An ECONOMIC Case for Having Corporations Pay ALL Taxes
again: economics, not lefty ideology
Lester C. Thurow was a well-known economist in the 1980’s. Though he was ‘liberal’ (slightly left-of-center), he argued that corporations should pay no taxes. (If that were done in exchange for staying out of politics, I would be all for it.) He pointed out that corporations don’t pay taxes, they only collect taxes: whatever taxes they pay are passed to consumers in the prices of goods and services.
My argument is that corporations are, indeed, ‘natural’ tax collectors. Our (U.S.) economy funnels money to sellers of goods and services. Since taxes involve money and corporations are where the money goes, it makes sense to me to have them pay the taxes.
I am aware that doing that would create a consumption-based tax system. Consumers would, indeed, pay the taxes in the prices of goods and services. After the first year, though, only any increase in the spending by government could increase prices in the form of taxation.
I do think that such an approach to funding government would be facilitated by creating a flexible but limited level of spending by government. One way to do that (borrowing from another idea of mine) would be to tie spending by government to population. Forevermore, the amount of money available for all government to spend would be determined by the population of the nation (citizens and other residents) multiplied by the per capita rate of total government spending at the time this proposal were adopted. That money would get apportioned (some way) among national, state, and local governments.
[I would have all money go first to the national government. Any money not spent there would be apportioned among the states, based on population. Presumably, what wasn’t spent by state governments would be apportioned, based on population, among local governments in each state. At the national and state levels, the people spending the money would be aware that the less they spent there, the more money there would be for government to spend on public goods and services in the places where the people who voted for them lived: there would be a ‘natural’ tendency (in a democracy, anyway) for that money to flow ‘downhill’.]
Again, that amount of money would then be collected from corporations in the form of taxes, which would pass it along to consumers in prices. That way, though, increases in spending by government, thus leading to an increase in prices, could only result from an increase in population (which will always be very small, year over year, as a percentage).
At the same time, I am talking about corporations paying all taxes. So consumers would have significantly increased disposable income with which to negotiate those higher prices. (Given how regressive our current tax structure is overall, the increase in disposable income would be relatively greater for poorer people.) Also, demand, which “We, the people” do have the power to control, would still affect prices, too: less demand (more savings) could offset some of the increase in prices due to taxation. Moreover, some things, such as perhaps food (sold in stores, not in restaurants and such) and shelter, could possibly be exempted (barred?) from conveying taxes. Finally, To the extent that competition exists, some of the tax bill would have to be ‘eaten’ by corporations, meaning all of it would not be passed along to consumers, anyway.
Funding government that way would have one huge, positive benefit for the economy: stability. As things stand, the economy is fundamentally unstable because everything that happens in it influences and is influenced by everything else that happens in it. That is the definition of a chaotic system. Chaotic systems are unstable and unpredictable. Using this tax paradigm to fund government would make spending by government what economists call an ‘exogenous variable’. It would not be influenced by anything else that was happening in the economy. No person, committee, or organization would have any say in how much money government would have available to spend (though state and local governments could presumably still use taxes/public debt for additional revenue). That is why it would be a source of stability for the economy.
For some readers this paradigm might bring to mind Modern Monetary Theory (MMT). It would have one or two similarities with MMT (but only similarities, not actual ‘same things’). It is a categorically different thing than MMT is.
For readers who are not familiar with it, MMT goes back to the 1970’s. It was developed by, primarily, accountants, not economists, to explain the monetary/financial relationship, in the U.S., between the central — national — government and the central bank, the Federal Reserve System (the ‘Fed’), especially after the ‘gold standard’ was officially abandoned by this nation in 1971. (It could be extended to any nation with a ‘sovereign’ currency.)
As MMT has it, the central government ‘spends money into existence’. That is, money is actually created as it is spent by the central government. That amount of money is offset by creating ‘assets’ (debt) and using taxes to withdraw money from the economy. In MMT the money that is collected in taxes is ‘destroyed’. All of the money created by the central government’s spending does not have to be accounted for by debt/taxes. If inflation occurs, though, taxes must be increased to withdraw more money from the economy. (Creating debt to be sold can remove money from the economy if that money is not spent, but even then that money must eventually be returned to the borrowers — with interest.) The bottom line is that, according to MMT, there is no limit (other than effects on the economy) to how much money the central government can spend.
In this proposed tax paradigm money would be created as needed for funding all government. Creating that money, however, would not involve any debt of any kind in any way. Year to year, the amount of money available for government to spend would be strictly limited. Taxes, paid through purchases of goods and services and collected by corporations to be remitted to the central government, would account for all of the money spent by all government.
There certainly would be much to think about and many details to parse concerning such an ‘original’ (let’s call it) tax paradigm. I do think it is an interesting idea.