Gut the IRS

Corporations Have Already Paid Massive Taxes. Bring the Rate to Zero

It cannot be stressed enough that the corporation as a taxpaying entity is a fiction. And the previous assertion should in no way be construed as a suggestion that corporations pay no taxes. Quite the opposite.

At the same time, this write-up’s opening line is just a comment that shareholders pay all corporate taxes, which means the actual corporations have already paid taxes in large amounts. Evidence supporting the previous claim can be found in routine statistical analyses from the New York Times that the top 10 percent of American earners own roughly 85% of the shares in U.S. public companies.

From there, never forget that the top 1% of U.S. earners account for roughly 40 percent of federal tax receipts, while the top 1/10th of 1 percent account for roughly 20 percent of federal intake on their own. If you then expand it out to the top 10 percent of earners, it’s easy to see that the individuals who own the vast majority of public U.S. shares already pay well over half of all the federal taxes collected.

Yet Democrats in particular, but Republicans in Congress too, desire a corporate tax. They’re just fighting over numbers. Democrats want to bring the headline rate back to 28 percent, while Republicans want the existing 21 percent rate to be retained after the Trump Tax Cuts expire in 2025. In fairness to the GOP, some want to bring the number down to 15 percent. Ok, but why is the GOP so long-fingered? How about zero?

Think about it. Shareholders own companies and those shareholders already account for the vast majority of tax receipts through taxes on their income. In which case a corporate tax isn’t a tax on corporations per se, as much as it’s a double tax on individuals who have already been fleeced. Let’s call the corporate tax Congress’s way of arrogating to itself an even bigger slice of individual wealth. No thanks.

Going a bit more granular, policy types including Brad Setser at the Council on Foreign Relations are yet again making noise that corporations pay no taxes, and that pharmaceutical corporations in particular don’t pay. See above to understand the fatuity of such a view. There are quite simply no corporations without capital, and by extension the shareholders who provide the capital, so the mere insinuation about corporations (yes, they are shareholders) not paying taxes is a bit troublesome.

Yet there’s more. What Setser suggests isn’t even true about corporations, pharmaceutical corporations in particular. Take some of the biggest of the big including AbbVie, Johnson & Johnson, Lilly, Merck, and Pfizer. Last year, they combined for $9.3 billion in tax intake for the U.S. Treasury. Which means the rich and very rich who already pay the most in taxes (by far) actually paid more than advertised given the odd propensity among policy types to presume that corporations are others on the tax front. No, corporations are individuals who pay taxes, plus they’re owned by heavily taxed individuals.

Yet there’s still more. The rich, precisely because they’re rich, can’t spend it all as quickly as those who aren’t. And since they can’t, the wealth they haven’t consumed happily finds its way to savings that morph into crucial investment directed toward finding the future. Looked at alone, Pfizer, Merck and Johnson & Johnson directed $57 billion in 2023 to R&D expenses meant to create the drugs of tomorrow that will vastly improve our health and wellness, including turning killer diseases into afterthoughts.

Which is a small reminder that when corporations are taxed, wealth is taxed, and the loser in the bargain is progress. Which means we all lose when Congress decides that having not fleeced the rich enough, it will go after even more of their wealth through a corporate tax. More realistically, and in a comment on how much wallet share Congress already enjoys, the only reasonable corporate tax is zero.

Republished from RealClear Markets


  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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