Authored by Jeff Carlson & Hans Mahncke via Truth Over News,

One of the more important policy issues for markets in the US election may be corporate tax rates. Kamala Harris has said she wants to raise corporate taxes from the current rate of 21% up to a lofty 28%. During her 2020 primary campaign Kamala said she wanted to raise corporate taxes all the way to 35% – and this may still be her real target. By contrast, President Trump has said he wants to cut the corporate tax rate to at least 20% but would prefer to drop the corporate tax rate to 15% if possible.

How much revenue is generated from corporate taxes?

The answer to this question may surprise some people. In 2023 the federal government collected just under $420 billion in corporate taxes. This compares to the approximately $2.18 trillion in individual taxes and $1.6 trillion in payroll taxes. The amount paid in corporate taxes is not as large as many intuitively expect – a little more than double the total amount of aid that we’ve allocated to the Ukraine war. 

Corporate tax revenue has actually been declining on a percentage basis for decades. The reasons for the decline have everything to do with incentives and competition – incentives for businesses to invest, locate and produce in the United States and competitiveness of American companies in a global environment. And it’s all intrinsically tied into economic activity, productivity, wages and employment. We as a nation have stymied business activity through a combination of high taxes and excessive regulations.

Who actually pays corporate taxes? Hint: it isn’t the corporations.

Corporations are actually just tax collectors – legal entities that serve to collect taxes on behalf of the corporation’s owners. The true taxpayers are primarily the company’s shareholders – and to some degree, labor and customers – not the corporations that Kamala tries to vilify. When Kamala says she’s going to raise taxes on corporations, what she’s really saying is she’s going to raise taxes on you and me.

As our system stands now, shareholders’ dividends and capital gains are reduced by taxes collected by the corporation. Dividends are profits that a corporation distributes amongst its shareholders. Capital gains come from an increase in the value of a corporation’s assets. If the corporation did not pay corporate taxes on “behalf” of the shareholder these extra dollars would flow through to shareholders in the form of increased profits and dividends, reinvestment in the business (which generates additional profits) and share repurchases. These increased cash flows to shareholders would then be taxed at the shareholder level.

If this argument is not sitting well, consider this example. A corporation could, in theory, give year-end bonuses to its workers such that the amount exactly equaled the corporation’s taxable income. After the payment to workers, the corporation would have zero taxable income. Because the corporation would record no profits in this case, shareholders would pay no tax as they too would receive no profits. But workers would now have a significantly increased tax bill – and in all likelihood be taxed at a higher overall rate than the corporation would have been. The corporation merely serves as the vehicle or conduit – the legal structure – for tax payments.

What about customers and labor – don’t they shoulder much of the corporate tax bill through higher prices for goods or lower wages? 

As it turns out, there is some material debate about these two groups. In a normalized market environment, customers probably don’t pay much in corporate tax as it is very hard to pass this cost through. The ultimate price of the corporation’s end product or service is determined by market forces – not tax rates. And corporations have many differing competitors – including sole proprietorships and foreign corporations with differing tax structures. Market competition determines the final selling price – not taxes.

The amount of corporate taxation that labor bears is less clear – the arguments center around the availability and flexibility of capital – the ability to shift production to lower cost areas, etc. The Tax Policy Center has concluded – fairly close to Treasury estimates – that labor bears about 25% of the corporate tax burden. Some estimates have labor bearing as much as 70% of the cost.

In our opinion, the amount of corporate taxes that are borne by labor is probably north of the 25% figure – but likely well shy of the 70% estimates. The reason for this lies primarily in the mobility of capital. Money is far more fungible and easily moved than labor. If returns are higher abroad due to lower foreign tax rates, investors will quickly move capital to those places. Labor has a more difficult time taking advantage of higher wages elsewhere.

When corporations are burdened with a higher tax rate, their return on capital falls, making them less attractive for investment. In order to attract capital, companies are forced to reduce costs in an attempt to boost returns. And, in general, labor is the largest cost component for most corporations, making it a prime target for cost cutting. The accelerating shift towards the use of AI may lead to an even greater amount of the tax burden being shouldered by labor.

