Taxing to deal with “too big to fail” corporations

Law Professor Tamar Frankel, author of “Trust and Honesty: America’s Business Culture at a Crossroad,” says taxation is a reasonable tool to use to control corporations which are being given federal bailout money because they’ve become “too big to fail.”

“Many wonder and worry about the mammoth banks and corporations that became ‘too big to fail’ and are sucking the taxpayers’ money — yet do not have enough. How should the size of these corporations and future ones be controlled?

“In the name of efficiency we have eliminated enforcing antitrust laws and allowed corporate managers to increase their power by acquiring smaller corporations. We have specialized functional limits (e.g., investment banking separation from commercial banking). One possibility is to tax not the income but the assets of corporations above a certain size. But that has not been done before and is fraught with problems.

“The new administration has taken the better step of taxing corporations wherever they profit and escape U.S. taxation. Corporations will declare their income, pay taxes and hopefully shrink somewhat. Their share prices might fall, but they might also rise. Size does not mean efficiency or competitiveness. It does mean management and executive higher compensation.

“In light of the enormous handouts to these corporations and the national deficit which they have bestowed on us, taxing these entities may bring both the shareholders relief in an indirect way, and the country some relief in a very direct way.”

Contact Tamar Frankel, 617-353-3773, tfrankel@bu.edu

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