When the tax rises, capital will flee and this will affect what capital and labour earn and what consumers pay. Who truly ends up bearing the tax depends on all these affects. Our calculations suggest that the elderly bear the brunt of corporate taxation. This description is too rudimentary to be of much help in explaining why corporations exist and to what subtle incentives they respond, but it is all we need for the present discussion. Profits are what is left over after labour, interest on capital, and the cost of materials have been paid, and this residual amount can be thought of as going to the people who provided the capital for the business.
Corporate tax falls on profits.
This is why the corporate tax is a tax on capital. There is often confusion over what the corporate tax rate is, because as well as having their profits taxed, corporations may receive special tax breaks that allow them to write off more than their true capital expenses. This means a corporation may pay a high statutory rate on its profits but a much lower actual rate because of its deductions. Statutory rates on capital rose in the 1970s and 1980s but revenue from the corporate tax was unsteady because profits varied and deductions had increased, eroding the tax base. It is a general principle of taxation that, if one wants to raise a certain amount of revenue, one distorts people's choices less by imposing a low tax on a broad base than a high tax on a narrow base.