Once more Republicans are talking about reducing the "double" taxation of corporations. (Marco Rubio and Mike Lee, this time.) They are wrong for, among other things, one simple reason.
The idea is that a person in business only gets taxed once on income, but if the person incorporates, the corporation is taxed on its income, and then when profits are distributed, the owner gets taxed again -- "double taxation", which described that way seems unfair.
This ignores, first of all, the fact that it is easy for small businesses to organize as LLCs or S-Corporations to avoid this effect. There, profits and losses are "passed through" and there is only single taxation. What corporations want to do, however, is not pay taxes, and not pass through their profits either.
But the main reason we need to keep corporate income tax rates up is that doing so actually preserves the capitalist, or free-enterprise system. See below.
We all know the adage "build a better mousetrap and the world will beat a path to your door." That is the essence of free enterprise. It is the theme that conservatives harp on when they argue for privatizing everything, including those things that many see as better performed by government. Competition for profit is not always the best way to manage enterprises, but it is certainly an important motivator for innovation, business creation and expansion, and, to some extent, higher quality and more efficient operation.
It follows from this that to reap the benefits of capitalism, we also need to have a level playing field. If all the mousetrap makers compete against the same background, they will be motivated to produce ever-improving mousetraps, and those of us who leave cheese out on the floor will benefit from their competition.
This is where corporate taxation keeps the playing field level. Without it, picture this: Inventor, who works a day job, invents a mousetrap and plans to market it. Starting up a garage-based business, the Inventor finances the business with after-tax funds. On the other hand, without corporate tax, a corporation could take its profits and start up the new enterprise using all of its profits. Assuming for example a 40% total tax rate from state and federal levels, the Inventor would only have $60 out of every $100 of income to put into the new business, while an untaxed corporation would have $100 out of every $100 in profits to put into the same enterprise.
In that case, individuals would all be burdened with taxes making it hard for them to be entrepreneurs, while already-profitable corporations would have proportionately more cash to spend, unburdened by taxes. When Republicans (or anyone else) argue that corporations are burdened by taxation, they fail to mention that lifting that burden would give them a major advantage over individual entrepreneurs, who remain burdened by taxation.
In short, to the extent we do not tax corporations, we give them that much more advantage to compete in the marketplace against individuals and startups. If the capitalist system is intended to protect and benefit citizens (who are people (or "natural persons" in legalese) it must at least treat them equally with corporations in terms of taxation.
In actual practice, many successful corporations do business for extended periods without paying dividends. They do this to amass earnings to invest in expansion. To allow them to do this and still attract investors, the tax system allows them to avoid "pass through" taxation, as with LLCs, partnerships, or S-corporations. This way, investors who are not actually receiving dividends also avoid having to pay taxes on the earnings of the corporations. If we reduce or eliminate taxes on the corporate level, then large, established corporations will have a massive competitive edge over individuals, startups, and entrepreneurs of all descriptions. The effect is to create monopolies of capital that are able to out-spend and starve out competition.
Republicans say entrepreneurship is essential for a successful economy, but in arguing for lower corporate taxes, they are in fact pushing for a financial system monopolized by a limited number of already-wealthy corporations.
In focusing on this one argument, I do not suggest this is the only reason we should tax corporations; it simply seems to be a reason that relies on many of the values that Republicans claim to cherish.