Taxing businesses

In conventional economic theory, the costs of any tax on business will be transferred to the customers of that business. That implies that business taxes can only be used with caution, that they tend to distort markets, and that it makes more sense to raise money in other ways. Business taxation does, however, have another function, and that is to ensure equity between different taxpayers. Current concerns about Amazon are based in issues of fairness, not about the economic effects.

More generally, there is another side to business taxation. People who run businesses often have the option of treating revenue as either part of the income of the business, or as personal income. If business is lower than income tax, the incentive is to run costs through the business. If income tax was lower, the reverse would be true. The only equitable position would be if business taxes were set at the same rate as personal taxes. That would not quite be neutral, because business expenses can be offset against income in a way that personal expenses cannot be, but it would be fairer.

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