Public Perceptions of the Tax Avoidance of Corporations and the Wealthy

Abstract

Corporate taxation has historically relied on two views of taxation: the entity view and the aggregative view. The entity view emphasizes that the corporation as a separate entity should pay taxes. The aggregative view instead views the corporation as a conduit for its shareholders and focuses on payments by the shareholders. The public may hold either view or a mixture of views--these perceptions are likely to influence the design of tax policy.

One way to distinguish between them is to explore the causal relation between attitudes towards tax avoidance by the wealthy and corporations. For example, suppose in the data that perceptions of the tax avoidance of the wealthy and of corporations are correlated, but that changes in the perceptions about corporate tax avoidance do not cause changes in the perception of tax avoidance by the wealthy. This would provide evidence for an entity view of taxation, because new evidence of corporate tax avoidance would not cause any change in perceptions of avoidance by the wealthy, who are the owners of the corporation. The public would thus not connect avoidance by corporations to their owners. On the other hand, if changes in the perceptions about corporate tax avoidance cause changes in the perception of tax avoidance by the wealthy, this would provide evidence for an aggregate view. In this case, new evidence of corporate avoidance would be reflected in the perceptions of avoidance of shareholders of the corporation.

We use data on public perceptions of whether corporation and the wealthy are paying their fair share from the PEW Research Center to explore this issue. Using graph-theoretic methods for determining causal structures within recursive systems, we provide evidence that public attitudes against tax avoidance by the wealthy cause public attitudes towards corporate tax avoidance, but not vice versa. These statistical results provide evidence for the entity view of corporate taxation.

Keywords: corporate taxation, entity view, aggregative view, causality, fairness separated]

JEL Classification: H20, K34