A recent online debate involving Nathaniel (and me to a much, much lesser extent) brought up corporate income tax.[ref]I wrote briefly about the corporate income tax at The Slow Hunch (a couple times).[/ref] It reminded me of this recent article in the Wall Street Journal. The author lists ten reasons to abolish it altogether:
- The “engine of tax complexity disappears. And with it disappears an army of lobbyists in Washington working to get favorable tax treatment for corporations.”
- “With no corporate income tax, management would concentrate on what is now pretax profits, an artifact of actual wealth creation.”
- “[T]here would be no reason to tax dividends at lower rates to compensate for the fact that they now are paid out of after-tax profits.”
- Due to increased profits, “corporations would increase both dividends and investment in plant and equipment, with very positive effects for the economy as a whole and increased revenue to the government through the personal income tax.”
- The “stock prices…would rise substantially, inducing a wealth effect as people see their 401(k)s and mutual funds rising in value.”
- “[T]he distinction between for-profit and nonprofit corporations would disappear.”
- “[M]uch of the $2 trillion of foreign earnings, now kept abroad to avoid being taxed when repatriated, would flow into this country.”
- With no corporate income tax, “foreign corporations would flock to invest here…”
- In order to compete, foreign countries “would be forced to lower or eliminate their own corporate income taxes, increasing domestic corporate profits and thus domestic investment and personal income…”
- Finally, “eliminating the corporate income tax would deal a blow to crony capitalism.”
Check out the full article.
These reasons look like great justification, in theory. However, I’m not fully convinced that it would work that way in practice.
My biggest concern is that due to the “army of lobbyists” cited in #1, how confident can you be that the lower tax rate for dividends would be eliminated, as you suggest it would in #3? Furthermore, why do you think that army of lobbyists from the largest corporations would allow the corporate income tax to be removed entirely? It currently provides them with a strategic advantage over small businesses that can’t afford the army of accountants to reduce their actual taxes.