On Corporate Taxation

Why increase taxes on corporations? Those who believe corporate taxes should be increased believe they are “sticking it to the man” by increasing the taxes on “the man’s” company. But what actually happens? Is “the man” the one who pays, or do the costs of extra taxes get shifted to others?

Here is what happens when taxes or bureaucratic requirements on corporations increase.

  1. Some companies will engage in shady tax avoidance schemes. Others will lobby for preferential tax treatment, corrupting the legislature with money and making tax laws more complex and unfair, and further encouraging lawbreaking by means of bad laws.
  2. Usually, if a company’s taxes increase, the company raises prices. Therefore the customers of the company spend more.
  3. If a company can’t raise prices to cover the additional taxes, it will cut expenses by reducing the employer contribution to worker IRAs or 401Ks, and by cutting medical and other benefits.
  4. If the company needs to further cut expenses, it may lower its dividend, thereby damaging its stock price, which hits the retirement accounts of company employees and others.
  5. If a company can’t raise prices and cut expenses enough, it will further cut expenses by firing middle-class employees, or by going to cheaper, non-US suppliers.
  6. If firing employees doesn’t make enough of a difference, the company moves to another country with a more favorable tax structure and fires US employees and US suppliers
  7. If the corporation is operating on the edge already, it may simply go out of business, firing everybody and ceasing to pay taxes entirely.
  8. Finally, it is possible (but highly unlikely except in the fantasy worlds inhabited by leftists who still have not understood that Marxist/Leninist systems are always inhuman, cruel, murderous and evil) that corporate officers and board will cut their own draw or pay.

No matter what level of taxation exists, these are the results. Taxation of productive companies reduces the number of jobs and the prosperity of stockholders and productive workers in a nation, and it enriches the government bureaucracy.

h/t: Dennis Prager.

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One response to “On Corporate Taxation

  1. There is another form of taxation that is related to punitive taxes on corporations. Sin taxes, or luxury taxes, directly on certain products are meant to dissuade people from doing something. These do not damage the corporation’s profitability but are meant to reduce demand for its product and eventually force it out of a line of business. But it is not the long-term effect that is most troublesome, but the short-term effect. Since different jurisdictions have different levels of taxation, it is profitable to buy the product in one jurisdiction and smuggle it to another jurisdiction for sale there, without paying the local tax.

    Cigarette taxation is a good example. This smuggling is so profitable that it is a new favorite means of financing for international terrorist groups such as the Columbian FARC and HizbAllah.

    Belmont Club has an example here.