An Examination of Kamala Harris' Proposed Corporate Tax Hike
Proposed Tax Changes
In the US, the topic of corporate tax rates is a significant policy issue. Kamala Harris has publicly expressed her intention to increase corporate taxes from the current 21% to a significant 28%. During her 2020 primary campaign, she even suggested raising corporate taxes to 35%, which might still be her ultimate goal. In contrast, President Trump has expressed his desire to lower the corporate tax rate to at least 20% and, if possible, further reduce it to 15%.
Revenue from Corporate Taxes
The amount of revenue generated from corporate taxes might surprise some. In 2023, the federal government collected just under $420 billion in corporate taxes. This figure is considerably less than the approximately $2.18 trillion in individual taxes and $1.6 trillion in payroll taxes. Corporate tax revenue has been decreasing as a percentage for decades due to incentives and competition that encourage businesses to invest, locate, and produce in the United States.
Who Pays Corporate Taxes?
Despite common belief, corporations do not pay corporate taxes; they merely collect them. The actual taxpayers are primarily the company's shareholders and, to a lesser degree, labor and customers. When Harris says she will raise taxes on corporations, she is essentially saying she will raise taxes on individuals.
Impact on Customers and Labor
There is considerable debate about the impact of corporate taxes on customers and labor. In a normalized market environment, customers probably don't pay much in corporate tax as it is challenging to pass this cost through. The final selling price of a corporation's product or service is determined by market forces, not tax rates. The amount of corporate taxation that labor bears is less clear, with estimates ranging from 25% to 70%.
Differing Tax Rates
The tax rate for capital gains and dividends paid to shareholders is lower to reduce the impact of double taxation. The capital gains and dividend tax rates are arbitrary, but the intent has been to pick a number that does not discourage investment into companies by investors.
Evolution of the Tax System
The US tax system has evolved over time, with various taxes being implemented and then repealed. The modern tax era began in 1909 when Congress enacted an excise tax on corporations and President William Howard Taft proposed the 16th Amendment to establish a personal income tax. These two concurrent tax systems have been creating inefficiencies and needless complexities ever since.
Abolishing the Corporate Tax
There are strong arguments for reducing or eliminating the corporate tax rate. Doing so could draw businesses back to the US, eliminate unnecessary complexities, and align with the individual tax code. Other benefits include the removal of political gamesmanship, obsolescence of tax compliance and strategy departments, and elimination of the need for non-profit distinction.
Implications of Lowering Corporate Tax
Lowering or removing the corporate tax does not mean that taxation of corporate income is avoided. Instead, taxes would be paid at the individual level. This shift could allow corporations to focus on generating profits and lift the corporate tax burden from labor.
Bottom Line
The proposal to increase corporate taxes is a complex issue with far-reaching implications. It's clear that corporations do not truly pay these taxes; instead, they collect them from shareholders, labor, and customers. The debate over who bears the most significant burden is ongoing. However, it's worth considering the potential benefits of reducing or even abolishing the corporate tax. What are your thoughts on this issue? Share this article with your friends and sign up for the Daily Briefing, which is every day at 6 pm.
