Corporate Income Tax Does Not Exist

The following is a repost from my Facebook account that went mostly unread.


In response to continuing complaints about how corporations are not taxed enough – punctuated by a certain news item about GE in the recent past – I feel prompted to say that, despite common opinions, corporate taxes do not even exist. I will explain. Here’s how our current income tax system works:

  • LLCs, sole proprietorships, and the like do not pay income tax on the company level.
  • Corporations have “double-taxed” income, meaning that the corporation itself pays a certain percent of its income in tax, and then shareholders pay personal income tax on what they receive from the company after that.

When we force corporations to pay higher taxes on the company level, what happens? Do we lessen the amount of money that the “fat cats” take home?

No. Absolutely not.

Instead, they raise their prices and pass the burden of that corporate tax on to, yes, you.

A similar thing can be seen in payroll taxes. Politicians pass tax code changes that result in Social Security taking a lower percentage out of your wages and a higher requirement for payroll taxes from your employer. They do this to show you that they are fighting for the “little man” and sticking it to those bad employers. And yet, the truth of the matter is that employers are willing to pay what they are willing to pay for your work: whether the money goes to you or to the government is irrelevant to them. Thus, the higher tax on their end just gets passed on to you because now you aren’t getting a raise.

Corporate taxes do not exist. Everything ends up being a tax on consumption in the end – or a tax on consumers. It’s just that our current system gives us this convoluted structure for the sake of appeasing the “little man” and tricking him into thinking that the government is looking out for him – a structure that wastes untold amounts of tax dollars in useless bureaucracy and administration.

When Mitt Romney said that corporations have rights because they “are people too,” it created a firestorm among liberals, who were incensed at such a ridiculous idea. And yet, liberals want to levy income tax on corporations because they “are people too.” No double standards, please.

Even if liberals do not believe or pay attention to anything else I have written, here is something they should pay attention to: When you levy a corporate income tax, you effectively tax the dividends of all shareholders of that company at the same rate, whether those shareholders are billionaires or average joes with just a few shares. Since liberals almost always advocate a graduated tax on income, this fact alone should be reason enough to abolish the corporate income tax.