profits tax

The corporate income tax is a levy imposed on the net profits of corporations, calculated as receipts minus allowable costs. This tax is levied because corporations and their shareholders are considered distinct legal entities. Some argue it's a charge for the privilege of operating as a corporation, a way to cover public service costs benefiting businesses, or a method to capture profits from large enterprises.1

An excess-profits tax is a specific type of tax levied on profits that exceed a defined "normal" income. This "normal" income can be based on average profits from a prior period, a set rate of return on invested capital, or a specific rate of return on certain contracts, and it has been used historically, particularly during wartime.23

Economists debate who ultimately bears the burden of the corporate income tax. Some believe it's paid out of profits, while others argue it can be passed on to consumers through higher prices, acting like a regressive tax. For self-employed individuals, self-employment tax covers Social Security and Medicare contributions, with half of this tax being deductible.45