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History of Corporate Income Tax, People Pay Taxes

Even before personal income tax started in 1913, corporate income was taxed starting in 1909, at an initial rate of only 1% on incomeover $5,000, equivalent in today's dollars to about $113,000 of tax-exempt business income. Until 1931, some amount of corporate income was tax-exempt - $2,000 or $3,000 in most years,equivalent in today's dollars to $45,000-$68,000 of non-taxable income. By 1932, tax-exempt corporate income was eliminated forever, and all business income gets taxed, starting with the firstdollar of income. Corporate "income" tax is not a tax on corporate income. It would be more accurate to call it a corporate "profit" tax. Corporate "taxable income" is that which remains aftermost business expenses have been deducted. For regular income tax purposes, a system of graduated marginal tax rates is applied to "taxable income." For 2008, the marginal tax rates on acorporation's taxable income are as follows:
Taxable Income ($) | Tax Rate[8] |
0 to 50,000 | 15% |
50,000 to 75,000 | 25% |
75,000 to 100,000 | 34% |
100,000 to 335,000 | 39% |335,000 to 10,000,000 | 34% |
10,000,000 to 15,000,000 | 35% |
15,000,000 to 18,333,333 | 38% |
18,333,333 and up | 35% |

The effect of the marginal rate structure outlined above is toaverage out the lower marginal rates applied to the taxable income falling in the lower brackets, producing a flat tax rate of 35 percent on a corporation’s entire taxable income once thecorporation’s taxable income exceeds $18.33 million.

In reality, Corporations really don't pay any taxes at all; people pay all taxes, in our roles as customers, workers and shareholders.In other words, higher taxes on corporations mean either higher prices for a corporation's customers, lower wages for its workers, or lower dividends for its shareholders, or all three.