Double taxation

[Bill Lear <rael@xxxxxxxxxx>]

In today's NY Times, Paul Krugman writes:

     Less  attention has  been paid  to  fine print  that reveals  the
     supposed  rationale   for  the  dividend  tax  cut   as  a  smoke
     screen.  The problem,  we were  told, is  that profits  are taxed
     twice: once  when they  are earned, a  second time when  they are
     paid out as  dividends. But as any tax expert  will tell you, the
     corporate  tax   law  is  full  of   loopholes;  many  profitable
     corporations pay little or no taxes.

Notice the contrarian coda.  Why not one that flatly contradicts the
lie, as Dean Baker does here (Economic Reporting Review, May 27, 2003):

     All  corporate income  is already  taxed only  once.  Income that
     corporations pay  out to individuals,  such as their  workers and
     shareholders, is subject to taxation, but income at the corporate
     level  is only  taxed once.  The tax  at the  corporate  level is
     optional,  in the sense  that if  shareholders believed  that the
     benefits  granted  by  the  government to  corporations  did  not
     outweigh the burden  of the corporate tax, they  would reform the
     corporation  as a  partnership.  The  fact that  they voluntarily
     choose to  structure their business  as a corporation  means that
     they think the benefits exceed the cost of the tax.

or here (Economic Reporting Review, May 19, 2003):

     Corporations  and individuals  are distinct  legal  entities, who
     each pay tax on their income only once.

     This  legal distinction  is extremely  important.  The government
     grants many valuable privileges to corporations, most importantly
     limited liability, that a  group of unincorporated individuals do
     not have.   The value of these  privileges is proven  by the fact
     that  individuals voluntarily  create corporations,  knowing that
     income will be  taxed at the corporate level.  In this sense, the
     corporate tax  is entirely voluntary -- if  individuals felt that
     the  privileges the  government  grants to  corporations did  not
     outweigh the cost  of the tax, then they  would form partnerships
     and avoid the corporate tax altogether.


Bill