Think of it in simple terms. If corporations were hit with a tax hike tomorrow, which group could more quickly adjust. Investors who could quickly sell and redeploy their capital overseas – or labor with their families and homes? The matter becomes a bit more complicated in real terms because if such a tax was enacted, share prices would be impacted immediately, but hopefully you get our point.

So the answer to who really pays corporate taxes appears to be primarily shareholders with labor sharing in some material percentage of the cost. What should be clear is that corporations do not truly pay taxes – they merely collect them on behalf of third parties for payment.

Why are tax rates different at the corporate level versus the shareholder level?

At the heart of the matter, the tax rate is lower for capital gains and dividends paid to shareholders to reduce the impact of double-taxation – profits used to pay dividends have already been taxed at the corporate tax rate. The capital gains and dividend tax rates are arbitrary but the intent has been to pick a number that was not so high as to completely discourage investment into companies by investors.

Why do we have differing corporate and individual taxation systems in the first place?

Our nation’s tax system evolved in fits and starts with various taxes being implemented and then repealed – some ruled unconstitutional. Our modern tax era began in 1909 – in response to rising political pressure to tax the rich – when Congress enacted an excise tax on corporations at the urging of President William Howard Taft. In a concurrent move, President Taft proposed the 16th Amendment to establish a personal income tax.

The excise tax on corporations did not require a constitutional amendment and was originally intended to be a temporary measure until the passage of the 16th Amendment which occurred in 1913. Like all things government, legislation once enacted does not die and so the two concurrent tax systems – corporate and individual were born. And they have been creating inefficiencies and needless complexities for our nation ever since.

We should consider abolishing the Corporate Tax – not raising it.

Reducing or eliminating the corporate tax rate would go a long way towards drawing businesses and business activity back to the United States. Our corporate tax structure creates countless unnecessary complexities and conflicts with our individual tax code. Do away with that structure – even if shareholder taxes are adjusted in a manner that is revenue neutral to the Treasury – and you have gained significant economic efficiencies.

Some other reasons to abolish the corporate tax:

Removal of political gamesmanship – An entire lobbying force working to get tax breaks for corporations is gone overnight. Gone too are the incentives for politicians to grant their corporate constituencies favors via the tax code. Kill the corporate tax code and you immediately remove a big motivation for corporate money being involved in the political arena – along with special interests.

Legal & Tax Departments – Tax compliance and tax strategy related departments would be rendered obsolete and would result in the saving of literally billions of dollars and countless man-hours. Tax lawyers and consultants would need to find another avenue for work. And smaller businesses would be placed on a more equal footing.

Tax status – There would be no need for non-profit distinction – and the associated games being engaged in by both companies and the IRS.

The entire tax system would be vastly simpler. Any corporate tax burden borne by labor would be removed. The increased level of investment by corporations – along with higher dividends – would re-invigorate our entire economy. Corporations would run their companies based on underlying economics without the distorting influence of tax strategy behavior.

Corporate CEOs would focus on what are now pre-tax profits. Foreign investment would flood back into the United States. International tax problems and distortions would disappear. U.S. corporate cash held overseas could be repatriated for use domestically.

Lowering (or removing) the corporate tax does not mean that taxation of corporate income is avoided. Instead, taxes would now be paid at the individual versus corporate level. Corporations could stop focusing on tax strategies and could instead place their full focus on generating profits. And Labor would see their corporate tax burden lifted.

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Authored by Mike Scanlon via RealClearDefense.com,

An ability to win hearts and minds has long been seen by America’s leadership as essential to domestic and international politics and security.  For much of the Pax Americana, our government and intelligentsia have poured time, effort, and money into studying how to persuade everyone from allies to enemies and, conversely, how to counter an opponent’s influence campaigns. 

But something essential has changed since the rise of President Donald Trump as a political force. 

During the Cold War, President Dwight Eisenhower spoke up against censorship and for lay readers in the wake of an attempt by Senator Joseph McCarthy’s henchmen to eradicate communist books from libraries:

Don’t join the book burners.  Don’t think you are going to conceal faults by concealing evidence that they ever existed.  Don’t be afraid to go in your library and read every book . . . .

How will we defeat communism unless we know what it is, and what it teaches, and why does it have such an appeal for men, why are so many people swearing allegiance to it?  . . .

