RALEIGH – After the North Carolina House and Senate negotiators confirm they have agreed on the broad outline of a state budget for next year, the prospect of abolishing 2.5% state corporate income tax is a reality got closer. An exit is already foreseen in the Senate budget, and key members of the House of Representatives have backed the idea.
North Carolina consumers should cheer for the prospect because corporate income tax makes many of the goods and services they buy more expensive.
Taxing corporate profits has always been a complicated, unfair, and inefficient way to increase government revenue. Don’t let the label fool you. A “company” is simply a bundle of contracts between individuals – investors, lenders, executives, employees, sellers, and consumers. Only people pay taxes. Legal abstractions cannot.
Politicians have always recognized this fundamental fact. In the American context, corporate income taxes were first introduced in the late 19th century to tax the incomes of wealthy households who owned the vast majority of corporate stocks and should therefore bear virtually all of the costs of a “corporate tax” in the form of lower dividends and capital gains.
Why not tax the rich directly? This was not yet legal for the federal government, and most states also lacked income taxes. However, after the constitutions were rewritten to correct this, most policy makers did not replace their corporate taxes with personal taxes. They kept both in the books.