This is brought up again and again. You can make similar arguments for every tax. In fact let's look at income tax. The money people spend on income tax they could spend on.
1. Spent on goods or services
2. Spent on rent
3. Spent on capital purchases
4. Spent on debt repayment or other forms of financing
In fact income tax does not have the last two points that you admit are bad, so maybe we should eliminate income tax and use corporate tax only?
The thing is low corporate taxes create an inequality between labor and capital gains. It's already the case that wealth inequality is quite unrelated to income inequality, the highest wealth individuals often don't register in the high income brackets.
Capital gains taxes (paid by shareholders) are completely separate from corporate income taxes (paid by corporations). You're also forgetting (or ignoring) that the legal incidence of a tax and the economic incidence are completely separate. For example, employers and employees are both legally responsible for paying a portion of payroll taxes, but economically speaking that tends to lead to lower wages, making the employer's portion fall at least partially on the employee.
I'm a bit confused by your post, it seems you are agreeing with me, but you say you disagree?
I am aware of the difference between capital gains tax and corporate tax (also note that not every country has a capital gains tax). My argument applies to both, i.e. one of the reasons for raising inequality is the inbalance of labour and capital and the low corporate and capital gains taxes definitely contribute.
About the effect of income tax on salar, I'm not quite sure what that has to do with my points. I was not arguing that we should eliminate corporate tax and just let income tax handle it. Unless your argument is we should use income tax instead of corporate tax because it lowers salary?
Yes - corporate income tax should be eliminated entirely - the revenue can be made up in other, less terrible ways. Corporate incomes taxes are a poor way to address inequality because they tend to fall, at least in part, on workers, and not on wealthy people themselves, who largely accrue wealth through investment, not work. If the goal is to reduce inequality then we should simply tax rich people more, not corporations, whose money will eventually be passed to shareholders anyway.
What I generally hear is a wealth inequality frame: raise taxes on the rich so that they won’t accumulate savings so fast. Income inequality is much steeper than consumption inequality, and taxes are proposed at the top end of income, not consumption. So it is already sensitive to this concern, and steering clear of reducing personal spending.
Now it’s true that invested savings become goods and services, capital purchases, etc. for the companies you invest in. But the idea is that government will take over some of that role and invest the taxes collected in more socially beneficial activities, with returns accruing to the public.
Corporate profits are easily reduced to zero by say... Paying fat bonuses to ceos. All high corporate taxes do is encourage companies to dispose of the profits before the end of the tax period.
Those bonuses are then taxed too, which should give you a hint why corporate tax is a bit daft to begin with.
Corporate tax is, by and large, a fiction to placate voters. It could (should?) be replaced with a more flexible system that isn't as susceptible to the usual deduction and profit shifting.
1. Spent on goods or services
2. Spent on rent
3. Spent on capital purchases
4. Spent on debt repayment or other forms of financing
In fact income tax does not have the last two points that you admit are bad, so maybe we should eliminate income tax and use corporate tax only?
The thing is low corporate taxes create an inequality between labor and capital gains. It's already the case that wealth inequality is quite unrelated to income inequality, the highest wealth individuals often don't register in the high income brackets.