In theory, corporations don’t actually pay taxes at all, people do. Every dollar follows a path from one person’s pocket through one or more companies (they might not all be corporations) eventually ending up in the pocket of a supplier, owner, or employee. Payment of taxes just adds a few stops to this route. Given this, we can view corporate taxes as a way to divert funds from shareholder/owners. Alternatively, we could tax the shareholders/owners directly (we do this with dividends, which is why they are described as being taxed twice). Since there are fewer corporations than shareholders, and since some shareholders don’t pay taxes (pension funds), it makes sense to tax company profits as they occur. Where we need to be careful is with the exemptions and deductions we allow corporations. In sum, yes, we need to reverse corporate taxes.
Thank you for writing this, I agree that was an interesting paper. It gets to the fact that we still have not really figured out how wealthy countries work: for poor countries, growth is all that matters: https://lantpritchett.substack.com/p/economic-growth-is-enough
But for rich countries, it is just not very clear.
I did also have a nitpick: Corporations have been persons in every country I am aware of for decades if not centuries, including every OECD, EEA, and BRICS country. Citizen's United focused on whether or not such "legal persons" had a particular attribute of personhood in the American constitutional.
In theory, corporations don’t actually pay taxes at all, people do. Every dollar follows a path from one person’s pocket through one or more companies (they might not all be corporations) eventually ending up in the pocket of a supplier, owner, or employee. Payment of taxes just adds a few stops to this route. Given this, we can view corporate taxes as a way to divert funds from shareholder/owners. Alternatively, we could tax the shareholders/owners directly (we do this with dividends, which is why they are described as being taxed twice). Since there are fewer corporations than shareholders, and since some shareholders don’t pay taxes (pension funds), it makes sense to tax company profits as they occur. Where we need to be careful is with the exemptions and deductions we allow corporations. In sum, yes, we need to reverse corporate taxes.
I agree with this perspective. I would add that there are several considerations regarding corporations that may lean towards the alternative:
Corporations, by being larger, can more effectively work on reducing taxes;
Also vis-a-vis, tax authorities, corporations have more financial firepower to push back against taxation;
Owners/shareholders should be easier to audit;
Corporate taxes also incentivize things like political spending (basically it’s subsidized spending on behalf of the owners)
There’s also a lot of employment in tax compliance/advisory which one might argue is not a productive use of resources;
The whole global corporate tax race.
I still see the point you’re making.
I can see that. The problem of political spending can be fixed.
Yes.
Thank you for writing this, I agree that was an interesting paper. It gets to the fact that we still have not really figured out how wealthy countries work: for poor countries, growth is all that matters: https://lantpritchett.substack.com/p/economic-growth-is-enough
But for rich countries, it is just not very clear.
I did also have a nitpick: Corporations have been persons in every country I am aware of for decades if not centuries, including every OECD, EEA, and BRICS country. Citizen's United focused on whether or not such "legal persons" had a particular attribute of personhood in the American constitutional.