No. of Recommendations: 6
Yes, there's a perfectly plausible reason, which is that rationally governments seek to tax income once and not multiple times. Companies pay a lower tax rate on earnings than most individuals, so paying SOME tax on dividends (distributed earnings) or on capital gains (which are related to retained earnings) does make sense, but paying FULL tax on these earnings without accounting for taxes already paid at the corporate level means that you are paying double taxes on earnings.
You can interpret it as double taxation, but you don't have to and there is reason not to.
All corporations benefit from "limited liability". If Armstrong had been a partnership, those who owned a share in it would have OWED MONEY when Armstrong went bankrupt because of asbestos, its debt would have been doled out equally to the shareholders. Instead, all corporations are allowed to sell you the upside (above zero) without requiring you to also own the downside, their ability to lose more value than they gained.
That has to be worth something. Do we have any evidence it is worth something?
Well, despite the "double" taxation, the largest, shall we say this means the most successful, businesses in the world are publicly traded companies. Despite the "double" taxation, these structures consistently attract the most investment, well beyond that of partnerships which do not have limited liability and do not suffer from double taxation.
So in a world where EVERYBODY has known about the double taxation for a long long time, and so can be said to have VOLUNTEERED to participate in this double taxation for the benefit of participating in the ownership of limited liability joint stock corporations, I think we'd have to admit that it will be hard to support much dudgeon in complaining about the unfairness of it all.
And well we can see why EVERYBODY is willing to participate. These are the biggest mooney makers in the world. The publicly traded limited liability corporation as a structure is apparently worth every cent put into it, without having to "correct" for the double taxation.
R:
