The Pros and Cons of Corporate Taxes

25 04 2011

First of all, what is a corporate tax? It is the tax on income or capital of certain types of legal entities, or simply put, taxes on corporations. The usual practice is to impose the taxes on net taxable income, which is the gross income after it has been accounted for deductions and credits. In politics, a few argue to cut corporate taxes, others desire to increase them. But ultimately, what does the corporate tax do?

Pros

A Source of Revenue:

Ultimately, a tax is either used to gain revenue for the government. Corporate taxes effectively do this because corporations are the largest money makes in the economy. This means a steady and strong flow of cash for the government revenue. During the recession (2009), a figure of 30.4 billion was made on corporate taxes of 10 corporations alone. This shows that, by targeting those making large profits, a government can make gains when companies do. It increases the revenue of the government which may be used towards national debt or public services.

For the Greater Good:

Another point is that the benefits seem to outweigh the negatives. The tax is effective in that it takes from large companies and distributes the benefit to everybody. The taxes may take some money away from businesses but ultimately it is not harmful. It still allows for businesses to function and grow and do not overly inhibit companies’ ability to make profit.

Equitable:

This tax is equitable in that everybody pays taxes. Corporations should not be an exception. Since corporations exist in the country, they benefit from the country’s policies and services. If corporations were not taxed, they would be getting a free ride on services. As a part of society, it is equitable for corporations to pay taxes.

Cons

Target of Taxes Misses the Mark:

The fact is, although corporate taxes are meant to tax wealthy companies, the costs actually end up being sent somewhere else. The groups that end up getting the burden of these taxes are none other than the consumer and the worker. Workers are affected in that the costs of the tax either reduce their salaries or hiring. While consumers are affected in that the company passes on the tax in their products and services by making them more expensive.

Attack on Corporations:

In addition to that, another con of the corporate tax system is that it takes away funds from companies/corporations. This is economically inefficient, because in an economically efficient situation, no one can be made better off without making someone else worse off. Corporate taxes end up making companies worse off than if they were not being taxed.

Scares away Business:

Lastly one must consider the economic growth in a country. Companies try to pick the best place that can facilitate their growth, where they could be the most profitable. By introducing a corporate tax in a certain country, companies may avoid it and search for other alternatives. Some may turn to tax shelters like the Cayman Islands; others just search for locales that have lesser taxes. Quite simply, a corporate tax can scare away potential and current investors to other countries, leading to a reduction of economic activity.

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