End The Corporate Income Tax

Megan McArdle had a piece recently regarding the benefits of ending the corporate income tax.  The fact that we have one of the highest corporate income tax rates in the world aside, Mrs. McArdle-Suderman offers the following reasons for eliminating this onerous and wasteful burden.

You can't tax a corporation; you can only tax a person

Corporations simply pass along corporate taxes in the price of their products.  It is just that simple.

The incidence of "corporate" taxes is not necessarily progressive.

Big companies can afford armies of attorneys and accountants to help them avoid tax liabilities.  Smaller companies that earn far less do not have the benefit of those resources.

The corporate income tax encourages firms to use debt finance, rather than equity.

I know a fair bit about this.  Consider that Apple is one of the strongest companies in America.  I remember 10-15 years ago there were many people that thought Apple was done as a computer company.  Yet they are still in the business of making computers...and many other useful gadgets.

How did they survive?  They took the road less traveled and became an asset rich company.  They own most of their corporate facilities.  As a result, they have the flexibility to invest in future products.

Most other companies are in debt.  They borrow against their buildings.  They borrow against their office furniture.  They borrow against their inventory.  And when hard times come along, they end up doing what their lenders want instead of having the freedom to re-tool, re-design, and re-orient on new products, new markets, new customers, and new profits.

If we want more stable companies, then we need to get rid of incentives that make them less stable.

You can't eliminate all the loopholes

The corporate income tax encourages firms to waste resources on tax avoidance

The corporate income tax doesn't raise that much money

The above three justifications represent the careful dance that companies and tax inspectors do with one another.  Companies waste valuable resources so they pay the least tax possible.  Tax inspectors waste valuable resources looking for corporate malfeasance.

Eliminate the tax and companies will focus on earning a profit without the contortions and market distortions caused by the corporate income tax.  And tax inspectors can go do something productive...like picking up litter in Antarctica.

Without the corporate income tax, a lot of the incentive for lobbying would go away

If getting corporate America out of the political funding game is so important, you would think that more people would be racing to end the corporate income tax.

Megan has more details, but the above should be enough to pique your curiosity.  Have a read.