Taxes: You Pay More Than You Know

Corporate taxes

Double taxation of corporate income is a bad idea, but eliminating the corporate income tax without other reforms would be much worse. If corporations were tax-free, they would become the ultimate tax shelter for wealthy individuals. A better option would be to "integrate" the corporate and individual income taxes--that is, attribute corporate income directly to the shareholders and tax that income at ordinary income tax rates. This is the way sole proprietorships, S-corporations, and partnerships are taxed now. It would be fair and would involve no double taxation. It would also involve a much smaller revenue loss than outright repeal of the corporate income tax. (The Treasury Department studied options to do this under the first President Bush. Their report is available here: http://www.treas.gov/offices/tax-policy/library/integration-paper/)

And if the corporate and individual income taxes were integrated, we could suspend the debate about what share of the corporate tax is borne by workers and what share by owners. (It is likely that workers bear only a fraction of the corporate tax burden, notwithstanding the excellent CBO report that produced the 70-percent estimate. As the report noted, the estimate is based on particular assumptions that are unlikely to hold in the real world.)

Len of VA @ Aug 19, 2008 16:59:13 PM