Question

Describe the arguments for and the arguments against the corporate income tax.

Answer 1

A corporate income tax is a direct form of a tax levied by the government on the net incomes of the companies, business houses and corporation. There has been long standing debate among economists about the feasibility, necessity and implicaation of a corporate income tax. Certain arguments are cited to fully understand the ground to be stand on. These are:
FOR:
1) The imposition of corporate income tax is bound to boost up the revenue of the government. This tax being the biggest contributor of tax revenue sometimes can easily be utilised to reduce the burden of national debt and help in raising expenditure for more development activities.
2) The idea behind this tax is somehow redistribute the income towards the marginal section of people which form almost major chunk of the population.
3) This reduction in corporate income due to tax can help in the case of inflation in the economy. Squeezing the disposal income, no further investment by corporation helps to reduce aggregate demand and lower the inflationary pressures.

AGAINST:
1) One of the foremost arguments cited against the imposition of corporate income tax is that these corporations are the engines of investment activity. Curtailing the disposal income and thereby restricting the capacity of investment by the way of tax has negative implication in the form of slow economic growth and development.

2) The other powerful argument against corporate income tax is the fact that when such a tax is imposed, the corporations and business houses are discourage to earn more, work more and gain profit more. Since a major chunk of their income would go into taxes, the incentive to increase business activity gets discouraged which negatively impacts the health of an economy.
3) Some people summarize that it is grave injustice on the part of the government to redistribute the income earned by hardworking people in the form of taxes to poor people who are idle, untalented and freely unemployed. It mostly importantly violates the principles of laissez faire policy.