Tuesday, March 17, 2009

The Case for Repealing the Corporate Income Tax

Entrepreneurs are among America's greatest resources. These individuals try to change the status quo because they expect to use resources to create higher value than those resources are currently pro­ducing. This takes investments, and investments are risky. The return to these investments is the economic growth that they create, which is profit. Yet the government often taxes these profits twice, once at the business level and then again when the profits are distributed to individuals.

This double taxation not only dampens the incen­tive to invest, but also obscures who actually bears the burden of these taxes. Corporations are often per­sonified and demonized, but a corporation is a legal entity, not an actual person. Because a corporation is made up of a group of individuals but is not actually an individual, corporate taxes are really taxes on the stakeholders in the corporation. In a U.S. Treasury report, William Gentry points out that empirical studies show that employees and consumers really bear the cost of corporate and investment taxes.

Simulation results show that repealing the corpo­rate income tax alone, which would cost approxi­mately $300 billion in annual tax revenue, would produce by 2012:

  • 2 million more jobs than the baseline scenario;
  • $280 billion more in real GDP);
  • $4,000 more in real disposable income for a fam­ily of four;
  • $707 billion more in household net wealth—the base of economic strength and stability.
Repealing the corporate income tax would accomplish President Barack Obama's stated goals of increasing investment and ushering in an era of responsibility and economic growth, all at a lower cost than the recently passed stimulus bill.

Repealing the corporate income tax is a relatively low-cost way to implement the President's stated goals. At a time when U.S. employees are seeing jobs leave the country, a tax plan that increases the competitiveness of the U.S. business environment and encourages saving and investment by individu­als would allow entrepreneurs to implement their ideas for dealing with the challenges of the 21st cen­tury. It would also encourage job-creating busi­nesses to locate in the U.S. It is important that this country's leaders signal that the United States is still the land of opportunity.



At 3/17/2009 11:32 AM, Blogger misterjosh said...

Believe it or not, it's hard to get people to understand this seemingly basic concept.

The "Corporation as an individual" concept often serves to shield individual stakeholders from legal responsibility, and the same concept has been extended in the minds of the populace to the point where corporations are thought of as individuals.

Completely amoral individuals in the minds of many.

At 3/17/2009 12:28 PM, Blogger spencer said...

Are you even vaguely aware of the incongruity of posting this topic immediately after a posting of the argument that corporations do not pay taxes?

So which one is it?

At 3/17/2009 1:30 PM, Anonymous Anonymous said...

@ spencer - It's essentially a case for lowering taxes period. Corporate taxes are an additional layer of taxes or costs to individuals. I think it is very congruous.

At 3/17/2009 7:14 PM, Anonymous Anonymous said...

I am a beleiver in limited government and lower taxes generally but I haven't made up my mind what kind of tax structure I prefer other than a consumption tax. It seems that the reason corporate taxes are higher than individual income taxes is so that they can take larger risks without recourse. Basically, it's a way of socializing the downside risk throughout the corporate world? Am I off base on this?

At 3/17/2009 7:14 PM, Anonymous Anonymous said...

I am also a bel-IE-ver in typos.

At 3/18/2009 12:41 AM, Blogger DaveinHackensack said...

Repealing the corporate income tax isn't going to happen, so why not suggest lowering the corporate income tax rate to below the OECD average?

At 3/18/2009 4:49 AM, Blogger bob wright said...

When Warren Buffet says he pays less tax than his secretary, I think he is leaving out the fact that his corporation was already taxed at a much higher rate.


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