What is the proper level of corporate taxation? According to those on the left, a lot higher than they currently are, while those on the right can’t imagine they could ever be low enough. They can’t both be right, can they? Of course not, but it is possible they could both be wrong.
In order to understand the debate, one first has to consider what a corporation is and why it exists. In the early 19th century, the industrial revolution almost came to a shuddering halt because most rich people were not entrepreneurs (they still aren’t but that’s another issue). The idea of capitalism is that you risk your money in hopes of a large return in the future. Rich people liked the idea of large returns; risk, not so much. Especially when that risk meant not just potential loss of money, but, if things went badly wrong (say, if a bridge collapsed or a well got poisoned) with a business venture, the risk of personal responsibility and, even, jail time. Why chance it when you can buy a nice country estate?
The idea of the corporation was an old one, arising out of the model of business partnerships. But, still, a dozen backers might lower the financial risk to any one of them but not necessarily the criminal risk. Limited liability only could take you so far. But suppose we were to treat the corporation as “an artificial person,” that is as an entity separate from the people who own it, the criminal and civil risk now falls on it rather than its owners (as long as they acted in good faith and didn’t actually direct the company managers to break the law). Whew—the capitalist class collectively sighed and the rest is history.
In fact, it is so embedded in history, corporations are allowed to mess in elections as if they were people (at least in the USA) and boards are able to claim no knowledge of the wrong doing (say, illegal bribes in Libya) of their employees. But, of course, corporations can’t go to jail or be executed—though they can be fined or forced into bankruptcy. And, the managers who broke the law can be imprisoned and, of course, fired and excoriated by the board and stockholders.
Even the left have completely bought into this pleasant fiction of the personhood of corporations, forgetting that every single corporation in the world is owned by somebody. Now, I’m not saying we should throw rich people in jail every time a corporation goes astray (though I’m not averse to the idea) but I do think, for the purposes of taxation, we shouldn’t let them hide behind the protective walls of corporate tax laws.
Because here’s the thing: in almost every jurisdiction, corporate and business taxes are effectively lower than personal income taxes (even if they are similar on paper). I’m not just talking about the tax rates of the rich—most middle-class people pay taxes at or above that charged to corporations.
So instead of racing to the bottom to try to attract corporations to move from one province or one country to another, maybe we should reduce the corporate tax rate to zero—and assign their profits (and losses) to the people that own them. This would require much simpler tax laws and closer auditing to ensure creative accounting didn’t make profits magically disappear and maybe stricter penalties for tax evasion (both for the evaders and the accountants who help them).
And here’s the thing, it should also make markets more efficient as risk and reward became more transparent and people make choices in their own best interests, instead of going along for the corporate ride.
And that’s ten minutes