What is Double Taxing

Double taxing is the practice of taxing the same income stream twice. It is most commonly used in reference to the combination of the corporate income tax and dividends tax. The tax code places a levy against the income of a corporation when it is earned by the corporations, and then again once that income is distributed to shareholders in the form of dividends.


Conservative politicians have used the term double taxing or double taxation to attack the system of corporate taxation in the United States for generations. For many years before the passage of the Tax Cuts and Jobs Act of 2017, corporations in the United States paid a tax rate of 35% at the federal level, various corporate tax rates at the state level, while top earners paid a 20% tax rate on dividend income. This double taxing was onerous, according to these critics, because it raises the overall level of taxation to a point that it distorts decision making. As the conservative Tax Foundation put it in 2006, Double taxing is “a common and often misused expression in tax policy discussions. It is not the number of tax layers that matters, but the total effective tax rate—that is, the percentage of each income stream taken as tax.”

It goes on to argue that, at least in 2006, the double taxing of a 35% corporate tax rate followed by a 20% tax rate on dividends was so high as to distort the decision making of business leaders, who were shunning organizing as corporations in order to take advantage of lower personal income tax rates that other forms of corporate organization pay. The Tax Foundation points out that between 1980 and 2004, the growth of businesses using non-corporate forms of organization, like partnerships, grew rapidly, suggesting that business leaders were choosing their organization for tax rather than business reasons.

Criticism of the Concept of Double Taxing

Progressives argue that complaints about double taxing are insincere, and that opponents of double taxing are simply trying to find excuses to lower the tax burden on business owners, a class of people who own much of the wealth in America. This critique was corroborated by the decisions made during debate over the Tax Cuts and Jobs Act of 2017. The main goal of this tax reform was to lower the corporate tax rate from 35% to 21%. But instead of stopping there, the framers of the bill decided to also give a commensurate benefit to other business owners, like those of a partnership, by also introducing a new 20% deduction on income earned through partnerships. Therefore, the problem of disparate tax levels for different types of companies remains, just at an overall lower rate than before.