[benpbenp]

Wealth is meant for people. All of a company's wealth is ultimately destined for somebody's pocket. Why can't we just tax it when it gets there, and abolish corporate taxes?

Naturally I'd assume in that case that dividends would be taxed at the same rate as earned income, and that both would have to rise somewhat at the higher brackets to cover the lost income. But given that is the case, I honestly don't see any downside. Can anyone help?

[cperciva]

Naturally I'd assume in that case that dividends would be taxed at the same rate as earned income

What you want is an "integrated" tax system like Canada has, where individuals receive "dividend tax credits" which are approximately equal to the taxes paid by the corporation.

All of a company's wealth is ultimately destined for somebody's pocket. Why can't we just tax it when it gets there, and abolish corporate taxes?

Compounding investment returns. If I loan you $1000 at 5% interest, I have to report $50/year of interest income on my tax return. Since I pay approximately 40% income tax (federal + provincial), I have an after-tax return of 3% compounding annually. If you abolish corporate income taxes, then I could have my company loan you the $1000 and receive the interest; it would then compound at 5% per year, and I would only pay income tax when the money is paid out to me as a dividend. In effect, you would be turning corporations into tax shelters.

Now, this isn't absolutely insurmountable; in fact, Canada already has different tax rates for "active business income" vs. investment income, and theoretically you could have a 0% rate on "active business income" and a 40% corporate tax rate on investment income (which would then create non-taxable dividends when finally paid out to individuals). But you'd still have the complication that "retain profits" produces a different taxation result than "pay out profits as dividends, then raise more funding a few years later".

[justincormack]

In theory that is true. But in practise a broader tax base, on income consumption and companies has some advantages. If we moved all taxes to income then the incentives for avoidance and evasion would become much higher. Companies can also not pay out for long periods eg Apple so there is a time aspect, and taxing shareholders when profits were made might not be popular.

Historically taxes were mostly about ease of collection. Putting everything on income would raise the big question of whether wealth not income taxes are fairer.

Right now the big win is massive simplification not changes in tax base.

[pedrocr]

That depends on how you account for it reaching someone's pocket. With the current rules someone on a salary will pay tax the moment they earn the money. Someone that owns a company will instead pay himself a small salary and keep the cash inside the company earning interest before tax. But if you were really willing to reform the way corporate/personal taxes are done you could potentially fix that too.

[Retric]

I would assume you would also like to tax foreign investors. Corporate taxes allow for this thus lowering your and every other US citizens taxes. Which is why there a 'good idea' and not just a meaningless exercise.

[davidw]

That's a good point. On the other hand, 0 corporate taxes would lead to more investment by foreigners, and some of that investment would make its way into the local economy.

As to which effect is stronger, I have no idea!

[don_draper]

Because much of what the government does it solely for corporations. Take the agency US AID. They are not a charity. I had lunch with a high level official and asked him what he did and he said mostly it was to help drum up business abroad for US corporations. They should pay for this service. I could go on about the DoD...

[jotm]

no sheet. Of course, they do it to increase the number of business opportunities for US (and all other) companies. More people who play the game means more workers or buyers, means the economic show goes on...