This question is very important, because often impression of the public is that companies ie. their owners pay the most taxes, and that they are the ones that provide most of the state budget and therefore make a significant contribution to society. Also, civil servants and the government of a country should be aware of the fact who is their real boss and to whom do they must regard themselves as being accountable. History also tells us about the importance of taxation, as both American and French Revolution, began their course in the 18th century on the matters of taxation.
The companies are in reality just a tax agents who have the obligation to calculate and pay taxes, but that does not mean that they as legal entities or their owners bear the burden of taxes which are paid.
A legal entity is a legal fiction and therefore can not bear the burden of taxes, instead tax burden falls on the shoulders of natural persons ie. citizens. The legislation imposes an obligation on legal entities to be tax agents, because it is more efficient and effective for the companies, than for the individuals, to calculate and pay taxes.
There are different categories of taxes. Consumption taxes, payroll taxes, individual income taxes, corporate income tax, etc.
Consumption taxes include sales tax, value added tax (VAT), import duty and excise. The taxable base is purchased value of a product or service. This actually means that if the customer paid for the product, which costs 100 USD, he would have to multiply VAT rate of for example 20%, with the tax base of 100 USD and then pay 20 USD into the state budget. But instead of that, the obligation of calculation and payment of VAT or sales tax is on the company that has sold the product or service. When a company imports goods it pays import duty on the imported value of goods, and that cost increases the value of the product, so when a customer pays for the product he also pays that import duty. In these cases it is clear that the taxes are paid by the buyer.
When the tax base is the wage of the worker, the company calculates and pays payroll taxes. If the employer and the employee conclude an employment contract with a gross paycheck, what is common in most countries, the increase in payroll taxes paid by employee reduces their net paycheck or salary which they take home.Term payroll taxes „paid by the employer“, suggests who pays taxes, however, if the tax increase raises the price of a product, or reduces workers wages, then the raise in taxes is paid by buyer or employee. It is obvious, that when there is a highly competitive market, there will be a pressure on the employer to offset the raise of payroll taxes „paid by the employer“, by decreasing a net paycheck of workers.
Business owners invest capital in order to achieve a profit, and when profit is considered as the tax base, situation suggests that these owners are taxed. It is perfectly legitimate for the state to tax corporate income, because the society has contributed to the creation of profit, due to the fact that companies were using legal security, infrastructure, an educated and healthy workforce, scientific activities and discoveries, all of which were financed by the society. The added value created by the company is the result of the joint labor and capital, but society also played its role by providing a friendly context in which the organization operated.
However, the source of all revenues and incomes (tax base), of both the owners of capital and the workers is market itself. Taxes are always incorporated into a price structure. If company products do not have customers or market, it is clear that company is bust and will not be able to pay dividends, wages and taxes. Which ultimately means that all mentioned taxes are paid by customers. Raising the level of tax rates, when prices are unchanged, can reduce the income of workers or business owners, however, that is merely a redistribution of income between the owners, workers and the state, and this fact does not change the source of the income and taxes.
When a customer buys foreign goods, he actually contributed to the payment of wages, dividends and taxes in a foreign country, so countries with significant current account deficit of the balance of payments (countries that have significantly higher imports than exports) and weak export sector of the economy, are in serious trouble. As a consequence, these countries are over-indebted, with high unemployment, and significant budget revenues can achieve mostly from consumption taxes.
The tax base, therefore, can be purchased value, the income of workers or owners of capital, and increase in tax rates, at first is putting pressure on some of them, but on whose shoulders tax burden will fall in practice is not so unambiguous. The tax burden is a resultant vector created by forces of mentioned actors. Business owners by their nature have a tendency to maximize profits, the workers through unions seek to preserve and increase their income, and consumers for their money want to get the maximum value. Therefore, owners of capital will tend to shift costs of increased taxes to workers, but if they are strongly unionized, then they will tend to shift these costs to consumers, and in the end, if that is also impossible because of the competition, they will have to accept reduced profits or liquidate the company. Monopoly and oligopoly markets have a strong tendency to shift tax costs to consumers.
Inflation or price increase as a result of printing money for the state budget is the way to tax consumers at a flat tax rate. For those who are not for a progressive tax system, inflation is the perfect way for taxing citizens, because there will be no tax avoidance and evasion and also costs of collecting taxes would be low (no need for IRS). If your paycheck is not raising, then, in fact, your real wage is falling due to inflation (you can buy fewer products). Inflation, as a way to tax/reduce wage, can be almost unnoticed by workers/consumers, especially when it is at a low rate, but after some time takes its toll.
Taxes on property and inheritance actually represent double taxation. If a property is taxed, then already taxed income, materialized in the form of property, is taxed again. In contrast, savings deposits in the banks, or savings in cash will not be taxed. Such taxation can be justified only if it is in the function or progressive taxation, in other words only if accumulated wealth is taxed, and then this tax will take the form of luxury tax. Luxury homes, yachts and cars can hardly be considered as productive investments, while savings deposits, for example, have a positive macroeconomic effect.
Tax regimes, in most countries with market economies, are mainly in favor of the owners of capital, in the sense that they are shifting the tax burden largely on consumers and workers, through higher taxation of consumption and wages (increase in sales tax or VAT and the increase in payroll taxes). Also, government spending with the state budget deficit has often hidden consequence of unburdening corporations and wealthy individuals from taxation. State budget deficit implies government borrowing and inflationary taxation, because of that, interest payments are becoming a significant item of state budgets across the world. State budget deficits also imply that present generations are living at the expense of future generations, who will pay for crumbling infrastructure, schools, hospitals and rising debts. Since the rich class of society is spending insignificant part of their income, it also means that the smaller part of their income is taxed with consumption taxes, and therefore consumption taxes are regressive (higher income, less tax paid, as a percentage of that income). In order to achieve fairness in taxation, many countries, for example USA, are imposing progressive individual income tax. However, the rich class often finds ways to avoid the progressive income tax. Also, the introduction of significant effective corporate income tax rate would bring greater fairness, however, because of tax havens, competition between countries to attract investments and tax subsidies, the companies are successfully avoiding to pay this tax.
Tax regimes which favor wealthy class and businesses as a consequence have huge piles of cash stored in tax havens and weak aggregate demand, which is a pretty good recipe for the economic crisis and social turmoil. Because of weak aggregate demand, companies are not encouraged to invest, so their stored cash has no productive meaning, and on a another side, there is despair and fear of population because their purchasing power is falling. This situation shows how domination and blindness of selfish interest lead to self-destruction of society.
The problem of tax avoiding and evasion of wealthy companies and individuals can be effectively solved only at the global level, but for such solutions, obviously, there is no agreement between the most powerful countries in the world.
In the United States, federal budget revenues from corporate income tax are near historical lows, as can be seen in the graphic below.
The effective tax rates on corporate income (tax paid / income) in the world are often significantly lower than the official marginal tax rates, because multinational corporations have powerful political influence in the world, countries are competing in the race to the bottom in order to attract capital, and tax codes allow various privileges and tax subsidies to corporations. In the US, for example, although the official marginal corporate income tax rates are reaching 39%, the effective tax rate on profits is much lower (in the period 2000-2005, about 13%).
Marginal tax rates on individual income in the United States reached almost 40%, however, the effective tax rate (tax/income), due to tax deductions and privileges, for decades has been around 20% for the richest 1% of the population (click here).
Progressive democratic societies that have effective democratic control of the tax system and the state budget, have much better conditions to achieve prosperity and well-being. Societies with the unfair taxation system, with a system that produces a privileged class, with wasteful and corrupted state, are sentenced to a high level of social inequality and poverty.