In the end of the day, who should be taxed and by how much boils down to the practicality of the end phenomenon.
When corporations are subjected to income tax, or corporate income taxes are increased, who pays those taxes? Should a distinction be made, or exemptions given, for corporate income that is distributed to shareholders?
Corporations are associations of private individuals collaborating on various levels for profit. Some contribute capital. Some contribute talent and expertise. Some contribute management, direction, and control. While the objective of a corporation is, largely, profit, “profit for who?” remains an appropriate consideration.
Corporate profits, when realized, are either distributed to shareholders, held in reserve by the corporation, or utilized to retire debt, finance expansion, or acquire business assets. Profits distributed to shareholders in the form of dividends are taxed to the shareholders. Is it reasonable or fair that the same profits should be taxed to the corporation and then again to the shareholders, amounting to a significant penalty (double taxation of income) applied to the corporate structure for conducting business, simply for being a corporate structure?
Undistributed income, however, if not taxed to the corporation, may well be held in reserve by the corporation indefinitely, simply to protect it from taxation. This would give the corporate structure a significant competitive financial advantage over unincorporated small business owners and surely reduce government income tax revenues by creating a tax haven for profits that is sure to be exploited without limitation. Why would anyone conduct business any other way if the corporate structure facilitates indefinite avoidance of taxation on profits?
Questions of equity then, in considering tax policy, arise. People have a right to structure their business in any legal way with minimization of taxes in mind, and surely will. It would be irrational to expect otherwise. So, quite appropriately, public policy regarding taxation of corporate income should consider the meaningful difference between undistributed corporate income and distributed corporate income. As to income, in general, other considerations arise.
Stockholders require a competitive return on their investment, or they will take their capital elsewhere. Talent and expertise seek competitive compensation for their contributions, or they will take them elsewhere. Management requires competitive compensation, or they will take their contributions elsewhere. All the foregoing are individuals whose compensation is taxable on a personal level. Any taxation levied against the income of a corporation will reduce the availability of resources for compensation of the foregoing individuals if it is not collected from consumers of the corporation’s products in the form or price offsets. By this argument, consumers or corporate customers inevitably bear the hidden burden of corporate income taxes in the form of higher prices for the products they purchase.
If the corporation produces consumer products, the consumers bear the burden, as it is built into the pricing of their products. If the corporation produces services or material that is purchased by other corporations the profits of those corporations are correspondingly reduced by the increased price of the cost of the raw materials that they buy from others. Driven by profits, they will attempt, wherever possible, to pass these increased prices on to their customers.
In the end of the day, it might be argued that all income taxes on corporations are born by the community that the corporation serves while that fact is obscured, making it less of a target for scrutiny and accountability.
While socialist interests might fan the fires of animosity against corporations, the resulting fires in the form of increased taxation invariably burn the individual citizens of the community, not the corporations, by concealing from public scrutiny the directness of the impact on consumers occasioned by the public policy of politicians and bureaucrats. Else, they would cease to be desirable approaches to organizing business enterprise.
When corporate income taxes are evenly applied across the board of a nation’s corporations, no market advantage is lost or realized as a result. Capital has no recourse to find haven from such taxation elsewhere. Management is not penalized for increased costs of doing business that every other corporation must also bear. Talent and expertise must be compensated sufficiently to continue the engagement, no matter the burden of other costs. So, the consumers bear all the corporate income tax in the form of higher prices which then results in a corresponding increase in sales taxes on their already inflated purchases.
The consumer who supports the imagined fantasy of being asked to pay less income tax, or not asked to pay more income tax, on the grounds that corporations will now pay their share, is simply not well informed. It is a government hustle, like orchestrated inflation, and one that experienced socialists are well-aware of.
Taxation of corporate income is generally born (paid) by consumers of corporate products. So, fairness in taxation, if by fairness we mean who is paying the larger share of income taxes between individuals and corporations, is a red herring discussion that obfuscates the reality that it is a non-issue. The public bears the burden, one way or another of all the income taxes, corporate or otherwise. As this is the case, the consideration of taxation of corporate income taxes is not really a question of fairness in the distribution of the tax burden. It is a question of fairness of competitive advantages between corporations and small unincorporated business owners.
When corporations are afforded a tax free internal financial advantage that unincorporated business owners do not have, a significant competitive advantage arises. This advantage impacts negatively on the otherwise self-reconciling balance that exists in a world of free enterprise where excessive corporate profiteering is kept in check by the unrestricted emergence of competition at the grass roots level. An unfair business advantage, by corporations or any entity, against other business enterprises, impacts negatively on the natural self-reconciling balance of free enterprise and disrupts the very nature of a capitalist economy. The result is oligarchy, which American has now become.
This writer advocates reasonable taxation of undistributed corporate income, and no taxation of corporate income that is distributed to shareholders.
We welcome discussion, feedback, and opposing points of view.
The greatest obstacle to the American dream for most Americans has been the blinding conceit and self serving public policies of the illegitimate controlling elite (ICE) and the notions of their own entitlement as stewards of a false "greater good".