Acme Inc.'s federal income tax increased by $100,000 this year. As a result, Acme reduced the annual dividend paid on its common stock by $100,000. Who bears the incidence of the corporate tax increase?

Question

Quizplus · Accepted Answer

The incidence of the corporate tax increase is borne by Acme's shareholders. This is because Acme reduced the annual dividend paid on its common stock by the exact amount of the tax increase, which means that the shareholders received less money as dividends. As owners of the company, the shareholders ultimately bear the burden of corporate taxes in the form of reduced profits. The customers and employees of Acme do not directly bear the incidence of the tax increase.

Acme Inc'S Federal Income Tax Increased by $100,000 This Year