TAX WHAT YOU DON'T WANT, NOT WHAT YOU DO:

The original income-tax section of the tariff bill of 1913 ran a mere 13 pages. By 1942, the Revenue Act ran 208 pages, or 16 times as long. And of those 208 pages, 162--fully 78 percent of the text--dealt with closing or regulating the loopholes found in earlier revenue acts.

This expansion has continued ever since. Between 2001 and 2010, the tax code was amended no fewer than 4,130 times. Some amendments closed new loopholes, but others proved, in effect, to be new loopholes themselves. Many gave special treatment to just a few individuals or corporations. Thousands of lobbyists in Washington work solely on tax policy. In other words, the tax code's byzantine complexity helps not only the rich and influential but also the members of Congress themselves, who can trade favorable tax treatment for campaign contributions. After all, if the best place to hide a book is in a library, the best place to hide a tax fiddle is in a tax code consisting of 74,000 pages of numbing prose.

Who pays the corporate income tax? Not the corporations--they're just pieces of paper. The corporation writes the check, yes, but only people can actually pay taxes. As originally intended, the stockholders pay part of it because the tax makes the corporations less profitable, so their stock prices (and possibly dividends) are lower. But the workers also pay, receiving lower wages than they otherwise would, while customers pay higher prices. The exact ratio varies with each corporation's competitive situation, but the Adam Smith Institute's Ben Southwood calculates that, on average, workers pay 57.6 percent of the corporate income tax through lower wages. So a tax that began under William Howard Taft to assess the incomes of the rich mostly hits the average person.

By 2017, the United States had the highest corporate income tax in the developed world. And America was the only nation that taxed corporations on their global earnings, once repatriated, not just their domestic ones, as other countries did. The Trump administration took major steps toward reform, lowering the tax from 35 percent to 21 percent and joining the rest of the world in taxing only domestic profits, allowing $2.5 trillion in corporate profits parked overseas to be repatriated at much lower rates. Still, as the corporate income tax has entirely lost its original reason for being, it should be abolished altogether.

Abolition would certainly be expensive in the short term. The corporate income tax in fiscal year 2019 yielded about $245 billion, or 7 percent of total federal revenues. But much of that money would be made up quickly. With no corporate income tax, there would be no reason to tax dividends and capital gains at lower rates than ordinary income. That change would not only raise revenue but also put an end to a perennial bit of liberal demagoguery. And with no corporate income tax, the engine of tax complexity would disappear (as would a very large section of the tax code).

Today, corporate managers are mostly concerned with after-tax profits, since that's what the stock market cares about. But after-tax profit is an artifact of lobbying success in Washington. With no corporate tax, the managers would care about what are now considered pretax profits, an artifact of wealth creation--the very reason that corporations exist.

With no tax, corporate profits would rise substantially, leading to increased dividends (fully taxable) and greater investment. And with higher profits, stock prices would rise commensurately. (Trump's corporate tax reform was a factor in the notable rise of the stock market, pre-Covid.) Rising stocks would unleash a considerable "wealth effect," as people saw their 401(k)s and mutual funds fattening in value--boosting the economy.

With no corporate income tax, no reason would exist to distinguish between profit and nonprofit corporations. Nonprofits would not have to jump through hoops to qualify for that designation, and the IRS would have one less means of corruption available to it.

If the United States were to adopt the world's lowest corporate tax rate--zero--foreign companies would flock to invest here to avoid taxes at home. This development would force other countries to lower or eliminate their own taxes, spreading the boom worldwide.

Eliminating the corporate income tax would also strike a powerful blow against crony capitalism. Most federal government favors to industries come in the form of tax abatements. And subsidies for politically fashionable but unprofitable technologies, such as wind and solar power, are also part of the ever-expanding corporate tax code. Without a corporate tax code, there can be no favorable tax treatment and no subsidies except direct ones, and these would be much easier to hold to account.

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