Here’s a video arguing for the abolition of the corporate income tax. The visuals are good and it touches on key issues such as competitiveness.
I do have one complaint about the video, though it is merely a sin of omission. There is not enough attention paid to the issue of double taxation. Yes, America’s corporate tax rate is very high, but that is just one of the layers of taxation imposed by the internal revenue code. Both the capital gains tax and the tax on dividends result in corporate income being taxed at least two times.
These are points I made in my very first video, which is a good companion to the other video.
There is a good argument, by the way, for keeping the corporate tax and instead getting rid of the extra layers of tax on dividends and capital gains. Either approach would get rid of double taxation, so the economic benefits would be identical. But the compliance costs of taxing income at the corporate level (requiring a relatively small number of tax returns) are much lower than the compliance costs of taxing income at the individual level (requiring the IRS to track down the tens of millions of shareholders).
Indeed, this desire for administrative simplicity is why the flat tax adopts the latter approach (this choice does not exist with a national sales tax since the government collects money when income is spent rather than when it is earned).
But that’s a secondary issue. If there’s a chance to get rid of the corporate income tax, lawmakers should jump at the opportunity.
[…] of this self-destructive practice include the death tax [3], the capital gains tax [4], and the second layer of tax of dividends [5].Double taxation is particularly foolish since every economic theory—including socialism and […]
[…] By this, I mean the tendency of politicians to impose multiple layers of taxation on income that is saved and invested. Examples of this self-destructive practice include the death tax, the capital gains tax, and the second layer of tax of dividends. […]
[…] By this, I mean the tendency of politicians to impose multiple layers of taxation on income that is saved and invested. Examples of this self-destructive practice include the death tax, the capital gains tax, and the second layer of tax of dividends. […]
[…] By this, I mean the tendency of politicians to impose multiple layers of taxation on income that is saved and invested. Examples of this self-destructive practice include the death tax, the capital gains tax, and the second layer of tax of dividends. […]
One of the major problems I have encountered during my own tax research is the corporation: a modern marvel to be sure, but a confounding one nonetheless.
It is a relatively straight-forward process to simplify the personal income tax code: I argue that a flat rate with a single deduction – say $20-30K – would net sufficient revenue for “proper” government operations, not compel investments or expenditures (thus, not distort the market, and wreck havoc on the price mechanism), and if all income were included in the final tally (rental, dividends, capital gains, etc.), it wouldn’t discriminate against sources of income either.
How to tax a corporation, then? At first, I was of the mind not to, but while I appreciate the innovation that emerges from the efficient allocation of capital that the corporate form allows, I also blanch at the notion of unchecked corporate power and influence. Corporations are, after all, wholly unique. While they may be recognized at “natural entities” by the law, they are not natural persons. Natural persons have an unalienable right to life, liberty, and the pursuit of happiness; rights endowed by their Creator (presumably, God). Corporations, on the other hand, have the right to limited liability, transfer of ownership, and the going concern assumption; rights granted by the State.
Furthermore, corporations are not equal in the eyes of either the tax man or the investor. Each industry is unique, as are particular projects. Therefore, there isn’t a one-size-fits-all tax code that could be written to give corporations the flexibility they need to continue to innovate, and remain competitive on a global scale, while at the same time favoring one industry at the expense of another.
Or is there? I am presently considering the affects of making all corporate expenditures deductible (to include dividends, and stock repurchases), and applying a flat tax to any “retained” earnings, with the thought in mind that if a corporation can re-invest that retained dollar of income after tax at a greater ROI than the stockholders can, then there will be no demand for higher dividends. Such a tax code would eliminate double taxation, engage stockholders to apply greater scrutiny (which in and of itself would have positive effects – in aggregate), and create a disincentive to horde unproductive dollars (as it could be returned to the shareholders without tax consequence).
Of course, I’m missing something. Any feedback or criticism would be greatly appreciated.
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