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Monday, December 5, 2016
A Case for Eliminating the Corporate Income Tax
Although there is a corporate income tax, a corporation does not "pay" income taxes; it may remit taxes, but to a corporation, taxes are just a cost of doing business. We know that when crude oil prices go up, the price of gasoline moves with it; and when crude goes down, gasoline prices eventually go down. Similarly, an increase in the tax rate forces corporations to raise prices, cut costs elsewhere, or accept a lower return on their investment.
By eliminating the corporate income tax, a number of things should ensue:
An army of corporate accountants, whose sole purpose is to reduce or eliminate the tax burden of their employer, would be free to provide a function that actually creates wealth. An army of IRS accountants checking on the corporate accountants would no longer be needed, reducing the cost of the Federal government. These people could also use their talents to provide a function that creates wealth. Prices should fall as the cost of doing business is reduced (no income taxes and lower overhead costs due to item 1 above). Business decisions would be cleaner. Businesses look at their after-taxes return when determining whether or not to invest in a project. A business may make a good decision under the existing tax code, but as the tax code changes, that decision could become a poor one. Ethanol is a good example. As a straight business proposition, it is a poor investment. The U.S. tax code makes it a viable business and a number of corporations have made substantial investments and profits because of the tax code. Eliminate the tax benefits of ethanol, and the business is no longer viable on a stand-alone basis. Jobs would return to the USA. Within the USA, companies move from high tax states to low tax states. Internationally, companies do the same thing. With no corporate income tax, there is an incentive for companies to move to the United States rather than from the United States. Corporations have employees. If you are a politician, an employee is also known as a taxpayer. Currently, the corporate income tax comprises about 10% of Federal Tax Revenues. It is impossible to determine if tax revenues from the newly employed would partially, fully, or more than fully offset the effect of eliminating the corporate income tax rate. Last, and maybe most important, eliminating the corporate income tax would take power out of the hands of politicians. No longer would elected officials be able to help their "friends" (also known as campaign contributors) with special tax benefits. Regulatory relief would still be available to politicians to assist their "friends," but it is more difficult to benefit one company for regulatory relief compared to creating a special benefit through the tax code. It would put an end to "Crony Capitalism" through the tax code.
Reducing the rate to zero is worth considering.
Thomas Nichta lives in San Antonio. He is an ambassador for the Mises Institute. The views expressed here are his and not necessarily those of the Mises Institute.