The Sunday NYTimes has an interesting commentary from Harvard prof Greg Mankiw on Corporate taxes:

Compared with other ways of funding the government, the corporate
tax is particularly hard on economic growth. A C.B.O. report in 2005
concluded that the “distortions that the corporate income tax induces
are large compared with the revenues that the tax generates.” Reducing
these distortions would lead to better-paying jobs.

Of course, a corporate tax cut would affect the federal budget.
And any change in tax policy has to be made against a background of a
looming fiscal crisis, which threatens to unfold as baby boomers retire
and start collecting Social Security and Medicare.
In 2007, corporate taxes brought in $370 billion, representing 14
percent of federal revenue. Cutting the rate to 25 percent would seem
to cost the Treasury about $100 billion a year.

Part of that
revenue loss, however, would be recouped through other taxes. To the
extent that shareholders would benefit, they would pay higher taxes on
dividends, capital gains and withdrawals from their retirement
accounts. To the extent that workers would benefit, they would pay
higher payroll and income taxes. Increased economic growth would tend
to raise tax revenue from all sources.

Mankiw suggests dropping the corporate tax rate, and making up the revenue short fall with a Pigou tax of 40 cents a gallon on gasoline. That has precisely zero chance of passing.

To give it some context, consider this excellent chart assembled by Time’s Justin Fox:



Justin adds some caveats:

-Corporate income is taxed
twice — once as corporate income and once as either capital gains or
dividend income (which are both counted under personal taxes)

-Economists teach that corporations are often able to pass on much of their tax burden
to employees and/or customers.

-Relatively high
corporate tax rates incentivize corporations to find ways to run their profits through lower-tax

-Corporations are just legal constructs owned
and operated by people who, for the most part, pay taxes.


A chart for the corporation-bashers among you
Justin Fox
Time, May 21, 2008 9:09

The Problem With the Corporate Tax
NYT, June 1, 2008

Category: Corporate Management, Dividends, Taxes and Policy


40 Responses to “Corporate vs Personal Income Taxes”

  1. SteveC says:

    Are you sure this article wasn’t written by the WSJ editorial page?
    The way the dividend tax break should have been structured is to allow corporations to deduct dividends, while taxes on those dividends paid by the shareholder at their individual tax rates. That encourages dividend payouts while properly taxing those who receive them.

  2. STFU says:

    I know for a fact that the corporation I work for pays less taxes on it’s income than I do(22% vs 28%).

    Burn the $&$&$ tax codes, and institute flat taxes on both income and consumption in balance.

  3. Mr Reality says:

    more corporate welfare in other words.

    Reminds me what the welfare mother said to Reagan when he was Governor – “Honey, You are the biggest welfare recipient of them all!”

  4. ndd says:

    So I take it there should be no objection to dropping the fiction of separate corporate personhood for things, like, oh say, lawsuit liability?

    Of course, the only area in which advocates want the fiction of corporate personhood dropped, is in the matter of paying taxes.


  5. Mike Nomad says:

    Huh? When I worked at Shell, IIRC, there was one year they paid less than $20, while I paid hundreds.

  6. jpmist says:

    Let me be among the first to say this is crap. It is a fallacy that corporations are mere conduits for Federal tax revenue. Whenever this argument gets made, it’s omitted that the corporate tax is only on a corporation’s profits, not it’s revenues.

    The second point that gets lost is the simple fact that corporations consume a disproportionately greater amount of Government services than individuals do. Even if that were not so, corporations still have a moral obligation to pay for a government that protects corporate property and interests a hell of a lot more than they protect mine.

    In return for paying higher taxes so that corporation can pay less, what will we get in return? Better jobs, higher pay?

    The record of the last economic boom suggests not; in spite of years of astonishingly high corporate earnings, we had a jobless recovery and wages that couldn’t keep up with inflation.

  7. DL says:

    It is unfortunate that a large portion of the electorate fails to understand the simple principle that taxes levied on corporations are ultimately born by people … mostly customers and employees. (As for the effect on investors, the analysis is more complicated because of the effects of cross-border transactions and foreign investments). But the problem is one of tax avoidance. The more ways in which taxes are levied, the more difficult it is for people to avoid the taxes.

    While it is true that the lower taxes are, the greater that economic growth will be (everything else being equal), it is also true that the number of people who can escape taxation should be minimized.

    Taxes on corporations should be low enough that they are competitive with those of other industrialized, capital-friendly countries; otherwise more transactions will be conducted elsewhere (e.g., Singapore or Ireland). But elimination of corporate taxes altogether will invite tax avoidance on the part of owners/employees of corporations.

