Corporate Tax Rate Faulty Tax Logic

David Cay Johnston on Congress’ potential faulty tax logic regarding corporate tax rates.

"Investors often complain they are taxed twice on their profits: once through the corporate income tax and again through taxes on their dividends and capital gains.

But if the AEI’s argument is correct — that workers bear the burden of the corporate income tax – then investor complaints that they are taxed twice are false. Under the AEI argument, it is workers who are taxed twice: first through lower wages due to the corporate tax and then through levies on their wages, however low they may be.

Double taxation of investor returns was the logic used to justify the capital gains tax cuts in 1997 under President Bill Clinton and in 2003 under President George W. Bush, who also included dividends.

Without double taxation of corporate profits, that justification evaporates. Workers can now use AEI’s arguments to bolster their arguments for higher pay and lower taxes. I put this to Mathur of the AEI, who agreed that it is reasonable to conclude that double taxation is falling on workers. But, she said, lowering taxes on workers would not encourage investment."