One fact should sit at the centre of debates about inequality and democratic decline: corporate profits are extremely concentrated, and taxes on those profits fall overwhelmingly on the super rich.
Ownership of companies, shares, patents and intellectual property is highly concentrated. When profits are taxed, the burden falls on a narrow and wealthy group. When profits are lightly taxed, or not taxed at all, the gains accrue to the same super-rich group. Corporate taxation therefore plays a distinctive role in capitalist economies: it constrains the accumulation of elite wealth.
For much of the twentieth century, it did exactly that. Corporate tax did not eliminate inequality, but it slowed the compounding of returns to capital. That constraint has now largely disappeared.
The long-run decline in corporate taxation is a central reason why top households today face much lower effective tax rates than in the past. As taxes on corporate profits weakened, states lost one of their most effective tools for limiting wealth concentration. What remains is a tax mix that falls more reliably on labour and consumption than on ownership and profits.
Corporate taxation once acted as a brake on elite accumulation. It no longer does.
This shift did not happen by accident. For decades, policymakers were told that corporate taxes do not really fall on shareholders. Companies, it was argued, would respond by cutting wages, raising prices, or shifting investment. In the long run, workers and consumers would bear the burden. Taxing profits was therefore presented as economically inefficient or socially counterproductive.
That idea reshaped tax policy — and how inequality itself was understood.
Once corporate taxes were assumed to be “shifted away” from shareholders, they largely vanished from distributional analysis. The erosion of profit taxation no longer appeared as a transfer to the wealthy. Inequality rose, but its fiscal drivers became harder to identify.
Drop that assumption and the picture becomes clearer. Corporate profits are among the most concentrated income streams in capitalist economies. Weakening taxes on those profits increases after-tax incomes among the rich by political design. The link between declining corporate taxation and rising wealth concentration is direct.
This is why corporate tax avoidance matters far beyond lost revenue.
Profit shifting, IP migration and intra-group pricing are often treated as technical problems for tax authorities to manage. But falling corporate taxation has a deeper effect. It disables a tax that historically constrained the accumulation of economic power.
When multinationals move profits out of the tax net, they amplify returns to capital ownership. The beneficiaries sit overwhelmingly at the apex of the wealth distribution. The financing of the state shifts elsewhere — onto labour, consumption, or reduced public provision – the working and middle class.
Once this is recognised, the democratic implications follow.
If corporate tax erosion raises after-tax returns to capital, and capital ownership is extremely concentrated, then falling taxes on profit is not simply an inequality issue. It is a power issue.
Concentrated wealth translates into political influence. Influence shapes tax rules and enforcement. Those rules entrench a system that benefits capital owners. Democratic responsiveness weakens as fiscal systems increasingly reflect the preferences of the super rich (asset holders) rather than working and middle class voters.
For citizens, the effects are corrosive. When wealthy elites pay ever-lower effective tax rates, the principle of shared contribution erodes. Trust in institutions declines. Compliance weakens. Political resentment grows — often with good reason — even if it is later channelled in destabilising ways.
The erosion of corporate taxation is therefore not just a fiscal problem. It is a democratic one. A state that struggles to tax concentrated wealth will struggle to sustain democratic legitimacy in an era of extreme inequality.
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