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If Peter pays his taxes, shouldn't Paul Inc.?

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By HOWARD TROXLER, Times Columnist

© St. Petersburg Times
published May 24, 2002


Since bashing the governor and Legislature the other day for cutting Florida's corporate income tax, I have been bashed in turn by a whole raft of smart people. It is fun. They say, in essence:

You ninny! Don't you know that you can't really "tax" a corporation? The corporation just passes along the cost to consumers in the form of higher prices. We ought not tax corporations at all.

"Late-breaking news!" writes my new friend Dick Ruzicka. "Corporations don't pay taxes. People pay taxes."

"I learned years ago in Economics 101," chips in reader John Hungerford of Palm Harbor, "that corporations don't pay taxes -- they are tax collectors." He recommends a healthy dose of the economist Milton Friedman.

This argument has had a real impact in Florida. The claim of "passing it on to consumers" was one reason the Legislature this year killed the idea of broadening Florida's tax base. (Heaven forbid that, say, a landscape designer, or an advertising agency, should have to "pass on" a tax to the clients!)

There is plenty of support for killing the corporate income tax altogether, at least in the world of conservative think tanks. If we freed corporations of this burden, the theory goes, they would be free to innovate, invest and stimulate the economy.

"The corporate income tax encourages accounting irregularities, overseas incorporation, and ungodly stock option compensation," Jason M. Thomas writes for Consumers for a Sound Economy (www.cse.org).

The Hoover Institution (www.hoover.org) joins in the fray with an essay titled, "Time to End the Corporate Income Tax." Such a tax discourages the free-market flow of investor capital to corporations. Corporations are forced to offer an artificially high return on investment. Innovation is stifled. And so forth.

Interestingly, it is harder to find arguments in favor of the corporate income tax. There is plenty of teeth-gnashing about about how little corporations pay (check out Citizens for Tax Justice, www.ctj.org). But there is almost zilch about why they should. It appears to be an article of faith on the left.

So what is the citizen to conclude?

Listen:

Take a walk with me down an imaginary Main Street. There's my house, over there. There's your house. On the next block is Madge's Florist, a sole proprietorship. Then comes the First Baptist Church, and finally, Fred's Widgets Inc.

I'm paying taxes. You're paying taxes. Madge, she's paying taxes too. Our society has decided that the church and certain other non-profits don't pay.

But Fred's Widgets Inc.? Are we really saying, that the rest of us on Main Street ought to be paying taxes to support the operation of government, but by sole virtue of the "Inc." after the name, Fred's Widgets' should not?

Remember, corporations are limited "citizens" in our society. They use public services. They enjoy legal rights and protections. Under state laws, they are legal "persons" for many purposes. When it comes to paying a citizen's share, why should they get a free ride?

"Oh, don't worry," I keep hearing. "The shareholders of a corporation pay taxes on their profits. In fact, the way it works now, we are unfairly taxing their money twice."

But when it is time for them to pay THAT piper, the same folks cry out that it is evil to tax their intangibles, and their capital gains, and their estates. So they have persuaded legislatures to cut back those taxes, too.

Here is what the investor class wants: Not to pay taxes at all. They say investment should not be "punished." That neatly twists the fact that taxes are not "punishment," but the price tag for whatever level of government we have chosen. No one ever claims to feel "punished" at the price tag of a movie ticket or a Jaguar, but listen to their anguish at being asked to chip in for a child abuse counselor!

Here is big news: People in the paycheck class do not like paying taxes either. They do not want to be "punished" for work. So as soon as you can figure out a way that nobody ever has to pay taxes at all, speak right up.

Until then: If it is true that "corporations don't pay taxes, people pay taxes," then, well, tax the people who own the corporations.

-- You can reach Howard Troxler at (727) 893-8505 or at troxler@sptimes.com.

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