Every April 15th, US citizens and corporations are reminded that the government takes money from the people to put that money towards what the government of the day deems appropriate and necessary.
Not surprisingly tax reforms are a favorite topic of some economists, politicians and lawyers alike and April is a good a month as any to dig into it.
This time, for some unknown reason, corporate tax is once again part of the tax reform debate with some participants to the debate arguing for abolition rather than reform.
The cost of taxing corporations
US businesses spend approximately $265 billion annually on corporate tax compliance, a figure that includes $126.2 billion for corporate income tax returns, $47.3 billion for quarterly filings, and $26.2 billion for depreciation and amortization schedules. This spending covers the out-of-pocket costs of hiring tax professionals, purchasing software, and record keeping, as well as the lost productivity (valued at roughly $388 billion for all taxpayers, with businesses bearing the majority of the burden) associated with the time required to navigate the complex tax code.
The $265 billion figure refers only to the cost of compliance, not the actual corporate tax payments.
Actual Tax Collected: The US government collects an average of $342 billion per year in corporate income tax revenue.
This means the total economic burden associated with the corporate income tax is approximately $607 billion ($342B + $265B). This highlights a highly inefficient system, as the cost of administering and complying with the tax (the $265B) consumes a massive portion, roughly 77%, of the revenue it generates.
Inefficient
Key components of this expenditure include:
Complexity and Reporting: The US tax code’s length has grown roughly 40% in three decades, requiring businesses to spend significant resources on tax planning, research, and data collection to meet increasingly complicated rules, particularly those related to foreign-source income.
Specific Regulations: Costs are driven by requirements such as the Tax Cuts and Jobs Act (TCJA) reforms, the corporate alternative minimum tax, and OECD Pillar Two rules, which have increased compliance costs by 32% for large multinational enterprises between 2017 and 2023. Time and Resources: Large corporations spend an average of 830 hours to comply with Form 1120, while smaller corporations spend about 55 hours, with the total time spent by businesses equating to nearly 3.4 million full-time workers annually.
While the total economic burden of all tax compliance (including individuals) reaches $546 billion (or nearly 2% of GDP), the specific portion attributed to business income tax compliance is estimated at $147 billion in direct costs, with businesses bearing the vast majority of the remaining burden from hundreds of other forms and regulations.
run a lot less through a corporate income tax, and put that energy into building a more equal society and less energy into penalizing capital
Abolish the tax
The right’s argument against the corporate income tax is somewhat fundamental, in that it supports the goal of having low taxation on activities that result in economic prosperity. With trickle down illusions, making corporate leaders and stock holders richer will eventually stimulate an economy that benefits all. Additionally it is supported by anti-any-tax kind of libertarians, who are part of the right in the US.
The left perspective on abolishing the corporate income tax centers on its regressive impact and inefficiency, arguing that it disproportionately harms workers and small businesses while failing to hold large corporations accountable.
Prominent progressive voices, such as economist Robert Reich, contend that the tax is fundamentally regressive because large corporations exploit loopholes to avoid payment, shifting the burden onto smaller businesses and labor.
Studies suggest that a significant portion, ranging from 20% to 70%, of the corporate tax burden falls on workers through lower wages, as the tax reduces investment and labor productivity.
A key progressive proposal involves replacing the corporate tax with a mark-to-market system on shareholder income, ensuring that profits are taxed at the individual level regardless of dividend payouts or capital gains realization.
This approach, supported by analysts like Eric Toder and Alan Viard, aims to make taxation more equitable and economically efficient by targeting wealthy shareholders directly.
Progressives also criticize the corporate tax for distorting democracy, granting corporations undue political influence by treating them as “taxpayers” with citizen-like rights, and incentivize wasteful tax avoidance behaviors that undermine economic fairness and growth.
The goal of reform as an alternative to abolition:
- Make it at least a progressive tax, broader shoulders carry more weight
- Make it more efficient.
- Eliminate opportunity of companies trying to get around the tax and
- Eliminate a major vehicle for corporate lobbying and crony capitalism.
Think of a better way.
Eliminate the corporate income tax, or more practically,
Reduce it to a nominal level that’s just not worth spending all this effort avoiding it.
Eliminate the special treatment of capital gains. Right now, if you have capital gains, you pay a lower tax rate than you pay on your earned income. On the one hand, we eliminate the corporate income tax, and on the other hand, we treat capital gains as if they were ordinary income.
Tax all income once, when it’s realized by a person.
Notice that this in itself doesn’t make the tax code more or less progressive. You could have a very progressive personal income tax.
The most important thing is that we’re levying the taxes, where we’re always ultimately trying to levi the taxes, which is on a human being.
A lot of people think they want to tax corporations because corporations are rich and powerful, and, well, most of us aren’t. But what you actually want to tax is people. Because corporations are people.
And I don’t mean that in the Citizens United Sense.
Citizen United
This is going to trigger a lot of people who are still angry about the 2010 Citizens United case, but I think that a lot of people don’t want to recognize what that case actually says, which is not that corporations have all sorts of special rights and the same rights as a person on top of all of the special benefits they get, like shielding their shareholders from being sued.
The Supreme Court wasn’t saying that corporations are just like people. No, what the Supreme Court was saying was that people could enter into contracts and get sued.
What Citizens United said is actually not that corporations have the same rights as people. It’s that the people who come together in the corporate form, they have rights.
They have free speech rights, and they don’t lose them just because they’re working for a corporation, and they’re also who you’re actually trying to tax because a corporation doesn’t have any independent existence from people. Ultimately, everything it owns belongs to a person.
Ultimately, all taxes are paid by people, not corporations
Everything a corporation pays out goes to a person. It might travel a bit through a few other corporations, but it’s always going to end up with a human being. And that’s true of the taxes too.
But with a corporate income tax, you often end up taxing the people you don’t really want to tax.
Because some of the tax burden is borne by workers or vendors or customers, one study found that slightly over a half of the burden of the corporate income tax fell on the workers, not on the corporate shareholders that I think people imagine themselves as taxing or the big high paid executives, that people imagine themselves taxing when they support a corporate income tax. Another portion is borne by the customers.
Ultimately, when you think about the corporate income tax, think about each of the people making up corporations. What you’ll realize is that ultimately, you don’t want to tax a corporation. You want to tax the people who get the most out of that corporation, whether those are the workers, managers, or the people who own the stock.
You don’t want to tax people who are attached to that corporation in some way as an employee or a small vendor, but when you tax the corporation itself, you don’t have control over which of those people pays. With the personal income tax, you absolutely do.
And that’s why I think we should be running a lot less through a corporate income tax, which doesn’t even raise that big a share of overall revenue.
And instead, put that energy into building a more equal society and less energy into penalizing capital.