Let's talk about this notion that many on the left have- to increase what is already the second highest corporate income tax rate in the world and make these evil corporations pay their "fair share." It's an interesting notion, if by interesting you mean one of the stupidest, most ignorant economic proposals out there today. Sure, the rhetoric is enticing. After all, why shouldn't these companies pay more since I'm struggling just to live paycheck-to-paycheck? In fact, let's add a windfall profits tax for companies that are turning these really obscene profits. Take the oil companies, for example. Why, Exxon-Mobil had 2nd quarter profits of around twelve billion dollars! Why tax me when I'm already paying an additional two dollars per gallon for gas and my home energy bills are skyrocketing?
This idea is so fundamentally flawed it's difficult to know exactly where to begin- so let me start by pointing out that in the same quarter that Exxon-Mobil netted that record-setting figure, it also paid federal taxes of more than thirty-two billion dollars! Though it’s actually more accurate to say they allocated thirty-two billion dollars in taxes to the federal government, because corporations don’t pay taxes.
Understanding this concept requires an understanding of what a corporation is. Various definitions are characterized by terms like, “a group regarded as individual by law;” “a company recognized as a single body…;” or “a group of people acting as a single entity.” The word corporation comes from the Latin word, corpus, corpora (pl.), meaning “body,” which can refer to a literal “body” or other collection of parts, as musician catalogue of music or an author’s collected writings make up a “body” of work.
As the definition suggests, in the case of a corporation, its constituents, it’s “parts” are people. Corporations are made up of people, (such as employees, owners, and investors/shareholders) and corporations don’t pay taxes- taxes are invariably borne by people.
Corporate taxes are no different than any other expense- they are simply a cost of doing business which impacts the corporation’s bottom line. Thus, an increase in corporate taxes represents an increase in the cost of doing business, fundamentally no different than an increase in the cost of materials or payroll.
When a business is faced with increased costs, strictly speaking the corporation can do one of two things- it can absorb the costs or it can pass on the cost. A corporation can pass along the cost in a number of ways; for example, it can raise prices, which hurts consumers; it can reduce payroll (by cutting salaries or eliminating jobs), which hurts the employees; it can reduce the rate at which it replaces inventory, which hurts its suppliers and trickles down to their employees; it can reduce benefits, which increases costs to the employees for things like health care, and may even reduce utilization of health care and impact the bottom line of health care providers; it could reduce dividends, which hurts investors and makes it more difficult to attract investment capital, which in turn hurts the business and its employees; or, it could ship jobs, or the entire company, overseas which eliminates jobs and tax revenue and hurts everyone.
On the other hand, if a business decides to absorb the cost of a tax increase for whatever reason, again, there are still negative consequences. Say, for example, that a company decides that every one of its employees is absolutely necessary to the business, that it can’t remain competitive if it raises its prices, that it can’t cut salary or streamline inventories or cut costs in any way. What sort of options might be available to such a company? It could close its doors, hurting the employees, suppliers, and consumers, and eliminating any tax revenue to the government; or, if it could afford it, simply allow the cost to go directly to its bottom line. This would result in lower earnings, a reduction in the value of the stock, and which hurts investors, makes it more difficult to attract investment capital, and impedes growth, which in turn hurts the business and its employees.
Conversely, lower taxes could allow a business reduce prices which benefits the consumer, to grow more rapidly and create jobs, or, with increased earnings pay higher shareholder dividends and/or increases the value of its stock, which makes it easier to attract investment capital, etc., etc., etc.
By now, it should be obvious that not only are higher corporate taxes borne by people, but they tend to contract the economy, while lower corporate taxes stimulate the economy and benefits everyone, because they keep businesses here and keep them operating more efficiently. That grows the economy, creates jobs, and, history has shown us, actually increases tax revenues to the federal government in the form of a smaller piece of a far bigger pie.
I’ve said before and I will say again, you cannot tax your way out of a recession. If we were facing hyper-inflation, tax increases to slow the economy might be appropriate. It is the last thing we need in the midst of this current slowdown. Low taxes are not the problem. Eight years of irresponsible spending and government corruption- that’s the problem. So, ask yourself when you cast your vote- which candidates seek to implement pro-growth policies to stimulate a shrinking economy and which candidates’ policies would further contract it?
