Big companies may be hard to tax properly, but does that mean we should let them off?

This response to Charles Dumas’s piece on corporation tax was published as a letter in this issue of Prospect

Charles Dumas argues that the pact with the limited liability corporation has failed (“They’ve broken the bargain,” February). I agree, at least in part. Corporations have increasingly operated as if anything they can get away with is also acceptable. This is particularly true of their behaviour in the area of tax. But Dumas follows up with a non sequitur: since the corporation misbehaves, we should cease to tax it. That simply does not follow. Whether or not corporations are taxed is not important. But their owners need to be taxed. Our tax system would not be legitimate if the burden were borne only by labour. So the question is how to tax capitalists. There are several options. One would be to eliminate corporation tax per se, but then incorporate all corporate earnings, both retained and distributed, into the tax returns of shareholders. This should be combined with a withholding tax at the basic rate of tax on all corporate earnings. That would ensure some share in the taxation of foreign owners. The big point is that the owners of corporations need to pay taxes on their income, just like everybody else. This is a matter of justice.

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