A New Year’s Resolution: Abolish Corporate Taxes

pharm times;”>EditorialBy Gregory J. Welborn

Resolutions come and go, especially at this time of year and especially in the Congress. We, mere mortals, make our solemn resolutions to do this or not do that, and then within a few weeks return to our old ways. Our higher and mightiers in Congress do the same thing. They pass “continuing resolutions”, which are at least honest in their title, informing us that they are going to continue doing what they’ve been doing – spend money! Or, they pass “non-binding resolutions”, which I guess are also honest in a way, informing us that they have no intention of actually doing whatever they said they want to do. Why any of us make resolutions is beyond me, but since it’s that time of year, here’s one we can all support.

Be it resolved that the conservative Congress will pass, and the Liberal President will sign, a law that eliminates taxation of corporations. It truly can be a win/win.

Everyone seems to agree that the current U.S. tax code is ridiculous. It is overly complex, means different things to different people – even inside the IRS that’s trueworlds-highest-corporate-tax-rates – and distorts economic activity. I am not the only person who has called an IRS office for an explanation, received one, and then learned the hard way the advice given was wrong. If they can’t understand it, my God, we need to replace this thing. Even with near universal agreement on that point, both Conservatives and Liberals will want to write a new tax code that still favors pet social issues. My ultimate resolution would be for a 100% economically neutral tax which neither encourages nor discourages certain economic activity. I want people free to do what they want and then be taxed the same on the outcomes. If you serve food in a restaurant, make movies, or build cars, I don’t want the government to reward one of you and punish the other.

But since that ultimate resolution is probably not realistic in today’s environment, let’s return to the one which is. Abolishing the corporate tax should be easy. Both sides will benefit. To understand that, we need to understand what the corporate structure is and what it accomplishes. Put simply, a corporation is a group of people who have banded together to pursue some economic activity. Corporations are ultimately owned by people. They’re called shareholders, and “they” are you and me. Anyone who owns stock or who has shares in a retirement plan is a shareholder. What this corporate structure accomplishes is (A) allows us to accomplish larger economic projects together than we could on our own, (B) spreads the risk of those projects so that a mistake isn’t economically devastating for one person, and (C) allows every shareholder to enjoy the success of the venture.

It is this last functionality of corporations which is critical to understanding how corporate taxes hurt all of us. All of the corporation’s profits are “owned” by all of its shareholders. One way or the other, all the shareholders benefit from these profits. If management distributes them in the form of dividends, all of us shareholders get a check. If management retains them to expand operations, all of us shareholders benefit from an increasing value in our investment (our portfolio or our 401K balance).

If the government steps in and taxes the corporation, they are taxing us. They are taxing people. Whatever the government takes away in taxes (to spend as it sees fit) is less money that can be paid to us, to spend as we see fit, or is less money to be retained to expand operations, which increases employment. Taxing the corporation taxes us and dampens employment.

There is one other particularly nasty component of the corporate tax code that deserves its own special mention. Dividends are not deductible. That means any money earned by the corporation is taxed once at the corporation level and then is taxed again when we receive it. Corporate profits sent to us as dividends are taxed twice.

The bottom line is that corporate taxes are people taxes! And if the tax is on dividends, it is double taxation. There is no magic difference which insulates shareholders from the effects. There is no magic difference that protects workers. If you hurt the corporation, you hurt the owners (us) and you hurt the workers (us).

So, what would happen if we abolished the corporate tax? Here’s the quick list. 1) The economy would grow. The system would be more efficient so more tax-post-259x185investments in expansion would occur. 2) More people would be employed. As the expansion occurred, more factory workers and management types would be needed. 3) Tax revenues would increase. As the economy grew and all profits flowed to individuals, total taxes would increase.

That’s a list of benefits Conservatives and Liberals can love. The government would interfere less in our lives, the economy would become stronger, employment would grow, and there would actually be more money available for legitimate social programs. Let’s do it right this year. Make the resolution to get rid of the damn corporate tax!

Gregory J. Welborn is a freelance writer and has spoken to several civic and religious organizations on cultural and moral issues. He lives in the Los Angeles area with his wife and 3 children and is active in the community. He can be reached [email protected]/5l.com

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