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Why Corporate Income Taxes Are Horribly Destructive

The Unites States now has the highest corporate income tax globally. Congratulations. Corporate income tax is the worst, most capital and value destroying tax of all types of taxation. And we are the leaders.

To understand why corporate income tax destroys capital over the long term you need to first to understand that all there is in a corporation are people; nothing other then people managing and working at growing a business.

A corporation is just the name of a group of people working together to provide goods and services for sale. This might be a shock to some, but all corporate employees pay income taxes on whatever they make. Similarly shareholders pay taxes on the income they get from a business via distributions.

I can agree with a basic premise that everyone who makes money pays some form of income taxes. You can argue about rates, or progressive versus flat tax, but it is hard to argue with the basic concept that we all have to give something back for the common good.

But then why tax the profits of the business itself as well as the wages and salaries and dividends taken home by all the people who work or invest in that company? Particularly since corporate income taxes are so detrimental to the overall economy.

Here are the three major reasons why.

The biggest headwind created by the $250 billion in corporate income taxes paid this year, which is about 10{982ecbb84816c6d9f589e8211ea46f8047ba0a57e5c66df0879b0b268bf06ad5} of all income taxes, is that the $250 billion is a huge reduction in capital available to grow the economy. Who do you think would do more for the overall economy with $250 billion a year, business or government.

If there were no corporate income taxes, there would be an extra $250 billion available to grow the economy. Given that the Federal Reserve is already printing and borrowing $1.3 trillion each year, I personally think the U.S. economy would be better off if business reinvested that $250 billion each year and let the government print another $20 billion a month.

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The second reason corporate income taxes are bad is the reduction of competitiveness between US businesses and the rest of the world. A corporate income tax is a cost. The income tax cost to US companies is the highest in the world. That means our companies start out at a disadvantage to global competitors. With no corporate income taxes, US companies all of sudden would start out with an advantage instead of a disadvantage.

Add the benefit of $250 billion in extra capital each year to the US having a much lower global capital cost; and that would significantly boost future US economic growth much more than if we keep on taxing corporations. No corporate income taxes and in the future wages and salaries and therefore income taxes would grow much much faster.

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