Corporate Profits Do Not Guarantee Jobs

To The Reader’s Forum:

James Buchanan recently opined that the U.S. should abolish the corporate income tax. He laid out several alleged economic “benefits” should corporations be absolved from contributing to the revenue base that supports their ability to engage in business in the first place. Of course, the primary benefit would be to the corporation itself, by allowing it to retain more profits, which, for public corporations end up in shareholders’ pockets, which in turn ends up in greater “investment” in the corporation.

There is no guarantee that giving corporations more profit ends up in jobs. As is commonly understood, corporations are in business to make money, not create jobs. Even under current tax rates, businesses have recently retained very high amounts of cash, but are neither expanding jobs nor increasing the pay of current workers who build the products or perform the services of the business. What magic will change that pattern of behavior if corporate taxes are abolished?

Further, Buchanan suggests that the total tax liability of corporations is small so that the Treasury would hardly miss it. If true, then the converse should also be true and as noted above, with corporations generating ever greater cash balances the tax is hardly a burden on corporations. That begs the question whether the tax ought to be increased, not abolished.

However, even if Buchanan’s arguments have some validity, I believe there is a legal hurdle to overcome, namely, corporations have been afforded constitutional status as “individuals”. Thus, corporations have the same constitutional rights, but also the legal tax liability as any individual. So, if corporations shall be exempted from taxes, then they should also lose their constitutional status as individuals, and should especially forfeit the right to use their money as “speech” granted by the “Citizens United” Supreme Court ruling. Corporations, either directly, or through proxy lobbyists, should then be barred from influencing laws and regulations that affect them.

In other words, if it’s wise to adopt Buchanan’s economic advice, then corporations must lose legal and political constitutional protections afforded to you and me. Maybe that’s a fair starting point to continue the discussion.

Paul Demler