And we have got to fight it with something better, not try to conceal the thinking of our own people.  They are part of America.  And even if they think ideas that are contrary to ours, their right to say them, their right to record them, and their right to have them at places where they are accessible to others is unquestioned, or it isn’t America.

These days, America’s most educated have grown distrustful of non-experts and their ability to process dangerous ideas. 

Our elites have launched a campaign to protect the undereducated from themselves. 

That crusade is not going well. 

As Martin Gurri has pointed out time and time again, America’s thought leaders and information curators are on the ropes.  Academics, think tankers, pundits, and policymakers no longer can hide the fact that they often either have no clue what they are doing or are all too willing to oversell their case—and will purposefully obfuscate or outright lie from time to time to get their way.  

Yet most experts are more than happy to pretend as if nothing were wrong as they claw their way up the professional ladder.  Some insist on singing paeans to themselves while demanding ever-greater protection from open competition and even outside criticism.

Take, for instance, the authorities advocating a muscular foreign policy or demanding robust countermeasures against domestic extremism.  The Global War on Terror was not America’s finest hour.  We lost Afghanistan.  It would be difficult to claim victory in Iraq.  The great hopes of the Arab Spring came to naught. 

But repeated failures did not cause self-doubt to creep into the minds of credentialed militarists of any stripe.  Most continued to insist that the next war would go our way.  Some have even been trying to expand their territory, such as the counterinsurgency specialists who tout their experience in (wildly unsuccessful) campaigns against international extremism and propaganda when marketing themselves as would-be, should-be leaders of the war against domestic extremism and disinformation. 

There was never any reason to assume that the pro-war clique would fare any better if provided yet another opportunity.  And failures have piled on missed opportunities in the Ukraine to the point where security specialists are, once again, scrambling to protect the foreign policy establishment by blaming its most recent fiasco on a lack of American commitment to winning what may always have been an unwinnable war.   

The crisis afflicting much of America’s expert class is less that the internet has made it easier for the public to push back, and more that the elite’s preferred models just don’t work.  For instance, many disinformation experts justify censorship with a model positing that malevolent information drives malevolent acts.  Similarly, some domestic terrorism experts justify increased surveillance with a model positing that terrorists broadcast their “terrorist intent” before engaging in acts of terrorism. 

But, even if most people who commit violent acts were exposed to disinformation or made some announcement of terrorist intent, notably lacking is substantial evidence that a significant percentage of the people exposed to disinformation or of the individuals articulating terrorist intent go on to commit violent acts.  In other words, many of our leading domestic security experts seem unwilling or unable to differentiate between a hypothesis and a theory.  This is suboptimal. 

Worse, the smarter-than-thou crowd continues to push for surveillance and censorship despite the glaring problems with their firmly held beliefs about causality and causation.  The proposition that bad ideas lead to bad acts has been “disproven over and over again.”  And even many of the authorities seeking to elevate their profiles by fearmongering about “stochastic terrorism” must admit that the hateful speech in the establishment’s targets is unregulatable under American law.  Unlike “a call to lynch someone when a mob has gathered nearby,” the “use of mass media to provoke random acts of ideologically motivated violence that are statistically predictable but individually unpredictable” just isn’t “advocacy . . .  directed to inciting or producing imminent lawless action and . . . likely to incite or produce such action.”  It can’t meet the standard required for the government to forbid or punish inflammatory speech.

To the extent that America still cares about freedom of speech or other civil liberties, the surveil–and–censor hacks should be laughed off the stage.  Yet the grandees of the so-called “Censorship-Industrial Complex” are overplaying an incredibly weak hand based on what appears to be little more than blind faith that the public isn’t qualified to question the elite.  This is silly; the emperor has no clothes. 

The collected academic expertise of the anti-disinformation movement proved itself worthless in the real world because disinformation specialists were incapable of preventing the Biden Administration’s Disinformation Governance Board from falling victim to—of all things—a disinformation campaign.  Given the anti-disinformation crowd’s admitted inability to effectively contest disinformation with speech and counter-speech in open competition, the public has every right to question whether the Biden Administration’s “Ministry of Truth” was meant to institute a de facto censorship regime where progressive- or establishment-led media and social media companies would collude with like-minded state actors to suppress populist voices.  

