I have been saying this for a long time. Corporate taxes are primarily paid by consumers. Meaning us.
Abolish the Corporate Income Tax
The corporate income tax has a similar history. It started as an innovative way to make the rich “pay their fair share.” But the interplay between the corporate income tax and the personal one over the last century has been the main driver of American tax complexity, transforming our tax code into a legal Jabba the Hutt; it had swollen to 73,954 pages as of 2013. Worse, the corporate income tax has had no end of perverse effects on the American economy—reducing wages, raising prices, lowering stock values, forcing manufacturing overseas, encouraging political corruption, and much more. It’s time to abolish it.I do disagree with the bolded above. Dividends and long term capital gains are taxed at a lower rate to encourage people to put their money at risk in investing in capital.Who pays the corporate income tax? Not the corporations—they’re just pieces of paper. The corporation writes the check, yes, but only people can actually pay taxes. As originally intended, the stockholders pay part of it because the tax makes the corporations less profitable, so their stock prices (and possibly dividends) are lower. But the workers also pay, receiving lower wages than they otherwise would, while customers pay higher prices. The exact ratio varies with each corporation’s competitive situation, but the Adam Smith Institute’s Ben Southwood calculates that, on average, workers pay 57.6 percent of the corporate income tax through lower wages. So a tax that began under William Howard Taft to assess the incomes of the rich mostly hits the average person.
By 2017, the United States had the highest corporate income tax in the developed world. And America was the only nation that taxed corporations on their global earnings, once repatriated, not just their domestic ones, as other countries did. The Trump administration took major steps toward reform, lowering the tax from 35 percent to 21 percent and joining the rest of the world in taxing only domestic profits, allowing $2.5 trillion in corporate profits parked overseas to be repatriated at much lower rates. Still, as the corporate income tax has entirely lost its original reason for being, it should be abolished altogether.
Abolition would certainly be expensive in the short term. The corporate income tax in fiscal year 2019 yielded about $245 billion, or 7 percent of total federal revenues. But much of that money would be made up quickly. With no corporate income tax, there would be no reason to tax dividends and capital gains at lower rates than ordinary income. That change would not only raise revenue but also put an end to a perennial bit of liberal demagoguery. And with no corporate income tax, the engine of tax complexity would disappear (as would a very large section of the tax code).
Today, corporate managers are mostly concerned with after-tax profits, since that’s what the stock market cares about. But after-tax profit is an artifact of lobbying success in Washington. With no corporate tax, the managers would care about what are now considered pretax profits, an artifact of wealth creation—the very reason that corporations exist.
With no tax, corporate profits would rise substantially, leading to increased dividends (fully taxable) and greater investment. And with higher profits, stock prices would rise commensurately. (Trump’s corporate tax reform was a factor in the notable rise of the stock market, pre-Covid.) Rising stocks would unleash a considerable “wealth effect,” as people saw their 401(k)s and mutual funds fattening in value—boosting the economy.
With no corporate income tax, no reason would exist to distinguish between profit and nonprofit corporations. Nonprofits would not have to jump through hoops to qualify for that designation, and the IRS would have one less means of corruption available to it.
If the United States were to adopt the world’s lowest corporate tax rate—zero—foreign companies would flock to invest here to avoid taxes at home. This development would force other countries to lower or eliminate their own taxes, spreading the boom worldwide.
If you are interested in the history of the corporate tax, read the entire article at the link.