Why Do Some Professional Economists Support Corporate Tax?

Economists, like people, can hold a wide variety of opinions and beliefs. While you might not always find agreement within the profession, some professional economists do support the imposition of corporate taxes. This is not because they are inherently against corporate structures or profits, but because of practical and theoretical considerations that make corporate taxes a viable and even advantageous policy tool. In this article, we explore the reasons behind this support and the complex nature of tax policy from an economist's perspective.

Reasons for Supporting Corporate Tax

Minimizing Behavioral Distortion:

One school of thought among economists supports picking taxes with the least possible distortion on behavior. They argue that taxes which minimize distortion are more efficient and stable. For instance, consumption taxes such as sales taxes may be less detrimental to economic growth compared to income taxes or corporate taxes, as they can be levied on goods and services rather than on the income generated by these goods and services. However, corporate taxes are justified in some cases because they directly target the income of corporations, which is usually more stable and less volatile than other forms of income.

The Role of Taxation in Society

Equity and Redistribution:

Another reason some economists support corporate taxes is based on the principle of equity. They believe that taxing corporate income places the burden on entities that can bear it best. Corporations have more financial resources and can absorb tax burdens more effectively than individuals. This argument is often made within the context of progressive taxation, where the tax rate increases as the taxable amount increases, ensuring that those with higher incomes and greater economic power contribute more.

Revenue Generation:

Stability and Economic Performance:

Some economists also support corporate taxes because they can generate reliable revenue streams. The stability of corporate income makes it a predictable source of revenue, which is crucial for government planning and stability. For instance, the corporate tax revenue in the United States has remained relatively stable, despite changes in corporate tax policies. This reliability is important for funding public services and infrastructure that contribute to economic growth and social well-being. Additionally, the fear of corporate defaults or bankruptcies, which can have severe economic consequences, can be mitigated through effective corporate tax policies.

Recent Developments and Theoretical Insights

Theoretical Dependence on Assumptions:

Theoretical discussions on the nature of corporate taxes are highly dependent on the underlying economic models. Different models can yield different results and conclusions about the impact of corporate taxes. For example, a neoclassical model might suggest that corporate taxes can distort investment decisions, whereas a Keynesian model might argue that corporate taxes can play a role in stabilizing the economy through fiscal policy.

Economic Impact of Tax Policy Changes:

Practical economic observations, such as the recent decrease in American corporate tax rates, have shown that such changes may have limited immediate effects on the economy. Studies have found that tax cuts for corporations do not necessarily lead to significant increases in investment or economic growth. This suggests that corporate tax policy is just one of several factors that influence economic performance, and its impact is often nuanced and multifaceted.

Conclusion

Economists, while diverse in their opinions, can support corporate taxes based on their unique perspectives and objectives. Whether it is the minimization of behavioral distortion, equity and redistribution, revenue generation, or the need for stable and reliable fiscal policies, there are valid arguments in favor of corporate tax support. As economic theories and policy environments evolve, the role of corporate taxes continues to be a subject of ongoing debate and analysis, driving continued innovation and improvement in tax policy design.