The corporate income tax has many critics, including some in academia. They worry about who pays the tax and about a potential double tax on income earned by a corporation and distributed to the shareholders as a dividend. Most companies pay such a small percentage of their profits out as dividends that the "double tax" criticism has little importance. Despite some doubts about the incidence of the corporate tax, the behaviorial patters of copanies strongly suggests that they pay under normal economic circumstances.
Despite some criticisms, the corporate income tax is the only effective measure in place for taxing the capital income of wealthy taxpayers earned through coprporations. It also is the only available mechanism for taxing multinational corporations in the source country.
Reuven S. Avi-Yonah, "Corporations, Society, and the State: a Defense of the Corporate Tax," 90 Virginia Tax Review 1193-1255 (2004).
Abstract: This Article examines the relationship among corporations, society, and the state through the lens of the corporate income tax. The corporate income tax offers a unique opportunity to examine this broader issue because, first, it is one way in which the state intervenes directly in the affairs of corporations; and second, because various theories of why the corporate income tax exists illustrate the dichotomy between the real and aggregate views of the corporation. The corporate tax today is seen primarily as an indirect way of taxing shareholders.
Kim Brooks, "Learning to Live with an Imperfect Tax: A Defence of the Corporate Tax," 36 University of British Columbia Law Review 621-672 (2003).
Abstract: A separate corporate tax might seem anomalous to corporate law lawyers. Modern financial theory and recent theoretical advancements in corporate law have been premised on the assumption that all forms of legal enterprise are simply a nexus of contracts among individuals such as shareholders, creditors, suppliers and employees. This paper argues that it is not necessary to subscribe to a belief that the corporation is an entity separate from these contracting individuals to recognize that the separate corporate tax plays a number of important, necessary, and irreplaceable roles in a modern tax system. It is suggested that the cumulative force of the arguments in favour of maintaining the separate corporate tax is often understated; the costs and disadvantages of the tax are often exaggerated.
Thomas S. Adams, "The Taxation of Business," Proceedings of the Conference of the National Tax Association, pp. 185-194 (1917).
Abstract: An early defense of the need for a separate tax on business profits to compensate the government for creating and maintaining the market and the productive environment needed for businsses to earn a profit.
