It is commonly argued that a nation cannot or should not, in prudence, levy taxes upon transnational corporations because this will induce them to flee to more accommodating nations, resulting in the loss of jobs and income. In this article I argue, first, that global capital markets make the separate taxation of corporations and citizens more necessary than ever to a just distribution of the burden of paying for government services, and second that, in the United States at least, it is no less possible to tax corporations in the current global economy than in the largely national economy of the mid-twentieth century.
 We should note that when we speak of justice with respect to a corporation we are actually speaking indirectly of the corporation’s stockholders. For legal purposes it may be a useful fiction to speak of the corporation as a person, but from the perspective of Christian ethics it is nonsense. A corporation is a human abstraction, without life, soul, or divine image. The corporation as such may be accountable to the law, but it is the corporation’s officers, employees and shareholders who are accountable to God. Consequently the corporation as such cannot make ethical claims on human beings. To speak of the justice of taxing corporations, therefore, is shorthand for speaking of the justice of taxing the stockholders of corporations. This implies two questions. First, is a government fairly compensated for the services that it provides to these stockholders? And second, is the burden of paying for services that the government provides jointly to these stockholders and to its citizens distributed fairly between them?
 These questions of justice only arise because the stockholders of corporations that operate within a nation and the citizens of that nation are distinct groups. And it is precisely the globalization of capital markets that has made these groups overlap less today than forty years ago when capital markets had more of a national character. Today, more than ever, corporations operating within the United States have foreign ownership. The share of corporate activity within the United States that is conducted by foreign-based corporations continues to grow, as does the share of foreign investment in U.S.-based corporations. The same is true of other nations that have few constraints on capital mobility.
 The increasing distinction between the stockholders of corporations that operate within a nation and the citizens of that nation undermines the argument raised by opponents of corporate taxation that taxing corporations is double taxation. According to the double-taxation argument, it is unjust for the government to tax earnings from corporate investments disproportionately by first taxing the corporation’s profits and then taxing the individual taxpayer’s share of those corporate profits when they are received as dividends or capital gains. However there is no double taxation when a corporation is taxed by the government of a nation where it operates and then distributes its earnings to foreign stockholders. As stockholders, citizens of foreign nations benefit from a host nation’s government when their corporation operates within that nation’s territory and under its laws. The host nation is justified is requiring these stockholders to return some compensation for those benefits it provides them.
 There is a second flaw in the double taxation argument: the unspoken premise that stockholders of corporations operating within a nation receive no benefits from government services that are distinct from or in addition to the benefits received by citizens. Stockholders receive two essential services from governments, without which no corporation could operate. The first is the security of their physical assets and employees. The second is the legal framework and the institutions which enforce contracts, property rights, and the international movement of capital. In a nation like the United States which is open to international investment, both of these services are provided regardless of whether the stockholders or their employees are citizens or not. In the United States, these benefits to foreign shareholders are substantial. In 2004, the United States admitted 5.4 million temporary business visitors and temporary workers. In 2005 a net $117 billion was invested in the United States through foreign direct investment. And transnational corporations were responsible for the vast majority of the $1.996 trillion of goods and services imported into the United States in 2005, and the $1.272 trillion in exports.
 Government services provided to shareholders as such are different in quantity if not in kind from services provided to citizens as such. The value to shareholders of the government services that protect persons is related to the number of persons protected. The value of government services that protect property is proportional to the value of the property protected. The value of the government services that protect transactions is proportional to the value of the transactions that are protected. Thus it follows that, everything else being equal, a citizen shareholder receives greater benefits from government services to secure people, property and transactions than a citizen who is not a shareholder. Likewise a non-citizen shareholder requires a quantity of government services that is greater than zero. Shareholders owe the government some compensation for these incremental services above and beyond the services that they may receive as citizens. Unless these services are paid for through corporate taxes, they will ultimately be paid for through personal taxes on citizens. That outcome would be unjust to non-shareholder citizens who would be compelled to pay for incremental services received by shareholder citizens, and it would be unjust to all citizens to be compelled to pay for services received by non-citizen shareholders.
 The increasing distinction between stockholders of corporations that operate within a nation and the citizens of that nation also undermines the argument that reducing taxes for wealthy citizens serves the common good. According to this argument, the harm done by shifting part of the tax burden to the poor and middle class is offset by the benefit they receive through increased employment and higher wages when the wealthy invest in their communities. While it is true that the wealthy, on average, invest a higher share of their income in productive capital assets than the poor or middle class, it is no longer reasonable to assume that most of their incremental investment will be in domestic productive capital. Some of their income recovered by lowering taxes will be consumed, some will be invested in non-productive assets like real estate, some will be invested in foreign-based corporations, and some will be invested in domestic-based corporations which will nevertheless finance capital assets and payrolls in other nations. Any increase in domestic employment and wages from their capital investment is therefore increasingly uncertain.