  8. larrybob says:

    brad de long has been railing against the nyt for publishing this deceitful op-ed. it appears that mankiew has been proposing a gasoline tax to offset a whole variety of other tax cuts. further, mankiew does know that a dramatic cutting of corporate taxes here would lead to various international agreements to unravel. other issues also arose, mostly about how the editors of the nyt do not care in keeping their readers informed.

  9. Tom says:

    And this genius Mankiw has never heard of a personal corporation? Can you guess how fast every penny of my income would be corporate – and every cent of my expenses likewise? And no, you couldn’t write any limitation that a wet behind the ears law school grad couldn’t figure a way around in – oh – about ten minutes flat.

    You gotta wonder how much (and in what way sex, fame, power?) he’s getting paid by the WSJ Editorial Staff and the Lucky Sperm Club.

  10. LtShinySides says:

    I honestly don’t understand why so many people try to look at a corporation in a vacuum and disregard the effects that come from taxing a corporation. Immediately label corporations as bad and say tax the hell out of these corporations. It just doesn’t make sense.

    For one, as Time’s Justin mentions, corporations are taxed twice as it is. Corporations are but a collective effort of individual persons. The profits made by these corporations are taxed and thene shared by its workers and investors (consisting also of its workers), which are then taxed again. Where is the logic in this? Also, as he mentions, corporations are just going to pass these taxes down to its customers or employees in the form of higher prices or lower wages/fewer jobs.

    Productivity would soar if taxes were eliminated, as compliance officers and tax lawyers would be mostly out of work. Using so much of the US’s intelligence base just to make sure we’re playing by the rules is ridiculous. Use these people to create ideas that return large on investments, which can then in turn be taxed. Instead, these people’s education is being wasted on finding ways to avoid paying taxes. Pointless.

    Corporate taxes are just a sneaky way for th e government to tax the public even more while making it seem like it’s taking away from the big bad businesses.

  11. cm202bc says:


    Now lets see a graph of corporate profit v. real income for age earners/households.

    That is the assumption that underlies the editorial, increased corporate profits will lead to higher income for the workforce. Unfortunately, its bs.

  12. Dr. Kenneth Noisewater says:

    Mildly on-topic: What pays for socialized medicine in Old Europe (or anywhere for that matter)?

    Methinks it’s personal income and/or sales tax, or some combination of taxes that don’t impact corporate profits directly.

    Most European countries have corporate income tax rates that are more competitive than the US’, and it’s only due to the fact that their workers are so fiercely coddled that we don’t lose more jobs to them. But those folks do pay higher taxes for the services they receive.

    So.. Consider instituting something similar in the US, where workers are on the hook for their healthcare via increased income tax and some form(s) of federal sales tax, while obviating the need for companies to pay for their employees’ healthcare and reducing corporate income taxes to be lower than Europe. Will the commies cheer, now that they have socialized medicine? I highly doubt it.

  13. Bob A says:

    Corporate tax cuts…

    Another brilliant idea from the same folks who brought you zero down home loans for sub-prime borrowers.

  14. daveNYC says:

    Corporations aren’t taxed twice, their income is taxed twice. One tax hits the company when they pay tax on their profits. The second tax hits their shareholders when they pay taxes on either received dividends or capital gains when they sell the stock.

  15. Sinomania! says:

    Noisewater, “Old Europe” doesn’t spend half a trillion $ per year on “defense” spending. Whether the taxes are on a corporation or person, the biggest piece of that collective pie is given to the Pentagon to waste. Why not work on changing that arithmetic before upping taxes? In general, the tax rules in this country are anti-entrepreneurial. The amount of money I’ve had to hand over to Uncle Sam from the itty bitty business I’ve run – it’s led me back to wage slavery.

  16. VennData says:

    People are taxed twice, once on income, then again on sales tax. Where are the GOP tax cutters on that one?

    You want a “something for everyone” cut? Cut payroll taxes. Business pay half so it’s just as good as cutting corporate income taxes, better, in that if you lose money a business STILL has to pay payroll taxes. And it will let business hire more workers, right?

    It’s good for workers. Cut taxes on work, you’ll get more of it, right? Good for families, every family where people work.

    Remember since Ronald Reagan raised Social Security taxes (claiming he’d fixed Social Security, then brought Greenspan in to watch over us) they’ve been using the proceeds to cover the day-in-day-out expenses of the Federal government. The deficit would be higher, but the anti-tax groups like that since they think it forces Congress to cut spending (or at least spend less.)

