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Taxing Corporations: Benefits and Avoided Pitfalls Essay (Article)

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Updated: May 12th, 2020

Introduction

The taxation of corporations has become one of the most contested issues debated by many legislators, journalists, and entrepreneurs who want to determine the extent to which the government can intervene in the economy. Taxation is one of such interventions that significantly affect the functioning of many businesses, including corporations that already have to follow various regulations imposed by the state. Many economists and politicians have conflicting views on this issue. The development of the taxation of the policy has significant implications for the development of the community, and one should identify the most optimal taxation strategy. This article will throw light on the benefits of taxing these organisations that can significantly contribute to the welfare of the community. In particular, it is possible to say that these companies can provide resources which can be used in such areas as education, healthcare, infrastructural projects, and many other sectors that are vital for the development of the society.

Moreover, this strategy can relieve the financial burden carried by other stakeholders, such as small businesses or households. Finally, the policy is more convenient from the administrative standpoint. Nevertheless, corporations should not be made responsible for every economic difficulty faced by society since this strategy can also lead to the stagnation of the economy (Kelly 2011). These are the main issues that should be discussed. Certainly, this issue has already been discussed by many researchers; however, this discussion can be important for understanding the policies of the government and its interactions with businesses.

The benefits of imposing taxes on corporations

Providing resources that are critical for the sustainability of the community

At first, it should be mentioned that the taxation of corporations creates significant revenues that can be used to improve the welfare of society. These assets can serve various purposes. For instance, one can speak about developing infrastructural projects and improving healthcare services or public education (Bird & Vallancourt, 2006, p. 227; Bowsher 2011, p. 225). Therefore, society as a whole can benefit from adopting this policy.

Furthermore, this policy can be critical for financing the military expenditures of the state. Each of these areas is vital for the sustainability of society. Admittedly, one can say that corporations should not be made responsible for every problem that society faces due to some reasons (Couzin 2002). Moreover, corporations cannot be blamed for difficulties encountered by different social groups. Excessive taxes can completely undermine the development of the economy (Steuerie, 2008). This is one of the risks that should not be disregarded.

Nevertheless, it is important to remember that these organisations have been able to benefit from operating in the country. In particular, these companies have benefited from the existing legislation, education system, as well as available infrastructure. Without these resources, the functioning of these organisations would not be possible. Moreover, the operations of these companies often lead to negative externalities, such as the pollution of the environment. Therefore, the negative impacts of corporate activities should be reflected in the amount of taxes paid by these organisations. This is one of the details that can be distinguished.

Easing the burden carried by other stakeholders

Additionally, the taxation of corporation enables the government from decrease the financial burden carried by start-up companies that are much more vulnerable at the initial stages of their development (Schoonhoven & Romaneli 2001, p. 363). It should be mentioned that these organisations are more susceptible to external stressors such as the financial crisis which broke out in 2007 (Schoonhoven & Romaneli 2001, p. 363). Additionally, these businesses find it more difficult to enter existing markets due to such difficulties as high start-up costs (Schoonhoven & Romaneli 2001, p. 363). However, these companies are critical for the economic sustainability of many households.

In contrast, corporations are less vulnerable to the changes in the external environment due to their technological expertise, financial resources, established reputation, and large customer base (Shishido 2014). Thus, one can say that taxation can be viewed as a tool for limiting the role of monopolies. Apart from that, this approach is advocated researchers because it enables to ease the economic pressure put on workers and households (Shishido 2014, p. 282). As a rule, the purchasing power of many households can be adversely affected by the burden of taxes (Shishido 2014, p. 282). So, it is possible to say that the taxation of corporations can be an important policy for promoting the interests of various stakeholders such as small businesses, employees, and households. Certainly, one cannot say that the interests of these groups should be the only priority of the government; moreover, the economic efficiency of corporations is also vital for the sustainable development of the economy (Brunkhorst 2014, p. 460). This is one of the points that can be made because legislators and policy-makers cannot drain the companies of their financial resources. In this long term, this policy can lead to an economic downturn (Brunkhorst 2014). This is one of the objections that should be taken into consideration.