 The larger problem with the proposal to lower taxes on the wealthy to promote growth is that reducing wealthy citizens’ tax burden sooner or later reduces the disposable income of the poor and middle class. Either the poor and middle class must immediately pay for the government services that the rich do not through higher taxes or, if the government borrows the money for tax cuts to the rich, the poor and middle class will pay the interest on the government debt through their taxes and they will pay higher interest rates since they must compete with the government for investment capital. In either case, lower disposable income among the poor and middle class reduces consumption, which depresses domestic employment and wages.
 It is not at all clear that there is any net benefit globally in shifting resources from domestic consumption to domestic and international investment. The present world situation suggests that there is a surplus of global capital relative to the consumer demand that creates opportunities for profitable investment. U.S. Federal Reserve Board Chairman Ben Bernanke has called this a “global savings glut.” There is evidence for this in the record amounts of cash being held by corporations, and in the growing share of that cash that corporations are using for mergers and acquisitions rather than productive investments. A prudent economic policy in this situation would promote employment and growth by shifting resources from investment to consumption, not vice-versa.
 Given the unlikely benefit to the poor and middle class of moving resources from consumers to investors, the judgment of Lutheran ethics on this proposal should be unequivocal. If we accept Luther’s judgment that “there are no good works except those works God has commanded,” then we must look to the law revealed in scripture to know what is just. A biblical understanding of justice establishes the welfare of the poorest and weakest members of society as the criterion for a just society. Shifting the burden of taxes from the rich to the poor and middle class is a clear contradiction of this principle when there is less reason than ever to suppose an equivalent offsetting benefit.
 Now let us turn to the question of the possibility of levying taxes upon corporate profits in today’s global economy. Some opponents of corporate taxation claim that low tax rates are necessary because corporations will evade these taxes anyway. Corporate tax evasion is indeed a serious problem in the United States. An Internal Revenue Service analysis of tax evasion suggests that tax evasion by businesses currently exceeds the $260 billion per year that the IRS is projected to collect in corporate taxes in fiscal year 2007. Nevertheless, even if businesses successfully evade more than half of their taxes the hundreds of billions of dollars that are collected demonstrate the possibility of collection. Since the IRS budget for all tax enforcement is less than $5 billion, it is very likely that the IRS has cost-effective measures for improving corporate tax compliance if it is given the means to do so.
 Poor tax compliance by businesses is an argument for better enforcement not surrender. By comparison, the accounting fraud at Enron Corporation cost investors a little over $60 billion over two years and the Department of Justice has willingly borne the cost of bringing the alleged perpetrators to trial even though recovery of investor losses will be minimal. Why should any less effort be expended in the enforcement of ongoing tax fraud which, in total, is several times greater in scale, and where recovery is much more likely? The deterrent to better enforcement is political: public attention is needed to weaken the influence of corporate lobbyists on members of Congress who determine the IRS enforcement budget.
 The more credible argument made against corporate taxation on account of globalization is not that it is impossible, but that it is imprudent. According to this argument, low corporate tax rates are necessary to preserve a nation’s employment and income because globalized capital markets have produced highly mobile capital that will flee the country if domestic corporate tax rates exceed corporate tax rates in other nations. This argument is based on the intuitive economic principle that, everything else being equal, businesses will purchase a good-in this case, governance-at the lowest possible cost. The principle is correct so far as it goes, but when it is applied to nations everything else is never equal. Therefore we need to amend this principle with three qualifications.
 The first qualification is that not all nations’ governments provide a minimum threshold of security and legal reliability to make them suitable for international investment, no matter what their tax rates are. Virtually every nation on earth is part of a global market for purposes of consumption, but the majority of people in developing nations are excluded from entering the global market in production because of inadequate legal infrastructure for property ownership.
 The second qualification is that the good of governance is always bundled with the goods of access to national markets, workforces, and infrastructure. If a business uses a nation’s markets, labor, or infrastructure, it is subject to its government. A toy wholesaler cannot operate solely under Chinese law and sell into the U.S. market. If it sells in the United States, then the U.S. portion of its operation is taxable by the United States. Similarly, an electronic chip manufacturer that uses proprietary technology developed by U.S. engineers is subject to U.S. taxation, even if all of its manufacturing that uses this technology takes place in Ireland.
 The third qualification is that, because governance is bundled with other goods, the difference in tax rates between countries is only one of many costs that is affected when a business moves its operations from one country to another. Prevailing wage rates are one obvious and important difference. So, too, is worker productivity, which depends upon the technical, managerial and language skills of a nation’s workforce. Infrastructure is also critical for cost-effective access to global markets. A shoe manufacturer in Guangzhou, China and a call center in Bangalore, India rely on their nations’ ports and broadband networks to move their goods and services to consumers.
 Among those nations and populations which meet the criteria for engaging in economic production for global markets, those nations which must compete most nearly on a pure cost basis with other nations are those which lack distinctive human capital, infrastructure, and markets. Even among developing nations there are distinctions. China, India, and Brazil are distinct for the size of their domestic markets and their industrial infrastructure. India is also distinct for its English-speaking workforce. Mexico is distinct for its road and rail links to the United States. On the other hand many of the poorer and smaller countries compete for investment primarily on the basis of wages and taxes. In deciding whether to locate a low-wage clothing factory in Bangladesh, Nicaragua, or the Philippines, corporate executives might well base their decision on corporate tax rates, because these nations are not sufficiently different in other ways to offset the cost of higher taxes.
