Income Tax — Individual versus Corporation

by Jack R. Jones
Originally published on md.lp.org November 2011
Based on the author’s letter to the Editor published in the
Prince George’s Journal 22 February 1991

Abstract

An economic problem is the income tax system and a misunderstanding of what the individual income wage earner is as compared to the corporate income earner, which results in massive tax inequality and redistribution of wealth from the individual to the corporate world. The tax code needs to be revised so that the wealth that individuals create for themselves is not transferred to corporations via the income tax system.

Income Tax: Individual versus Corporation

Labor as Capitalist: The Double Standard of the Income Tax resulting from not understanding that in reality an individual wage earner is actually a capitalist selling labor in the market.

One of our current economic problems has to do with the income tax and its inequality and redistribution of wealth from individuals to corporations. This inequity (tax subsidy to corporations) derives from, to my mind, a different standard of profit for individuals than corporations…in part because corporations are fictional beings whereas individuals are real flesh and blood beings.

Also given the understanding that the individual income earner is similar to the corporate income earner in that each has a cost to gaining their income, then the tax code needs to be revised so that the wealth that individuals produce is not transferred to corporations via the income tax system.

The error is in not understanding that an individual wage earner is actually a CAPITALIST selling one of, if not the most capital-intensive items one can sell in the market, LABOR. Once this is realized then it is obvious that like Corporations the Individual should be able to deduct the costs of doing the business of selling Labor in the market.

By currently defining taxable income differently for individuals than for corporations, individuals may not deduct the costs of surviving and selling their labor in the market, whereas the corporation may deduct its costs of surviving and providing its goods and services in the market. So it is that now survival is easier for a fictional being than a flesh and blood Being.

To see how unfair this is, it is necessary to look at the tax rate on the gross (total income) rather than the net income (income after tax deductions). The Federal Government has created a considerable subsidy for corporations since the beginning of the income tax by having individual wage earners provide for corporate cost of doing business via the income tax. In 1930 the tax rate based on gross income was about 1% for corporations and 2% for individuals. In 1986 the rates were 2% for corporations and 22% for individuals. To me it is glaringly obvious from these figures that individuals are paying at least ten times their fair share of taxes as compared to corporations.

Changing the income tax law so that individual wage earners are treated the same as corporations, in that they may deduct all the costs associated with providing their labor in the market is necessary for economic justice.

A flat tax because it is more neutral economically than regressive/progressive taxes would be preferred were Individuals treated fairly as Corporations are.

Treating individuals the same as corporations would allow individuals to deduct their costs of selling labor, such as housing (interest and principle, or rental), transportation (purchase, operation, and maintenance, or public transportation), food, clothing, medical, insurance (medical, income and life), retirement plan (which would be treated as income if withdrawn before retirement), all support of a spouse (an individual whose service enables the wage earner to sell their labor in the market), all support of children (investment in future labor). The money left over would be the profit of the individual and it would be taxed the same as corporate profit is taxed.

For individuals that do not wish to do the necessary work for itemized deduction, I would suggest that they be allowed to pay at the average rate of taxes on gross income based on those who submitted itemized forms. Also there should be no cap or floor on the deductions allowed, as it is in the best interest of a sound economy to allow the diversity of individual decisions on whether more or less should be spent on housing, transportation, health, education, food, et cetera.