I'm a graduate student in mathematics, with a casual knowledge of economics, so please let me know if this question is a non-sequitur or off base.

Here's the intuition I'm trying to capture: Suppose corporation A has a good year and makes a lot of profit, and corporation B, their competitor, has a bad year wherein they have a net loss. It seems that the following year, corporation B has a relative competitive advantage, in that they have a lower tax burden.

In a system with no corporate tax—and thus no tax loss carryforward—it seems that corporation B wouldn't have this advantage which might give them some time to recover. In a system with a very high corporate tax, this benefit would be even greater.

Value judgments about the utility of a high corporate tax aside, is there anything to the idea that corporate taxes can serve as a sort of "insurance policy" wherein companies with a bad year are more likely to survive?


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