Rajiv Sethi: Double Taxation

Rajiv Sethi gives us an argument against the idea that capital income is double taxed, once as profits for the firm, and once as income for the individual. His argument is basically that the taxes are already baked into the asset prices so that the income derived from those assets would be the same with tax or without (after a one-time adjustment if the tax were changed).

I think this makes sense (and Sethi knows a lot more about this stuff than I do). My own argument for getting rid of the tax on corporations’ profits is more of a political economy one. I feel that the more we treat corporations as people, the easier it is to see them as people. Then we end up with decisions like Citizens United in which we give corporations rights like freedom of speech.

But a corporation is a legal fiction. It is given person status not because it holds inalienable rights, but so that we can regulate the market and encourage risk taking. If a corporation did not have limited liability or could not enter into contracts, a modern economy would be impossible.

That’s why I would eliminate the profits tax, treat all income the same regardless of type, and jack up the marginal tax rates on those with very high income.

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