Should Corporations Pay Taxes?

NO! 

1. Corporate taxes, especially high corporate taxes, provide an incentive for companies to move out of the US to avoid them.  Even when American corporations use tax loopholes (creating the difference between the statutory tax rate and the marginal effective tax rate) American corporations pay a higher rate than the rest of the industrialized world.

2. High tax rates suppress profits, but they also suppress wages. Or to put it another way, wages would be higher if tax rates were lower.

Real wages of unskilled workers would rise 12 percent over the long term, and those of skilled workers would increase 13 percent. Now, Kotlikoff's findings are probably at the high end of estimates. But they are tantalizing nonetheless.

Note that while globalizing treaties might affect labor by setting certain labor standards between countries, they generally (unless we are talking about a true economic union) don't allow for the free flow of labor between countries in the way that they allow the free flow of capital between countries.  So capital flows to where it can get the best return.  And in the case of a comparatively high wage country like the United States, something needs to be done to keep capital here or to make it flow back from countries with lower wages.

YES!

1. Taxes pay for things that would be too costly or inefficient for individuals to pay for.  This includes things like national defense.  For corporations, this also includes

...(among other things) intellectual property protection, government provided security (police, firefighting, etc.) and publicly financed infrastructure.

They should pay their own share like any other citizen, especially since they have the legal status of being a sort of person.

2. Corporations lay certain kinds of potential and real liabilities on the public.  This includes the limited liability for stockholders.  When companies fail, stockholders are not personally liable for the failure beyond their actual investment.  So the public takes the real hit.  Also, there are the social costs of pollution. While the EPA has worked to make corporation more responsible for the pollution they cause, the environmental regulations are not complete (in that they don't prevent all unfunded pollution) and the regulations do not cover the public burden of companies that have gone out of business.

3. The economic history of the United States has ample proof that various regulations are needed to keep corporations from ripping off the public (and each other).  While corporations will agree that regulation is expensive, their solution to eliminate it just opens the door to the abuses that the regulations were designed to curb in the first place.  Since corporate regulations would not be necessary without corporations in the first place, and since regulations also protect corporations, corporations need to bear the costs.

NO!

1. Nowadays, corporations only provide a fraction of the total volume of taxes that they used to.

In the industrial era of the early 1950s, corporate income tax contributed almost a third of the total tax revenue raised by the federal government, equivalent to about 6 percent of the nation’s income. By the 1970s it generated about 3 percent. And in the last decade it raised around 2 percent of national income — only about $1 in $10 of all federal tax dollars collected.

Corporate taxes are an inefficient way to tax.  Eliminating loopholes or even raising corporate taxes would simply force more capital to go abroad.

2. In any case, taxpayers bear the costs of corporate taxation, since corporations simply pass on whatever tax burden that they have to consumers.  In fact, a more efficient way to tax in general would be to institute a VAT (Value Added Tax) on consumption, just as every other industrialized country now has.

3. Eliminating corporate taxes would eliminate the perverse incentive of having to give corporations tax breaks to save jobs.  Right now, corporations get tax breaks to keep jobs in the United States.  These breaks reduce revenue that needs to be made up by non-corporations, i.e. tax paying individuals.  In effect, tax payers are using their tax payments to pay the salaries of other tax payers, rather than using their tax payment for other general services that need to be provided by taxes to begin with.

YES!

1. Eliminating corporate taxes is just a variation the failed trickle-down  theory called the "Laffer Curve" made popular by the Reagan administration.  It has never worked, although it looks good written on a napkin and is a constant favorite with the Right.  The Laffer Curve holds that cutting taxes on the rich or corporations will lead to more capital investment, which will lead to more job production, which will lead to more income and sales taxes, more than making up for the original tax cuts.  The problem is that the money the rich and the corporations save on reduced taxes does not have to be spent on job creation.  So one does not (and has not) necessarily followed the other.

2.  The relationship between the rich and corporations is more complicated than it seems. Unlike most of us, the rich have more flexibility in being able to move assets between their bank account and into corporate accounts.  Killing corporate taxes would make corporations into tax shelters for the rich.  Corporations can retain earnings (rather than paying out any dividends at all) and they can also issue stock and then buy back their own stock, making them more valuable for the remaining stock holders. So at the very least, a program that radically reduces corporate taxes would have to raise taxes on capital gains and dividend, which at the least should be taxed as straight income.

3. It is also not true that the corporate tax burden actually falls on the consumer.  So corporations should pay taxes for what they receive, just like everyone else.

__________________________________________________

What do I think?  Despite what people like Trump say about getting American jobs back to American, etc., the thing that is going on is that there are really no ways to restrain capital.  It will flow towards the highest profit that it can.  If it can flow towards cheaper labor it will and we have no means to address this short of socialism.  The arguments to eliminate corporate taxes, as inequitable as they feel, are stronger than I expected.  The big thing that I have not seen anyone addressing is the fact that since capital is so fluid, it can a) take the tax breaks and still seek out lower wages overseas and b) it can take the tax breaks and simply use it to fight other capitalists for the acquisition of existing property leaving production unchanged.  I don't really know.

Discuss.

 

unagidon is a contributing editor to Commonweal.

Please email comments to letters@commonwealmagazine.org and join the conversation on our Facebook page.

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