Nevertheless, the main task of the government is to protect those stakeholders who are more vulnerable due to some reasons. Provided that their economic sustainability is endangered, the functioning of corporations can also be impaired. This is why the interests of these stakeholders should be considered first.

Administrative advantage

Finally, the taxation of corporations is beneficial because it is much easier from an administrative viewpoint. It should be kept in mind that the collection of taxes from organisations is less time-consuming (Bird, 2008). In contrast, governmental officials find it more difficult to collect taxes from individual tax-payers (Bird, 2008). One should mention that the financial records of corporations are more tightly monitored. So, governmental organizations can better evaluate the accuracy of financial information provided by these companies.

Moreover, corporations are better able to document and store financial information. This is one of the advantages that can be identified. It is more difficult to collect taxes from separate households or employees. In this case, the sources of revenue are more difficult to trace (Bird, 2008). Certainly, one cannot forget about such risks as corporate fraud and tax evasion (Hartley 2008, p. 21).

Nevertheless, these risks can be better mitigated by governmental organizations that can trace financial transactions. Thus, it is possible to argue that taxes can be more effectively collected at the corporate level. This is one of the details that can be singled out.

The pitfalls that should be avoided

However, it is important to mention that excessive taxation of corporations can significantly impair the performance of these organisations that can also be regarded as very important drivers of social progress. One should keep in mind that corporations are the main employers that create jobs for thousands of people living in different countries. Apart from that, they contribute to the technological progress of the country. Many innovations that improve the living conditions of people are created by corporations. In turn, by imposing extremely high taxes on these organisations, the government can deprive the society of many benefits (Brunkhorst 2014).

Moreover, in the long term, this policy can result in the stagnation of the national economy. Additionally, some of the corporations may decide to move to countries with lower corporate taxes. Moreover, this strategy can increase the price of products and services. These are some of the pitfalls that should be avoided by the state that should reconcile the interests of different stakeholders.

Conclusion

On the whole, these examples indicate that the taxation of corporations can be critical for the welfare of the community. By imposing taxes on these organizations, the government can achieve many social goals, such as the improvement of healthcare services or infrastructure. Apart from that, this approach to tax collection is more convenient from an administrative viewpoint. Finally, it is important for promoting the interests of different stakeholders, such as small businesses or households. Admittedly, this topic continues to be debated by many economists and business administrators because excessive taxation of corporations can lead to various adverse consequences such as unemployment, an increase of prices, or the long-term economic downturn. These are the main details that can be distinguished because they are important for the design of taxation policies.

References

Bird, R 2008, Taxing Businesses. Web.

Bird, R & Vallancourt, F 2006, Perspectives on Fiscal Federalism, World Bank Publications, New York.

Bowsher, J 2011, Educating Voters for Rebuilding America: National Goals and Balanced Budget, iUniverse, New York.

Brunkhorst, H 2014, Critical Theory of Legal Revolutions: Evolutionary Perspectives, Bloomsbury Publishing USA, New York.

Hartley, R 2008, Corporate Crime: A Reference Handbook, ABC-CLIO, New York.

Couzin, R 2002, Corporate Residence and International Taxation, IBFD, New York.

Kelly, B 2011, Enough Is Enough, the Truth Will Set Us Free, FriesenPress, London.

Schoonhoven, C & Romaneli, E 2001, The Entrepreneurship Dynamic: Origins of Entrepreneurship and the Evolution of Industries, Stanford University Press, San Diego.

Shishido, Z 2014, Enterprise Law: Contracts, Markets, and Laws in the US and Japan, Edward Edgar Publishing, New York.

Steuerie, C 2008, Contemporary U.S. Tax Policy, The Urban Insitute, Boston.

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IvyPanda. "Taxing Corporations: Benefits and Avoided Pitfalls." May 12, 2020. https://ivypanda.com/essays/taxing-corporations-benefits-and-avoided-pitfalls/.

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IvyPanda. 2020. "Taxing Corporations: Benefits and Avoided Pitfalls." May 12, 2020. https://ivypanda.com/essays/taxing-corporations-benefits-and-avoided-pitfalls/.

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IvyPanda. (2020) 'Taxing Corporations: Benefits and Avoided Pitfalls'. 12 May.

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