George likes the CAT
Joe Biden’s budget calls for lots of new spending and lots of new taxes. One proposal is to increase the corporate income tax from 21% to 28%. David Henderson calls this one of the worst tax proposals. He (and every other economist) knows that corporations are just a legal fiction and that ALL taxes are ultimately borne by people. Corparations are just the check writers of money that would have otherwise been in the pockets of employees, customers, shareholders, suppliers, and everyone else. A whole lot of the new taxes would come from people making less than $400,000.
While I agree that corporations don’t really pay the tax, I am in favor of using corporations as the check writer for taxes. There is no social contract that individuals sign with the government, but corporations don’t really exist without government. My preferred method of taxation (to the extent that there should be any tax) is a corporate asset tax (CAT).
Instead of taxing 28% of income, the CAT would tax corporate assets at a rate of 1-2%. Research shows that changing from an income tax to an asset tax would reduce malinvestment by corporations, reduce the use of debt, and reduce variability in tax collections. The CAT is also very Georgian in nature.
Henry George is a journalist and economist who wrote Progress and Poverty in 1879. One of the primary policies of Georgism is the Land Value Tax (LVT). The idea is that the actual land itself should not earn economic rents for the owner and is therefore subject to taxation. However, improvements and development of the land would accrue to the owner. Taxing the undeveloped value of the land would encourage owners to make the most efficient use of the property.
The CAT works the same way with capital by encouraging corporations to invest capital at most efficient use. If a corporation has $1, they can either invest it into productive assets, return it to shareholders, or just let it idly sit there. Taxing corporate income discourages investment in productive assets, the CAT discourages idle assets.
Shifting towards the CAT and the LVT (and away from property taxes and corporate income taxes) would reduce inequality, stabilize tax revenues, and increase economic growth.