Why McCain's Corporate Tax Break Makes Sense

From part of an article on Mises.org.:

Corporate taxes reduce the profits of business owners. This is true because net income is reduced by the tax rate. For example, Firm X, with a $100 investment, earning a 7% return has an income — before taxes — of $7. With a 10% corporate tax rate, net income — after taxes — is $6.30. Firm X now has earned a 6.3% return. In contrast, a corporate tax rate of 40% reduces net income after taxes by $2.80 to $4.20, or a 4.2% after-tax return. This rise in taxes, on the margin, reduces the profit-seeking incentive to take business risks. Why risk starting a biotech company when inflation-protected T-bill's will give you the same return? Entrepreneurs and venture capitalists less willing to take risk means less innovation and fewer innovative ideas being economically viable. This results in less economic growth. Conversely, higher returns on invested capital encourage investment and savings. All of this leads to more capital savings, more innovation, better technology, and higher wages.

Further, the above example of Firm X is true if the firm does not have the pricing ability to transfer the tax to its customers. If the ability does exist, an increase in the corporate tax rate is really a tax on customers of the firm. In this case, consumers now have less to spend and save and the end result is the same.

Finally, a firm unable to pass on a tax increase or bear the reduced profit will either attempt to cut costs by reducing wages (among other costs) or be forced to go out of business.
The main point is this: by definition, corporations do not pay taxes — people pay taxes. A corporate tax is either a tax on shareholders of the firm, customers of the firm, or employees of the firm. Less corporate tax means more innovation, capital savings, and spending by these groups — also known as economic growth.