Corporate Regulation and the Origins of the Corporate Income Tax

Abstract:     
Two of the major changes the United States experienced during the Progressive Era were the growth of large corporations and the acceptance of the income tax. This Article examines the intersection of these two changes at a point called the Corporate Excise Tax of 1909. The traditional view of this tax holds that the tax was primarily a political stepping stone toward the sixteenth amendment. This view is not wrong—just incomplete. The tax was also a deliberate exercise in corporate regulation.

The Article proceeds as follows. Part I briefly describes three important corporate issues of the times: theories of corporate personality, theories of corporate regulation (federal incorporation laws and publicity of financial information) and the problem of stock-watering. Part II provides a brief history of corporate income tax prior to 1909. Part III examines the passage and content of the Corporate Excise Tax in relation to concerns about corporate power and abuse. It focuses on the provision requiring that tax returns be open to public inspection and, to a lesser extent, on the interest, dividend and exemption provisions.

The Article concludes that an accurate view of the Corporate Excise Tax of 1909 places the tax in an historical context as part of two struggles: the attempt to enact an income tax and the struggle to regulate corporations. Viewed in this light the tax emerges as a nascent attempt at securities and corporate regulation as well as the source of our modern corporate income tax. While it was a moderate, cautious attempt at regulation by a conservative President, it was nevertheless a start.

Number of Pages in PDF File: 84

Keywords: confidentiality, corporations Corporate Excise Tax of 1909, income tax, legal history, publicity, securities regulation, tax returns

Accepted Paper Series