The disinformation that touched off the anti-disinformation crusade—propaganda propounded by the Russian government during the 2016 and 2020 presidential elections—either appears far too ham-handed to be persuasive or seems all but indistinguishable from arguments and assertions made by America’s most highly esteemed progressive identitarians.  Given the anti-disinformation cult’s penchant for announcing causation rather than proving it, the public has every right to question whether disinformation specialists operate in a fantasy world of just-so stories where fancy academic degrees and enviable job titles can magically transform an “and” (the Russian government tried to interfere with the 2016 presidential election, and Donald Trump won) into a “so” (the Russian government tried to interfere with the 2016 presidential election, so Donald Trump won). 

The social media-based disinformation campaigns initiated by America’s enemies during the ongoing Trump era seem to be as ineffective as the failed social media-based information campaigns launched by America during the Global War on Terror.  Given how disproportionate the elite’s highly publicized panic over disinformation is to the actual threat from disinformation, the public has every right to question whether our leadership is conjuring up sham crises to exert tighter control over a nation that has grown largely unimpressed by even the shiniest of shiny credentials.

Although the stage has been set for a complete collapse of expert rule, it will be difficult for the current crop of experts to save themselves from—of all things—themselves.  The traditional authority system is almost uniquely unfit to deal with the very public failure of conventional models. 

The incentive structure of America’s credential-granting institutions is out of whack.  Expert careers are advanced by appealing to recognized authorities and representatives of wealthy benefactors  or powerful state actors in a more-or-less closed system, which the establishment zealously protects from outside interference. 

• Freedom from open competition allows diplomas and job titles to trump the substance of arguments and the abilities of individuals in the cloistered world of experts.  Authorities can take the ostrich defense or declare victory when faced with a threat to their position, so experts often decry dissent while studiously avoiding anything resembling critical engagement with critiques of their work advanced by deplorables or members of the great unwashed. 

• The need to appeal to recognized authorities stifles innovation.  Up-and-comers are best advised to avoid heterodox approaches, which are liable to offend a patron, and to adopt whatever orthodox approach happens to be favored by their most powerful backer, regardless of the merit of that approach.  Established experts can use the failed experiment that is peer review to prop up their favorite disproved theory, to advance a fashionable narrative, or to snuff out groundbreaking work capable of challenging the orthodoxies upon which their reputations rest.  

• The authority system even incents experts to exaggerate.  To draw attention in crowded fields or obtain grant money from activist sources, specialists commonly conflate advocacy with analysis, make overly dire predictions, then demand radical measures to avert the impending crises.  And very rarely are experts punished for getting things wrong.  It is therefore reasonable for specialists to stake out the most aggressive position possible, rather than the most accurate or defensible one. 

The expert system has broken down and requires structural reform.  For example, it is as if academia—the crown jewel of the authority system—were designed to be as unfair and inefficient as possible.

• Despite our knowledge that the “Next Big Thing” tends to be hit upon by someone who is young or new to a discipline and often languishes until the then-dominant cohort of scholars loses control over the field, the tenure system concentrates power and authority in exactly the wrong hands—those of established professors. 

• The deference afforded to tenured faculty within the American academy not only makes our colleges and universities incredibly hostile environments for truly innovative ideas, but also creates ideal conditions for alpha-sycophants valiant enough to kowtow their way to the top. 

• Protecting academic authorities from the consequences of their actions over-incents “brave stands” (by rendering them bravery-free) and allows indefensible arguments to overrun the academy and occasionally leak into the wider world—often to the detriment of the very non-elites whom the scholarly elite purports to represent.

In short, despite all the exhortations by the Spencerians in the mainstream media and other establishment outlets about the need for academics to remain a self-regulating profession, the greatest threats to the advance of learning and to academic freedom come from within the academy and are, at minimum, exacerbated by a system that permits faculty self-governance. 

It’s high time for a round of creative destruction.  The non-experts who oversee or fund America’s colleges and universities should consider doing away with tenure and exposing academics to the crucible of competition.  After all, pretty much everyone outside the Ivory Tower realizes that the fairest and most efficient way to deal with the replication crisis in the social sciences is an employment crisis among social scientists.