    Why don’t the GOP tax cutters ever talk about cutting the payroll tax?

  17. larster says:

    Re Noisewater comments

    Right on! Higher personal rates make up the necessary gov funding in foreign economies. In return they have socialized medicine, etc. So let’s cut taxes for the corp’s run by the ken lay and Mozilo wannabees, load up individuasl taxes, and see what happens. The execs will gross up their salaries so individual taxes do not hurt them while the rest of us are crushed by the burden. We are (for the moment at least the leading economy and only world power. Why did the R’s screw things up under Bush? Because they were fostering ideology that solved problems that were only in their narrow minds. If you think we became the leading economy in the world and had a grossly unfair corporate tax structure, perhaps you need a dose of reality.

  18. gregh says:

    I disagree with the premise. This is my fav part “To the extent that workers would benefit, they would pay higher payroll”. I’m thinking CEO pockets might swell while majority of the workers wouldn’t see income increase.

    I also agree with the premise. Interesting are the comments of how little taxes Corps already pay. If they pay nothing now, why not make it official and tack this “accountability” on shoulders elsewhere in America.

  19. darms says:

    I’m sick of hearing complaints that “Corporate income being taxed twice” – BFW. I pay tax on my wages then sales tax on most things I buy, what’s left over goes into savings where I pay tax on any interest I receive. IRAs? Sorry, there’s taxes there, too. And let’s not go into tolls or user fees, either. Plus I don’t remember the last time that a government offered me a subsidy to relocate to a particular area – gee, doesn’t that happen all the time in the corporate world?

  20. txshad0 says:

    Can’t wait till Congress gets it’s greenhouse-gas emissions tax program rolling! Our tax policies and the politicians/corporations that create them OWN us.

  21. tranchefoot says:

    It’s a bad idea now, because of deficits, but if we ever get the deficit under control the corporate tax should indeed be one of the first things to go.

    Any first-year finance student can tell you that with the corporate tax rate structured as it is–with dividends taxed, but interest payments on debt deductible–smart CFOs are going to lard up that balance sheet with debt rather than equity. What’s more, they’re going to put profits into buying back stock rather than declaring dividends.

    Wonder why so many American corporations are undercapitalized and have junk debt ratings? The corporate income tax is a big reason.

  22. ottnott says:

    ndd has it just right – corporations (and their no-corporate-tax allies) can’t claim entitlement to certain Constitutional rights and government services (educated workforce, anyone?) while arguing that they should not pay for the cost of the government that guarantees those rights and provides those services.

    Corporations are more than just a collection of dollars invested by humans. It is silly to pretend otherwise.

  23. VJ says:

    American corporations either don’t pay any taxes, or pay so little it’s laughable.



    More than 60% of all U.S. companies paid no federal tax at all during the boom years of 1996 to 2000, the General Accounting Office reports.

    In 2000 alone, 94% of all U.S. corporations paid less than 5% of their total income in corporate taxes, the GAO said in a report released Friday. Among the largest corporations — the 1% of all corporations that owns 93% of all corporate assets — 82% paid less than 5% of their income in taxes.


    It’s only gotten WORSE since, with four rounds of tax cuts for the Rich & Corporate and even MORE Corporate Welfare.

  24. VJ says:



    Obviously not.


    It’s never happened.

  25. pft says:

    Remember, not all corporate shareholders are American, yet corporations have the same rights as citizens, so says the Supreme Court.

    Corporations pay tax on their profits, not income. If they lose money one year, spend more than they make, they can carry it over and deduct it from their next years profits to pay less tax. Also, they hire Big accounting firms to minimize their profits, and almost never get audited.

    Multinationals also have ways to minimize US profits, and only have to pay tax on overseas profits if they bring the money home to invest.

    Individuals pay tax on income. Their expenses may be far greater than their income, no matter, tax gets paid or they go to jail, and they get audited in greater numbers.

    There is a building in the Cayman Islands that contains the registered address of 1200 corporations, it ain’t that big a building, it’s called tax evasion.

    The war in Iraq for example is being fought for Big Oil and the MIC. Many of our small wars benefit our corporations to ensure they have access to other nations resources. Much of the infrastructure in the US was to accomodate corporations.

    Capital was earned in this country as a product of labour and investment in capital goods. Investment without the labour could not increase capital. The capital produced with our labour, was allowed to be exported outside this country w/o being taxed to utilize other countries cheaper labour, and earn profits that do not get taxed in this country. JFK tried to tax capital flight, but was killed, and LBJ watered it down and allowed major loopholes to make it ineffective.

