Corporate Income Tax Unfair, Impractical

by Bob Ward

As Congress takes up the President’s plan to revive the economy, it would be an opportune time to review an inequitable and impractical feature of our Federal tax system - the corporate income tax.

Currently, an income tax is levied on money earned by the corporation.  That money is taxed again when it is distributed to the corporation's owners -- the shareholders -- in the form of dividends which are regarded as personal income.  It is comparable to a worker's wages being taxed when he earns them, at the end of each working day, and again when he collects them on payday.

Too many politicians want the public to believe that the corporate income tax reduces the tax burden of individual taxpayers.  But savvy taxpayers know that corporate taxes make tax collectors, not tax payers, out of corporations.  A corporation does not produce money out of thin air with which to pay its taxes.  A corporation's tax bill is converted into higher prices for its customers, lower pay for its employees, fewer jobs for the community and lower dividends for its stockholders.

The impracticality of the corporate income tax is especially salient at the present time when government is supposedly doing all it can to reduce unemployment.  Billions have been appropriated to create makework jobs which merely shifts work from the private to the public sector.  It would be preferable to remove the obstacles to expansion and investment so that Americans can return to real jobs that produce goods and services.  A drastic reduction in the corporate income tax would help achieve this.  Its abolition would be even better.

While politicians may find it useful to cultivate the myth that "the little guy” is helped by socking it to "big business," it just isn't so and we need politicians with the wit and courage to say so.

Congress should take this opportunity to encourage capital formation and make it easier for business to expand and hire workers.