Most Corporations Paid No Taxes in Late 90s Boom

by on April 6th, 2004

The Wall Street Journal reported today that 60% of corporations in the US paid no corporate income taxes during the Clinton Boom of 1996 to 2000, according to the General Accounting Office. The report also says that in 2003, corporations kicked in a mere 7.4% of Washington’s revenues. – that’s the lowest rate since 1983 and the second lowest since 1934. This is why we need to keep a tax on dividends no matter what Mr. Bush says between now and November.

Frankly, I don’t like the idea of corporations paying taxes on their profits. It is economically inefficient, and it gets them into all kinds of games over revenue recognition other things that take away from their purpose, which is to turn a profit for their shareholders. Money is shifted from jurisdiction to jurisdiction in a process that only serves to employ accountants and lawyers.

At the same time, there are intermittent calls from the GOP to abolish taxes on dividends because, as corporate profits, these funds have already been taxed once. This is a bit of a deceitful argument anyway since corporations are legal persons distinct from their shareholders. But even ignoring that legalistic point, in most cases, the profits either were not taxed, or if one prefers to be precise, were taxed at an effective rate of 0%.

The implications of abolishing the dividend tax is clear when the effective corporate tax rate is nil – the tax burden will shift even more onto those who cannot afford to live off their dividends, which is most of us. Capital gains and dividends should, to be fair to everyone, be taxed at the very same rate as labor. If this country truly values its work ethic, why does income from labor merit less advantageous treatment?

Jeff Myhre