Wednesday, February 12, 2014
Ajay K. Mehrotra (Indiana) presents Corporate Taxation and the Regulation of Early Twentieth-Century American Business (with Steven A. Bank (UCLA)) at Duke today as part of its Tax Policy Seminar hosted by Lawrence Zelenak:
In the early twentieth century, the taxation of modern business corporations became increasingly important to the development of American democracy. During that time, governments at all levels began to view business corporations not only as sources of badly needed public revenue, but also as potentially dangerous wielders of concentrated economic power. To combat the growing dominance of corporations, many fiscal reformers sought to use corporate taxation as a mode of regulatory governance. This paper explores the motives and intentions of fiscal reformers during critical junctures in the development of early twentieth-century U.S. corporate taxation. It seeks to explain how changing historical conditions shaped corporate tax law and policy. More specifically, this paper investigates why activists in the first half of the twentieth century turned to taxation in particular as a technique of corporate regulation. By focusing on the pivotal ideas and actions of key political economists, social commentators, and lawmakers, this paper attempts to answer the question: why did reformers see taxation as a viable form of public control over corporate power?
We argue that the corporate tax emerged and developed in the manner it did as a compromise among competing factions and contrasting circumstances. For some, the corporate tax held the potential for controlling, or even reversing, the growth of corporate power. In the wake of corporate scandals, the collection and possible publicity of corporate information by the federal government was seen as one specific way to regulate large-scale industrial corporations. By contrast, others saw the corporate tax as a means to encourage and foster the kind of behavior that would generate much needed economic activity and growth, especially during periods of financial crisis and economic recovery. Still others, mediating between these two extremes, sought to use the corporate tax in a supervisory capacity, while ensuring that it did not “kill the goose that lays the golden eggs.” The corporate tax that emerged by the mid-twentieth century embodied an attempt to strike a delicate balance among these changing demands for penalty, subsidy, and neutrality.