In a recent article, Wall Street Journal reporter John Steele Gordon called the Internal Revenue Code's imposition of separate income taxes at the corporate and individual levels "hopelessly arbitrary and unfair." According to Mr. Gordon, the corporate tax was intended only as a "stopgap measure" to tax the wealthy after the U.S. Supreme Court declared the individual income tax unconstitutional under Article I of the Constitution. See Pollock v. Farmer's Loan & Trust Co. In this spirit, Mr. Gordon suggests that the corporate income tax was erroneously left in force following the 16th Amendment's explicit approval of the income tax.
"One original sin was the separation of the corporate and personal tax, giving lawyers, accountants and the wealthy a chance to game the system."
But the corporate income tax provides much more than an opportunity to "game the system."
Beyond its revenue-generating capacity, the corporate income tax functions as a necessary limit on the power of corporate management. Given their position at the top of the corporate hierarchy and the extent of the financial resources over which they exercise control, corporate managers occupy a unique position of power and influence. Ironically, this vast corporate power and influence makes it very difficult to regulate corporate management without contravening basic principles of democracy. The only way to directly regulate corporate governance in a constitutionally consistent manner is through corporate taxation. Otherwise, the result would be a socialistic regulatory regime with extensive government regulation of every aspect of the business environment.