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In spite of $14.2 billion in global operating profit ($5.1 billion on U.S. operations) in 2010, GE paid no corporate income tax to the U.S. Treasury that year thanks to offsetting prior losses by GE Capital (i.e., bad loans).  In spite of that unit having received TARP funds from U.S. taxpayers, the corporation was able to avoid paying any income tax. This seems like Rousseau's social contract run amuck: corporate welfere in exchange for nada.  Such a modus operendi is in line with the corporate mission: to economize in the sense of maximizing (or satisficing) what is taken in while minimizing what must go out.  In other words, a corporation aims to turn itself from a productive, lean throughput to a concentration of capital in its own right.

In terms of U.S. corporate income taxation, the extent of resources that corporations devote to minimizing what they owe the U.S. Treasury is money that could be better spent, or invested, in productive enterprise. For example, G.E. files returns in 250 jurisdictions and has a staff of 975 working in the corporation's tax department. Even if those people pay for themselves and more by reducing the company's tax liability, the company could eliminate that entire department and orient its global operations in terms of efficiency rather than taxation were income tax applied only to individuals.  The legal person "doctrine" aside, corporations are not citizens; rather, they are groups of citizens. 

Robert Samuelson suggests that the top corporate income tax rate be reduced from 35%, which is one of the highest in the world. He argues that the 15% rate in individual income taxation on dividends and capital gains should be increased. The effect would be regressive, for the top one percent receive two-thirds of all the capital gains and dividends. At the very least, the 15% is relatively low in the individual income tax system and most of the taxpayers subject to the tax could afford a higher rate.

In my opinion, Samuelson does not go far enough, for even with a lower top corporate rate companies would retain their tax departments and steer profit into countries with low tax rates (for there would still be differentials between countries). Theoretically, it does not make sense to tax both corporate income and dividends.  Furthermore, corporate income taxation treats companies as end-points rather than as throughputs. The implications of taxing individuals rather than corporations are staggering not only for more efficient productive investment, but also for attracting foreign direct investment to the U.S. In addition, public accounting firms could eliminate their tax departments and focus all of their attention on auditing--an endeavor made all the more important on account of the misleading financials on Wall Street leading up to the financial crisis of 2008.  Rather than getting headaches over the intracacies of tax rules, public accountants could devote more attention to whether it is enough to follow GAAP in giving an unqualified opinion.

In short, taxation ought not to have so much gravity in orienting corporate America.  Instead, business would do much better in focusing more on building better mousetraps. Individuals who benefit financially from the productive enterprise would be taxed, perhaps even without all the deductions that enable them to avoid being taxed. Imagine a tax-returnless system of individual income taxation involving a fixed low rate applied like a fee on any income taken in, whether from wages, salary, dividends or capital gains. Ironically, by simplifying taxation, more of it could be collected even as businesses are left to do business.

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Source: Robert Samuelson, "The Real GE Scandal," Newsweek, April 11, 2011, p. 21.

In his commentary in The Wall Street Journal  on May 6, 2010, Michael Boskin went over the disadvantages in levying an income tax on corporations. Within his argument, he observes, “Of course, the corporation is a legal entity; only people pay taxes.”  In so doing, he transcends, if only for a moment, his own approach that is oriented to pros and cons.  His observation is significant, and it gives us a launching pad of sorts by which we can approach the corporate income tax as a phenomenon (rather than simply assessing its utility).  To be sure, utility or the lack thereof can lead us to this level.  For example, double taxation (i.e., taxation of a corporation’s earnings, and then of dividends on investors’ incomes) suggests that only people should pay tax.  Treating a “legal entity” as if it were a tax-payer is unnatural, and thus gives rise to the double taxation problem.  It is interesting that Boskin uses the word “entity,” which is not the same as “person.”  That is, to argue that corporations should not be taxed directly, he seems to assume that he needs to deny the legal person doctrine.  To be sure, it would be harder to argue that human rather than only legal persons should be taxed; to treat corporations as entities expands the distinction and thus is more permitting of Boskin’s argument.

I contend that Boskin was correct in referring to corporations as legal entities.  To treat or consider a corporation as a person in any sense is to anthropomorphise an abstraction.  Put another way, an association of human beings does not constitute in itself a person even writ large. To presume otherwise is to make a category mistake.  This error is evident when someone says, “GM says X,” or “Ford is doing Y.”  Only human beings can talk (at least in a human language).  Furthermore, an organization does not “do” things; rather, people within it are the agents.  So too, an organization cannot be a moral agent.  This statements might as be ignored, for all the sloppy anthropomorphism going on. It is no wonder that corporations are typically regarded as taxpayers.  As long as we limit our arguments to pros and cons (i.e., utility), we will miss our deeper errors or category mistakes.  Even if such faults are covered over by societal blind spots, the errors are nonetheless errors.