    Tax cuts for the corporations would make some sense if they used the money to invest in the US creating jobs. They don’t, thats for sure. They are more likely to use the tax cuts to downsize the US production and expand elsewhere, or speculate in whatever bubble is popular at the moment. GM shifted production to Canada across the border, and they had higher taxes. GM figured it was better to pay a higher profit tax and escape the burden of inflating HC insurance which is not an issue in Canada.

    If corporations are citizens, they seem to have more rights than individuals. When people talk about the debt, they talk about how much each indivduals share in that debt is. Today it is 30,000 – 180,000 dollars per person, depending on which number you refer to. Yet, our corporate citizens seem to have no ownership in this debt?

    Perhaps we should tax wealth and not income or profit. Perhaps we should not tax at all, and let government create the money to loan to the banks and live off the interest, and if not enough they may create enough money to cover any deficits to use on domestic programs like infrastructure, social needs and military sepdning for homeland defense. The income tax was created at the same time as the Fed to ensure government had money to pay the interest on their debt.

    People say government creating it’s own money is inflationary. Yet since the Fed was established in 1913, the dollar is worth 4 cents on the dollar. Before the Fed, we had no inflation. How can it be any worse. In an economy not at full employment or peak capaicty, printing additional money is not inflationary. Paying interest is inflationary, since the current system prints money for the principal only, and not the interest that needs to be paid. It’s an impossible contract, and requires recessions and depressions for banks to seize assets promised as collateral for non-performing loans.

    The current system is a con job. Perhaps the greatest hoax ever played.

  26. Steve_in_NC says:

    Justin adds some caveats:

    “-Corporate income is taxed twice –
    once as corporate income and once as either capital gains or dividend income (which are both counted under personal taxes)”

    Capital Gains from stock prices rising is not a tax on corporate income, it is a tax on return of capital invested by a stock holder, it is really no different that a tax on return of labor invested by a companies workers, I’ve never heard that payroll taxes are double taxed.

    Since the 2003 tax changes dividends the “double tax” rate for dividends is lower than the normal income tax rate that labor income is tax (~8% by the corporation, ~15% by the investor (23% vs. 25% normal tax bracket), this is a good deal, and made a better deal with various tax deductions that corporations can use.

    This tax change was really backward, dividends should have been made expensable by the corporation and taxed at a normal income rate by the stockowner, this would have created a progressive tax that does not have the qualified/non-qualified silliness that makes the whole concept confusing to most small investors. Recovering the income loss from investors is the way to go, small stock holders with most of their stock in IRAs/401k’s would avoid these taxes. People with large holdings and no ordinary income would pay for their use of government.

    “Economists teach that corporations are often able to pass on much of their tax burden to employees and/or customers.”

    “Relatively high corporate tax rates incentivize corporations to find ways to run their profits through lower-tax jurisdictions”

    I agree with this, we could perhaps rectify this by eliminating corporate income taxing and taxing the investor’s return on capital at the same rate as the worker’s return on labor. This would have the added benefit of eliminating the need for the corporate tax avoidance industry which is a drag on productivity by itself. It would also eliminate the drag on legislation from corporations looking for tax breaks.

    Corporation’s and thereby the investors of corporations use a significant portion of our government and should pay for those functions ( roads for shipping, courts for contracts, police and military for protection, federal reserve for monetary system support). If you invest in a company you should pay.

    “Corporations are just legal constructs owned and operated by people who, for the most part, pay taxes.”

    Yes, but as I have mentioned above, corporations and their stockholders need to pay for the government that provides for their operation. If you stop taxing corporations directly you need to make up the loss of government income by taxing the return on investment by shareholders.

    There are no free rides in this world, and Mankiw’s stupid idea of making up the loss by taxing drivers, you in large part are not benefiting from corporate profits is ridiculous.

  27. Mankiw is obviously an idiot; capital gains are taxed at 15%, aren’t they? So wouldn’t this result this lower tax revenue?

  28. me says:

    Pretty much every individual in this country with a decent accountant earning over $125,000 a year is incorporated. So if I’m understanding correctly, Mankiw wants to shift the entire tax burden of this nation to the rapidly vanishing middle class.

  29. moom says:

    First, LLCs and partnerships (including hedge funds and private equity) don’t pay corporation tax but benefit from limited liability. Noone seems to have mentioned that above. All those “personal corporations” aren’t paying corporation tax anyway. Though owners don’t get to avoid tax by not paying dividends. It’s a mystery why people are so keen to do IPOs and get hit by corporate tax once they have more than 100 shareholders… Certainly it makes little sense for a C-Corp to pay a dividend!

