Corporate Taxes Are Regressive

by Ed Sawicki - June 17, 2020

Corporate Taxes Are Regressive

Are the poor and middle-class hurt by corporations not paying their “fair share” of taxes?

Perhaps, but that's asking the wrong question. A better question is, “How can we reform the tax system to make it better for the poor and middle-class?”

Corporations are not like individual taxpayers. They don't pay taxes with their own money—they're tax collectors. Any taxes they pay are paid for by their customers through higher prices for goods and services. Corporate taxes are in effect sales taxes.

Sales taxes are regressive taxes that are harmful to the poor and middle class and contribute to social inequality. With regressive taxation, the poor pay with money better used for food, rent, and health care. The uber-wealthy pay with pocket change.

Instead of making a fuss about and trying to raise corporate taxes, we should focus on raising the individual income tax rates on upper-income earners. A good first step is to add margins to the tax tables for the uber-wealthy—the billionaires.

The second step is to reduce the tax rate on low-income earners. Reducing the current lowest margin (Up to $9,525) to zero for the next decade—or forever—would be a good decision.

Here's an example of a workable tax table when we're done with both steps. The green rows show the changes to the current tax table.

Tax RateIncome amounts
0%Up to $9,525
12%$9,526 to $38,700
22%$38,701 to $82,500
24%$82,501 to $157,500
32%$157,501 to $200,000
35%$200,001 to $500,000
45%$500,000 to $1 million
55%$1 million to $10 million
70%over $10 million

Additionally, we should tax capital gains the same way we tax ordinary income. It should be a progressive tax, so we don't significantly affect middle-class 401K plans. The capital gains tax rate should be the same as for ordinary income after, say, $350,000—and adjusted for inflation yearly.

Sources

Investopedia: Regressive Tax

Investopedia:The Difference Between Regressive, Proportional, and Progressive Taxes

Wikipedia: Regressive tax

Wikipedia: The World's Billionaires

 

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