I don't understand why profits of a company need to be taxed. Either the money gets re-invested in the business or it gets paid as a dividend. Why does there need to be a separate tax from the dividend?
Imagine I want to set up a package delivery service in a world where corporations don't exist. Package delivery services are pretty risky businesses: delivery drivers race through crowded streets and are liable to run into someone or someone's property sooner or later.
Now, say I want to figure out a way to insulate myself from that sort of liability. So I enter into an agreement with a driver. I'll buy him a delivery truck, and he'll deliver the packages. In return, he'll give me 75% of what's left over after his expenses. Now I'm insulated from legal liability. I'm just an investor. If he runs over someone, that person can't sue me in my personal capacity. All I have at risk is the truck I bought him. But wait. What's the tax treatment of this arrangement? The driver will be taxed on his net income (revenues - expenses). Then he'll give me 75% of what he has left over. Then I'll be taxed on that amount.
Separate taxation of corporation arises naturally from treating corporations as distinct legal persons.
"Corporations are legal persons" is begging the question. "Legal person" means 'designated entity with special rules', it doesn't carry any intuition or logical consequences beyond whatever the chosen rules are.
That's not true. In law, "person" is an abstraction in the same way a file descriptor is an abstraction in UNIX. The whole point is to carry along with it a built-in set of intuitions.
The only argument you'll tend to get is a strictly emotional, highly irrational one. Namely that without an income tax, corporations will just pile up cash forever, and somehow magically that'll make wealthy people wealthier. This argument will include the notion that only CEOs and uber rich investors control all public corporations, and they'll find a way to steal all that cash without ever paying taxes on it. That 'somehow' the rich will game the changes and all that will happen is the corporate income tax revenue will disappear.
Now, say I want to figure out a way to insulate myself from that sort of liability. So I enter into an agreement with a driver. I'll buy him a delivery truck, and he'll deliver the packages. In return, he'll give me 75% of what's left over after his expenses. Now I'm insulated from legal liability. I'm just an investor. If he runs over someone, that person can't sue me in my personal capacity. All I have at risk is the truck I bought him. But wait. What's the tax treatment of this arrangement? The driver will be taxed on his net income (revenues - expenses). Then he'll give me 75% of what he has left over. Then I'll be taxed on that amount.
Separate taxation of corporation arises naturally from treating corporations as distinct legal persons.