Corporate Taxation in a Modern Monetary Economy: Legal History, Theory, Prospects

Binzagr Institute for Sustainable Prosperity Working Paper Series No. 118

14 Pages Posted: 7 Nov 2018

See all articles by Rohan Grey

Rohan Grey

Cornell University, Law School; Binzagr Institute for Sustainable Prosperity

Nathan Tankus

Modern Money Network; Clarke Business Law Institute ; City University of New York (CUNY), John Jay College of Criminal Justice, Students

Date Written: November 2017

Abstract

Corporate taxation is a perennially controversial topic in American politics. In fact, it may be the tax policy controversy that most Americans are aware of and even have an opinion about. Nevertheless, the purpose of corporate taxation is unclear in popular, or even for that matter, academic, discourse. In this paper we lay out and critically evaluate contemporary and historical corporate tax policy debates based on three common justifications for taxation: the “revenue” justification, the “distribution” justification, and the “behavior” justification. The revenue theory argues that the purpose of taxes is to raise the money required to finance expenditures. The distribution theory argues that certain taxes are required to produce desirable distributional outcomes. The behavior theory argues that certain taxes are required to change organizational and individual behavior in ways that benefit society.

This paper will trace the application of these justifications in American corporate tax law debates from the late nineteenth century through to the present, and analyze the implications of these debates to the contemporary corporate income tax debate. In particular, we argue that: a) following the observation made in 1946 by former President of the New York Federal Reserve Beardsley Ruml that, in the context of a modern government with a non-convertible currency, a floating exchange-rate, and its own central bank, “taxes for revenue are obsolete,” the revenue theory is empirically false; b) The distribution theory case for the modern corporate income tax is weak; and c) from the perspective of the behavior theory, the modern corporate income tax has strongly perverse impacts on corporate behavior.

Keywords: corporate income tax, money, taxation, the firm, market structure, fiscal policy, revenue, firm behavior

JEL Classification: D01, D02, D04, D21, E02, E42, E61, E62, G30, G38, H20, H21, H23, H25, H32, K20, K34, L00, L11, L16

Suggested Citation

Grey, Rohan and Tankus, Nathan, Corporate Taxation in a Modern Monetary Economy: Legal History, Theory, Prospects (November 2017). Binzagr Institute for Sustainable Prosperity Working Paper Series No. 118. Available at SSRN: https://ssrn.com/abstract=3200249 or http://dx.doi.org/10.2139/ssrn.3200249

Rohan Grey (Contact Author)

Cornell University, Law School ( email )

Ithaca, NY
United States

Binzagr Institute for Sustainable Prosperity ( email )

100 W. College St.
Granville, OH 43023
United States

Nathan Tankus

Modern Money Network ( email )

City University of New York (CUNY), John Jay College of Criminal Justice, Students ( email )

New York, NY
United States

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