> This is the argument for biasing the economy against large companies.

It's also an argument to break large companies into smaller ones. This has to cut both ways, not just to fire people by cutting off whole org branches.

just make the corporate income tax proportional to the sqrt of headcount and let the market sort it out

Market sorting it out: "Lots of Employees, Inc licenses our key technology from [and pays large royalties to] Just One Employee, Limited."