The Destructive Corporation-Bashing of the Left

President Joe Biden delivers the State of the Union address in the House Chamber of the U.S. Capitol in Washington on March 7, 2024. (Saul Loeb/AFP via Getty Images)

Commentary

One of my cousins has been bombarding me in recent months with a steady stream of corporation-bashing emails from various left-wing and Democratic organizations. The animus against corporations is vehement, to say the least. And that animus will be a feature of President Joe Biden’s reelection campaign, as was made clear in his State of the Union (SOTU) Address on March 7.

By the way, compliments to those who wrote President Biden’s SOTU speech. (Full disclosure: I didn’t watch it, so I am basing my comments on the transcript that I read.) Democratic spin doctors did yeoman work, using the SOTU to sweep President Biden’s policy failures under the rug and paint a beguiling picture of an imaginary Santa Claus government in which Team Biden will take care of our economic needs.

One major problem with President Biden’s saying he wants a future in which the “biggest corporations no longer get all the tax breaks” is that he himself has given corporations massive breaks. President Biden glibly ignored the massive subsidies that his administration has handed out to politically connected (i.e., crony) businesses carrying out the president’s so-called green agenda. As is so often the case with politicians, President Biden’s deeds don’t match his rhetoric.

Later in his address, the president trotted out that tired line about “making big corporations ... finally [begin] to pay their fair share” of taxes. In progressive lingo, “fair share” is code for “more.” Actually, however, I agree with President Biden and the anti-corporation left that it seems unfair when a corporation (according to one of the emails my cousin sent to me) earns an annual profit of $7 billion and has a tax rate of minus 6 percent, and another corporation pays a 1.5 percent tax rate on earnings of $3 billion, while other businesses pay significantly higher rates. Such disparities are due to various deductions, credits, and so forth (i.e., “loopholes”) that Congress has written into the tax laws.

There is, however, an effective way to eliminate the unequal taxation of corporations. There is only one indisputably “fair” corporate tax rate (“fair” being defined as applying impartially the same to all): zero percent.

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Yes, it would be better if we would abolish the corporate profits tax entirely. Not only does the corporate income tax introduce economic inefficiencies, impose enormous compliance costs, and induce an overreliance on debt, but it also is the least efficient form of taxation. Some years back, a study by the decidedly pro-tax Organization for Economic Cooperation and Development (OECD) concluded that “corporate taxes are found to be most harmful for growth, followed by personal income taxes and then consumption taxes.”

Abolishing the corporate profits tax (along with all their related credits, exemptions, and so forth) would eliminate the present unfairness of corporations’ paying different rates and such absurdities as a negative tax rate for some corporations.

Two important economic points here:

First, for those of you concerned that Uncle Sam will lose revenues to fund ever-bigger government, that loss could be offset in two ways: (1) by eliminating the massive subsidies that government bestows on favored businesses and (2) by supply-side effects. Domestic businesses would be more able to expand, and more foreign corporations would set up operations here—both resulting in an employment boom that would result in increased government revenues from personal income taxes.

Second, for those of you thinking that the rich would get richer if corporate profits were not taxed, reams of economic research show that the lion’s share of the costs of the corporate profits tax falls on workers. (Read the Tax Foundation’s article “Labor Bears Much of the Cost of the Corporate Tax” if you are interested in investigating.) Two years after the adoption of the Trump tax reform that lowered the corporate profits tax, as even The Washington Post acknowledged, the U.S. workforce was enjoying the lowest overall unemployment in half a century, all-time highs in employment for black and Hispanic workers, and strongly rising wages.

Returning now from the economics to the ethics of tax reform, in addition to the dubious ethics of taxing corporations at different rates, there is a second major ethical problem inherent in taxing corporate profits. Corporations are not technically the owners, so much as the custodians, of the financial assets sitting in their accounts. Moreover, the corporation is a fictitious person, and one of the oldest truisms in public finance is that real human beings actually pay all taxes. Corporate salaries and bonuses, dividend and interest payments, and capital gains realized when stockholders sell shares at a profit represent real income to real people, and it is at that point that they should be taxed.

Just as unrealized capital gains shouldn’t be taxed, neither should unspent corporate profits. Both represent potential wealth to individuals, not actual present income. Corporations have a fiduciary responsibility to deploy the monies that remain in corporate accounts above their expenses for the benefit of the legal owners of the corporation. As is sadly habitual on the left, they have an insatiable appetite to get their hands on other people’s money, and they don’t want to wait until money becomes realized personal income before making a grab for it.

The left’s constant corporation-bashing manifests gross ignorance of a salient economic truth—namely that corporations, although not without faults (the most egregious of which are those businesses that form crony relationships with government), are the major economic benefactors of our country. They employ millions of Americans while producing goods or providing services that have given us a standard of living that greatly exceeds what our grandparents had.

There is something perverse, if not morally repugnant, about stirring up envy and resentment against the very enterprises that are responsible for American prosperity. But as long as voters remain economically ignorant, they will fall for the anti-business canards of the left. That is the political reality.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.