Date posted: May 13, 2011
There’s a move in North Carolina to lower the tax rate on corporate profits. Also, at the national level there have been lots of stories recently of corporations that have paid very little federal income taxes. Some might say that corporations are getting special treatment and ask why. N.C. State University economist Mike Walden discusses the issue.
“This is actually an old debate, and the supporters of lower taxes … or perhaps even no taxes on corporate profits (argue) that those profits are going to be taxed somewhere else.
“You can think of a corporation as simply a way of organizing business. A corporation isn’t an entity in and of itself. It’s obviously made up of workers. It’s made up of shareholders. The shareholders, of course, go out and hire the CEO. And of course people should not think that the CEO makes all this profit. And what compensation the CEO does get, it is taxed by the individual income tax.
“Also, if there is profit — there are profits — and those profits are eventually distributed to the shareholders, those profits will be taxed at the shareholder level.
“And then finally you can make the argument that if profits are taxed that could also result in less compensation for the individual worker.
“So, you can make an argument that actually taxing corporate profits is double taxation, because those profits are taxed at other levels.
“Now defenders say, well, yes, they understand all that. But they say, especially when you get down to the state level, you may not have the shareholders, for example, of a corporation living in an individual state. They may be spread out over the entire landscape. And so if you feel as if that company — that corporation — ought to bear some tax burden or some tax responsibility in the state, you’re going to have to go after taxing some — at least some — of those corporate profits.”
Category: Economic Perspective