There is something that rich people and their apologists talk about a lot. It is the idea that the corporate income tax is wrong because the owners of those corporations have to pay income tax twice: once for the company and once for the individual. Dean Baker provided the standard response to this nonsense, The Myth of the Corporate Income Tax as Double Taxation. Basically, it comes down to this: no one is forcing people to set up their businesses as corporations. People do it knowing that they will have to pay corporate income taxes. And they do it anyway, because they get a great deal of benefit — most especially protection against liability.
But there are several other things that I don’t understand about this whining point of the rich. The first is, “Corporations are people, my friend.” Corporations have First Amendment rights. Why shouldn’t such an entity have to pay income taxes? Really, I don’t get it. This whole discussion seems to be the usual thing where the rich want all the advantages of whatever they have, but none of the responsibilities. And since they only talk to each other, they get the idea that somehow it makes sense their corporate status should give them all kinds of benefits that other business people don’t get, but that they shouldn’t have to pay anything for it.
Let’s consider a little thought experiment. Let’s suppose that I hire you as a maid. I don’t pay you with my pre-tax salary; I pay you with my post-tax salary. I get paid and I pay my taxes. With the money left over, I pay you, and you too have to pay income taxes. How is this any different? The reason that corporations have these special rights is that they are a special kind of person. From the profits of the corporations, shareholders are paid. The fact that they don’t do any work (unlike the maid) doesn’t change things; they are being paid because they put money into the company. So yeah, this is double income tax — just like it is when anyone hires someone else.
But what I really don’t get is the Shakespeare aspect of this, “What’s in a name? That which we call a rose by any other word would smell as sweet.” What does it matter that we call these two taxes the corporate and individual income taxes? I’m being taxed all the time. I make money and I pay income and payroll taxes on it. Then I spend the money and I pay consumption taxes. The big issue here is that the rich are laser focused on the federal income tax.
I’ve talked about this a lot, most recently in, Why We Only Talk About the Income Tax. We have a system where property taxes are very slightly regressive (the poor pay more than the rich). Consumption taxes are quite regressive. And payroll taxes are ridiculously regressive. The income tax is the only part of the tax system that is even moderately progressive. So we talk talk talk about the income tax.
The rich and their apologists know that it makes no sense to complain about the corporate income tax. In fact, as Dean Baker noted, “The corporate income tax is a 100% voluntary tax…” It’s a tax they complain about paying, but they aren’t required to pay it. But it’s the usual whining point of the rich about everything: they don’t believe they should have to pay for anything they get. They want special privileges that other people and businesses don’t get, but they think it shouldn’t cost them anything.
I’ve long been in favor of eliminating the corporation — especially when I was a libertarian. So I say we give the rich what they want: repeal the corporate income tax — right along with the corporation as a legal entity. Do I have any takers?