    S corporations also mostly don’t pay tax:,,id=98263,00.html

    Obviously, if corporation taxes were abolished the concessional rates on dividends and capital gains will go, maybe with inflation indexation on capital gains being introduced. This reduces the cost of this tax measure.

    US marginal corporation taxes are one of the highest in the world, but the US offers many tax breaks which mean the total collected from corporations is not that high.

    I suspect that Australia may head this way following the tax review the current government has just gotten started. We currently have a long term CGT at 50% of the regular income tax and tax paid by corporations is credited to shareholders by being attached to dividends as “franking credits”. The corporation tax is 30%. We don’t have any differences between C, S, LLC corps…

  30. Zephyr says:

    Corporations are increasingly chosing to be based outside the US because of the tax advantage of not being in the US. With this movement of capital go some of the better jobs and most of the tax revenue.

    We will continue to have a shrinking tax revenue from corporations as we continue to tax them out of the US.

    Foreign companies have a tax advantage over US companies. In time this tax advantage will lead to foreign companies buying or destroying their tax paying US competition.

    Perhaps when we are all working for foreigners we will begin to understand the problem.

  31. Zephyr says:

    I think corporations should pay tax. But why let them use all these loopholes? Why let foreign companies sell ther goods here without paying as much tax as US companies do.

    Too much energy goes to avoiding taxes with clever schemes to make taxable income seem lower. Tax the corporations on their gross revenues in the US rather than their manipulated profits. Simple clean and hard to avoid.

  32. PrahaPartizan says:

    Just eliminate the concept of “corporation.” The accounting systems exist to make all such entities partnerships these days, unlike in the old days of pen and paper accounting. It can be done.

    It would offer two advantages. Double taxation of enterprise profits would disappear. Enterprise accountability would be resurrected. That’s something we haven’t seen in a long, long time. When ever partner in the enterprise is personally and financially liable for the shenanigans of their enterprise, then maybe these firms will work for the commonweal too rather than exclusively personal gain. Let’s get crackin’.

  33. me says:

    That was an imposter “me” above.

    And I agreee with vj, what is the effective tax rate? Its like paying list price for a car.

  34. dad29 says:

    Seems to me that eliminating corporate income-tax would have a number of benefits, among them the elimination of lots and lots and lots of overhead dedicated to tax minimization.

    Next comes the reduction in product prices, which benefits the consumer. Increasing personal tax rates to offset the “loss” of corportate tax revenue will be painful–on the other hand, it will also clarify the actual cost of Gummint.

    At the same time, if personal income taxes go up by 10% (e.g.) and the cost of purchasing “stuff” goes DOWN by 10%, what’s the big deal?

  35. Dervin says:

    The guy over at washingtonmonthly’s blog had an interesting thought about the corporate income tax. I’ll summarize it here: Big Business is too involved in government because they want lower taxes and greater handouts – and this gets in the way of a progressive agenda.

    But doing away with the corporate income tax will make it easier to end all corporate subsidies. And it will also remove many companies from lobbying congress. Corporations will be perceived as freeloaders whenever they ask anything for the government.

  36. Chuck says:

    “Legal Constructs” aren’t protected by the Fourteenth Amendment (cf. San Mateo County v. Southern Pacific R. R. Co..

    I, for one, would be delighted to see 14th Amendment protections eliminated for corporations in return for abolishment of corporate taxes. Ain’t gonna happen though.

  37. VJ says:


    Seems to me that eliminating corporate income-tax would have a number of benefits, among them the elimination of lots and lots and lots of overhead dedicated to tax minimization. Next comes the reduction in product prices, which benefits the consumer.

    You’re dreamin’.


    Been there, done that:


    Percentage of general fund tax collections from corporate taxes:

    1940s – 33%
    1950s – 31%
    1960s – 27%
    1970s – 21%
    1980s – 15%
    1990s – 16%
    2000s – 11%

    Percentage of general fund tax collections from individual income taxes:

    1940s – 44%
    1950s – 49%
    1960s – 57%
    1970s – 66%
    1980s – 72%
    1990s – 71%
    2000s – 76%


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  39. Something says:

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  40. Ideally, taxes on wealth should not be severe on the tax payers, even if they have lots of wealth. Instead, after the minimum slab of no taxation, the taxes on wealth percentage should increase at increments, depending on the value of wealth in dollars. Such a fairer taxation not only increases the revenue but also goes a long way in bringing down the inequality aspect as well.