Corporate Taxes

Andrew Chamberlain @ TCS Daily makes a fantastic point about corporate taxes and tax rates, and the inherent fairness (or lack therof) of taxing corporations.

"Ask an economist and she'll tell you there are two basic approaches to tax fairness. One is "benefits received" which says taxes are fair if those who use the most government pay the most taxes. The other is "ability to pay" which says to forget how much government we use—people who make more money should pay more tax."

Ability to pay is the way the tax system is set up in the US, on both personal incomes and corporations. Since corporations simply pass along their expenses to consumers, is it really fair to tax corporate profits?

Chamberlain gives a great and compelling example of two companies, one a new venture start-up making space satellites, with highly paid workers and rich customers and investors, but not making any profits. The other company is a "box" retailer, with low wage workers and customers with a publicly traded stock that many middle income people are invested in through their 401k's, but making a high profit. Which is taxed more, and why?

Well, today the profitable company is taxed on its profits at a maximum rate of 35%, while the start-up is taxed on its profits (if any) at 10%. As Chamberlain puts it:

"Those buildings downtown don't pay taxes, we do. So progressive corporate tax rates that treat companies like people aren't just silly, they're unfair. And unfair in an especially capricious way that should infuriate people who really care about tax fairness."

Outstanding point, and one well worth mulling over at length.