should make Spain ask a useful question: are we designing taxation around the assumption that capital and entrepreneurship are resources to be harvested, or around the recognition that they are processes that must continually be created and renewed?
Lower corporate taxation is not a magic formula for prosperity, and serious advocates of economic freedom should resist presenting it as one. Institutions work together. But the empirical literature gives us good reason to believe that corporate taxes affect investment, location decisions, productivity, employment, wages, and prices. Once we understand that incidence, the political discussion changes. The issue is no longer whether we prefer corporations to workers. It is whether a tax imposed in the name of taxing corporations may also reduce the opportunities of the workers we say we want to help.
Suggested References
• OECD. (2025). OECD Economic Surveys: Spain 2025.
• Revenue Ireland. Corporation tax: Basis of charge.
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How to Cite this Commentary (APA 7th edition)
Wang, H. H. (2026, May 2). Who really pays the corporate tax? Investment, jobs, and the politics of taxing firms. https://williamhongsongwang.com/2026/05/02/who-really-pays-the-corporate-tax-investment-jobs-and-the-politics-of-taxing-firms/
