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Let’s Ditch the Corporate Tax

More than 40 years ago I was against the corporate tax. I still am. But now there is one more compelling reason.

Am I a converted conservative? No way. Conservatives are against the corporate tax for all the wrong reasons. They want to abolish government, not feed it. Do I think corporations are people? Nope. They are just a legal construct to take the heat away from management for wrong doings. But they also protect workers. I don’t think you can sue a worker for shoddy workmanship on a product that comes off the assembly line. So why am I against it?

First of all, the corporate tax is designed to collect revenue for the government. If that were the beginning and the end of its impact, I would favor it. But this tax has tentacles that reach far beyond the tax man. For starters, producers are able to pass about one-half of that tax onto consumers. They can’t pass it all on because competition will and does constrain that bold move at least to the extent there is competition for any given product. How much competition constrains price increases is a matter for the market to decide. So right away, any price increase cuts into GDP. And when GDP falls, so does employment, personal incomes, and tax revenues. Those losses will nearly always surpass the tax revenue increase to the government. The turnover rate of money virtually guarantees that outcome. Conversely, eliminate the corporate tax and the market will lower prices to consumers and increase corporate profits, increase the value of corporate stock, increase dividends to stockholders, increase everyone’s purchasing power, raise GDP, increase employment, boost personal incomes, and increase tax revenues.

Those are all the old standard arguments against the corporate tax. And they are valid. The new argument is this: Our corporate tax is higher than that of most other countries, and that is a big disadvantage in a worldwide competitive market. As a result more and more large producers are moving their operations overseas to avoid paying taxes here. Or they have restructured their legal format to scatter their tax obligations around to reduce them to minimum levels. Either way, our economy suffers, our employment suffers, and our tax laws are the reason.

The practice of shifting operations oversea is called “tax inversion” in the popular jargon. Many have incorrectly labeled it “unpatriotic.” Eliminate the corporate tax and we eliminate the need to shift operations to overseas locations because of this tax. Our corporations would have enhanced balance sheets vis-à-vis their competition.

If there is a good argument for keeping the corporate tax, I don’t know about it. But I am retired, and my brain is weak, and I should just be quiet and try to improve my pathetic golf swing. OK, but my sliced ball just landed in your front yard. And I am not going to trespass onto your property to retrieve it.