Corporations Aren’t People, So Stop Taxing Them

The following article by Linn and Ari Armstrong originally was published August 5, 2011, by Grand Junction Free Press.

Imagine if you and your spouse individually paid income tax, then you had to pay a separate tax on the same income as a family unit. That would be insanely unjust double-taxation, right?

It is equally unjust to tax corporations. If governments must resort to taxation (and frankly we’re not even persuaded on that point), they should tax only individuals, not groups. Notably, eliminating corporate taxes would jumpstart the struggling economy, something none of Obama’s tax-and-spend interventions has done.

We readily concede the left’s tireless mantra: “Corporations aren’t people.” Families aren’t people, either. However, both are composed of people, of individuals with rights.

In a family, two adults voluntarily agree to live together (usually), join their resources (at least partly), support each other, and possibly raise children. In a corporation, many individuals voluntarily pool some of their resources for some productive venture. You don’t lose your rights (or gain new ones) by joining a corporation any more than you do by getting married.

Ironically, it is the left that actually tends to treat corporations as though they were people. According to the typical leftist smears, a corporation is some soulless monster, a will unto its own, symbolized by a sinister cigar-smoking exploiter in a black hat. The left reifies the corporation — treats it as a concrete entity under its own motive power.

In reality, a corporation is an abstraction describing an organization of people who come together for a specific purpose. Within a business corporation, many individuals invest in a large-scale operation and hire directors to run it.

Here our focus is on the competitive business corporation. There are many other sorts of corporations; for example, the City of Grand Junction is a type of corporation. Historically, English law granted corporations the political power to forcibly block competitors, but that’s not the common meaning today.

Obviously we oppose all political favoritism that lets corporations (or individuals) forcibly damage competitors, gain tax subsidies and “bailouts,” or otherwise violate individual rights. (We’re talking about real rights, not the made-up “rights” promoted by the left to seize or control other people’s resources.)

With that background, we can turn to matters of taxation. Title 39, Article 22 of the Colorado statutes imposes a 4.63 percent tax on “C corporations,” the most common type. And the federal government imposes taxes as high as 35 percent, “the world’s highest corporate-tax rate,” Cato’s Richard Rahn recently lamented.

Among the many benefits that would result from eliminating all corporate income taxes, the most important would be to spur the American economy. Chris Edwards, another writer for Cato, summarizes, “A lower corporate rate would boost domestic investment, which in turn would generate more jobs and higher wages and incomes.”

Why? Without burdensome taxes, businesses would flock to the United States and pour more money into the economy. Today U.S. politicians drive companies offshore, then demonize them for fleeing political oppression. Without politicians siphoning off their profits, businesses would invest more in building up and expanding their productive capabilities, creating more and better jobs.

And consider the resources saved in compliance costs. Today, corporations must navigate the conflicting and inherently ambiguous state tax laws, then hire lobbyists to try to protect themselves from federal tax abuse. Through so-called “loopholes,” different businesses pay different net tax rates. The result is massive productive potential squandered appeasing and dodging politicians and tax bureaucrats.

Eliminating taxes on groups would hardly eliminate them on the individuals in those groups. Corporate executives would still pay income tax on their earnings, as would all the individual employees of the business and all shareholders earning dividends. The difference is they wouldn’t be subject to unjust and economically damaging double-taxation.

Another benefit to eliminating corporate taxes would be to end the social engineering of the Internal Revenue Service. Today, politically favored corporations pay no income taxes. They’re called 501(C)(3) corporations, or nonprofits. The problem is that politicians and tax bureaucrats get to decide which groups qualify and which do not.

The result is the absurd spectacle of partisan “nonprofit” groups, including many churches and think-tanks, pretending to be “nonpartisan” for tax purposes. The tax code promotes rampant dishonesty and political gaming within the nonprofit world. Much better would be to tax individual employees of all groups at the same rates.

The government should not be in the businesses of punishing some groups more than others with higher tax burdens. Instead, the government should treat all individuals, and all groups of individuals, equally under the law. Eliminating corporate taxes would substantially promote that goal.

Corporations aren’t people. Politicians should stop taxing them as if they were. Eliminate corporate taxes to promote economic growth and basic legal fairness.


Anonymous commented January 25, 2012 at 4:40 PM:
This is a very nice article. I would add, as an example of unfairness, the fact that some health insurance organizations, such as Blue-Cross/Blue-Shield are treated as non-profits, while others are treated as for-profits when there is scarcely a hairs width of difference between them. The result is that BCBS has been very successful in dominating the insurance marketplace, reducing choice and competition.
— Darrell

Ari Armstrong commented January 25, 2012 at 4:42 PM:
The entire distinction between “profit” and “nonprofit” is largely a creation of the federal income tax. In a free market, there could be a nonprofit designation, but that would be a contract between an organization’s leaders and its contributors. There would be no artificial political favoritism of some organizations over others.