Yes, it is true that publicly traded corporations pay corporate tax on their profits. The dividends that are then distributed are taxed once again at the individual level. One can indeed call this “double taxation.”

True entrepreneurs—those who are actively involved in running a business— have many ways to avoid this problem, among them, setting up a sole proprietorship or an LLC. Investors can also avoid it by forming a partnership rather than a corporation.

It only affects those who, while enjoying limited liability, put capital to work and sit back and enjoy the proceeds with no personal involvement or risk (other than the capital invested). A tax on dividends is a small price to pay for this privilege.

As it stands now, as I pointed out in my article, it’s easy to be lightly taxed, or not taxed at all, if you don’t have to work for your income. Wage-earners, especially those who earn less than $102,000 per year (the cutoff for social security tax) are heavily penalized.

At one time, we had higher taxes on “unearned income” (e.g. interest and dividends, etc.) than on wages and salaries. Americans have been led to believe that this is a terrible thing, especially, that it inhibits investment and production. But when these taxes existed (during the 1940s, 50s, and 60s), we enjoyed unprecedented industrial growth. Now that we have ultra-low capital-gains and dividend taxes, we are in the process of massive deindustrialization.

In short, shifting at least a small amount of the tax burden from those who work to those who live off of capital is fairer, yet history proves that it doesn’t harm productivity or investment. Perhaps we could declare the first $50,000 or so of dividend income tax free to help retirees and the like. But there’s no excuse for allowing people to mindlessly rake in enormous amounts of dividend income an pay little or no tax while wage earners struggle to make ends meet after shouldering a huge tax burden. And the money has to come from somewhere!