 Among the more advanced developing economies, a country like the Czech Republic has the advantage of access to European Union markets and a workforce with a high level of technical education when competing for an electronics assembly plant against non-EU nations. However, it must still compete with similarly qualified EU countries like Estonia or Slovenia, and in that competition corporate tax rates may be the determining factor.
 The United States is the one nation in the world economy that is least interchangeable with other nations, and therefore least subject to tax rate competition. In 2005, the U.S. economy, with a GDP of $12.4 trillion, was nearly three times the size of second-place Japan. It is a rare corporate executive who would choose to pass up this market due to the prospect of taxation. The U.S. workforce is highly educated, particularly with respect to its management skills. It speaks English, which it has made the global language of business. The very scale of the U.S. economy makes the U.S. dollar the world’s principal reserve currency, and U.S. securities are the most important safe haven for capital. Because of this, the net financial inflows into the United States were $801 billion in 2005, and investors did not demand a risk premium for these investments despite a current account deficit equal to 6.4 percent of GDP.
 The high and growing level of capital flows into the United States from other nations demonstrates that it is currently in no danger of losing ground in the international competition for capital due to its corporate taxes. At present U.S. corporate tax rates are roughly comparable to those of the other G-7 countries (Canada, France, Germany, Italy, Japan, and the United Kingdom), which are the nations most like the United States in their wages, human capital and infrastructure. Given its distinct attractions to global business, it is reasonable to assume that the United States could, in fact, raise corporate taxes slightly above the corporate tax rates in the most comparable nations, without risking its ability to attract capital investment.
 In poor and rich nations alike, globalization has made the taxation of corporate profits more just. In developing nations without distinctive markets, human capital or infrastructure, globalization is a real threat to the ability of national governments to tax corporate profits. Any remedy to this problem must await greater international political cooperation to harmonize tax codes or share tax revenues. But globalization is least threatening to those nations that are least interchangeable from the perspective of global investors, such as the United States. In these nations the possibility exists and therefore justice demands that corporate investors pay for the benefits they receive from government.
U.S. Department of Homeland Security, Office of Immigration Statistics, Temporary Admissions of Nonimmigrants to the United States in 2004 (May 2005), http://www.dhs.gov/xlibrary/assets/statistics/publications/FlowRptTempAdmis2004.pdf.
U.S. Department of Commerce, Bureau of Economic Analysis, Foreign Direct Investment in the U.S.: Country and Industry Detail for Capital Inflows, http://www.bea.gov/bea/di/fdi21web.htm#2005.
U.S. Department of Commerce, Bureau of Economic Analysis, Trade Gap Widens in 2005 (March 9, 2006), http://www.bea.gov/bea/newsrelarchive/2006/trad0106annual_fax.pdf.
Rich Miller, “The Deficit: The Sky May Not Be Falling; Some Fed Officials Think Current-account Woes Stem from a World Savings Glut,” Business Week 3926 (March 28, 2005): 40.
Helen Shaw, “Cash Stockpiles Will Fuel Mergers: PwC,” CFO.com (March 10, 2006).
Martin Luther, “Treatise on Good Works,” LW 44:23. While Luther rejected the law for either motivating or enabling the performance of good works, it remains the authoritative source in his ethics for knowing what works are good. This is affirmed by Article 6 of the Formula of Concord. The Book of Concord: The Confessions of the Evangelical Lutheran Church, ed. Robert Kolb and Timothy J. Wengert (Philadelphia: Fortress Press, 2000), 502-503, 587-591.
Ron Hutcheson, “President Seeks to Cut Taxes, Entitlements,” Tampa Tribune, Feb. 7, 2006; David Cay Johnston, “Tax Cheating Has Gone Up, Two Federal Studies Find,” New York Times, Feb. 15, 2006.
U.S. Department of the Treasury, Internal Revenue Service, Budget in Brief: Fiscal Year 2005, http://www.irs.gov/pub/irs-utl/budget-brief-05.pdf.
Sherron Watkins, “Ethical Conflicts at Enron: Moral Responsibility in Corporate Capitalism,” California Management Review 45:4 (Summer 2003): 10.
Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (New York: Basic Books, 2000), 66-67.
Organization for Economic Cooperation and Development, Gross Domestic Product for OECD Countries, http://www.oecd.org/dataoecd/48/4/37867909.pdf.
U.S. Department of Commerce, Bureau of Economic Analysis, U.S. International Transactions: Fourth Quarter and Year 2005 (March 14, 2006), http://www.bea.gov/bea/newsrelarchive/2005/trans405.pdf.
Organization for Economic Cooperation and Development, OECD Tax Database, http://www.oecd.org/dataoecd/26/56/33717459.xls.