Should we still get rid of the U.S. corporate income tax?

I know this argument runs against the mood affiliation of our times, but the arguments for eliminating the corporate income tax still seem pretty good to me.  Here is a recent paper by Hans Fehr, Sabine Jokisch, Ashwin Kambhampati, and Laurence J. Kotlikoff.  The abstract runs as follows:

We simulate corporate tax reform in a single good, five-region (U.S., Europe, Japan, China, India) model, featuring skilled and unskilled labor, detailed region-specific demographics and fiscal policies. Eliminating the model’s U.S. corporate income tax produces rapid and dramatic increases in the model’s level of U.S. investment, output, and real wages, making the tax cut self-financing to a significant extent. Somewhat smaller gains arise from revenue-neutral base broadening, specifically cutting the corporate tax rate to 9 percent and eliminating tax loop-holes.

The NBER copy is here.  An ungated copy you will find here (pdf).


Yes, abolish the corporate tax (which has too many offshore loopholes) and introduce a Value-Added tax as they do in the EU (which is a better way of raising revenue from those living off the grid). For example: I'm in the 1% but working offshore, and staying under the ~$90k/yr limit, I pay no income tax, and only a minimum $800 a year California corporate tax. And I think Warren Buffett pays less tax than me. Abolish the income tax, corporate tax, introduce a national sales tax or Value-Added Tax. And, off-topic, abolish the Fed.

How about just stop at Abolish the corporate tax?

Not unless we can kill different treatment for capital gains. Without corporate tax there is no justificationfor that with stocks at least.

I'd treat all income equally. I see no reason for special treatment of stock flipping or house flipping or any other way to generate income. No one has the IQ or credentials to say one is better than the other so let's stop pretending through the tax code.

Treating income equally is fine, but I think we are too short lived to leave long term corporate cash untaxed. If they don't pass it though in dividend, to become that regular income each and every year, they need an incentive. Otherwise you have Apple shareholders sitting on shares, paying no tax, and Apple sitting on cash, paying no tax. Now sure it might all "clear" someday, but it would be an inconvenient (lumpy) income stream for government, and might not even happen for decades.

If all income were treated equally, then the tax rate on all investment income and interest would be zero. Steve Lansburg, and others, have explained this [] but, for some reason, there seems to be widespread ignorance on this point. When one taxes wage income, one already taxes any income that could be earned by saving and investing such wage income. All taxes on investment income and interest are double taxation on the same income.

One could, of course, argue for *wealth* taxes on financial assets, but that is different from an income tax. Actually, that would probably make more sense than an investment income tax, since someone with $10M in financial assets that declined in value by 5% over a year still has much greater ability to pay taxes than someone with $50 in a savings account that earned a positive amount of interest.

Income is not wealth. In the case of investment income, it's not even income. It's just an exchange of risk-free consumption in one time period for (risk-free or risky) consumption in another time period at the prevailing rate of exchange.

BC: No, Steve just has a pedantic view of the word "equally." In politics, equally simply means no obvious favors to friends. Treating cap gains as regular income meets that threshold so you can stow away the pedantry for another day.

I don't think that is a good article, BC, and I think you've misinterpreted it. Tax is all about tapping money flows, and bleeding a little off, to pay for services (broadly speaking). You "can" do that any way you want, and market democracies around the world do it all sorts of ways.

We "could" just do a tax form that totaled inflation adjusted income in a single year (making savings and many house investments moot), and then apply a single tax to that. Of course we could, it's just a law.

Lansburg approaches it not as a government funding question, but as a fairness issue, pretty independent of funding needs. That is demonstrated by the addendum, and "Carl's grandmother" contortions.

john personna: "You 'can' [tax people] any way you want..."

Agreed. My point was that if you want to tax people on their income by treating all income equally, then that would mean setting investment income tax rates to zero. Of course, one could always argue that income should not be treated equally and that we should impose higher taxes on investment income. I just oppose the Orwellian construct of arguing for non-zero tax rates on investment income in the name of being "neutral" when, in fact, such non-zero tax rates penalize savings and investment relative to immediate consumption.

No. I am not seeing any meaning for the word "equally" that produces that outcome.

BC and Landsburg are caught up in procedurality. If X and Y happens before Z, it unmakes Z.

It is arguing something like "Since everyone who goes to sleep gets up in the morning, we can never count hours of sleep. It is net zero!"

"When one taxes wage income, one already taxes any income that could be earned by saving and investing such wage income. All taxes on investment income and interest are double taxation on the same income."

Isn't that assuming that the source of the investment funds was originally wages? I'm thinking of something along the lines of carried interest. Say you're a fund manager and you're paid a percent of the profits of the fund. If there's no corporate tax and no tax on investment, but only wages, where are the wages that are being taxed in this case? Are they the wages of whomever invested in the fund (which may have come from a different person?)

Michael, you may have a point on the carried interest issue. I actually don't know the details of how this carried interest treatment arises. If the fund manager is given an interest in the LP --- typically, these funds are set up as limited partnerships or sometimes LLCs --- and it's that ownership interest that allows him to get a share of the trading profits, then I guess the fair value of the LP interest should be treated as wage income at the time of grant. However, it is difficult to estimate the "fair value" of the manager's ownership interest because it is essentially an option on the fund returns and there may be many complicated provisions such as high watermarks, clawbacks, etc. In any event, given that the manager can't actually sell that interest --- not easily anyways --- it may end up easier just to treat the payoffs from that interest as wage income as it is realized. On the point that investment income taxes are double taxation, though, I hope that we would all agree that if the manager were taxed on the fair value of the LP interest at time of grant, then subsequently taxing him on the realized income from that ownership interest would indeed be double taxation! Yet, one more way to see this point.

john personna, I appreciate that you are asking questions. That is much better than those that simply ignore Landsburg's point because they don't like the result. Setting investment income tax rates to zero assures that taxes reduce your consumption by an equal percentage regardless of whether you choose to consume your wage income immediately or after saving and investing in it for some period of time. That's the sense of the term "equal": you are not taxed different rates on your income purely due to the timing of when you choose to consume it. Thanks.

Sorry for beating a dead horse, but here is one final example. Suppose, after doing some work, your employer gives you two choices for collecting your wages: (A) you can be paid $100 now or (B) you can be paid $110 in one year. Wage tax rate is 20%. If you choose option (A), you pay $20 in taxes and end up with $80 now, 20% less than would have been the case with zero taxes. If you choose option (B), then you pay $22 in taxes and end up with $88 in one year, again 20% less than the tax free case. Thus, both option A and B are taxed *equally* at 20%.

Well, option B is equivalent to being paid $100 in wages now, paying 20% in wage tax, and saving the remaining $80 for 1 year with interest rate 10% to arrive at $88. I hope now that everyone can see that levying an additional tax on the $8 of interest would be taxing people at a higher rate for choosing (B) instead of (A), even though they are just two different forms of wage income. QED.

BC, you understand that our one year framing (tax period) for personal "income" is arbitrary, right? Let's say I buy $100 of stock, turn it over for $150 on ebay, buy $150 of stock, repeating, 5 times in one year. By your whole "equally" thing ... well I'm not sure what you'd do. I could have taken profits and used them for consumption at any time. That's not something the tax system can ever balance. All the tax system knows is total income, over a 12 month period. There is no need for inner, true, metaphysical measures for what was "real" income. Simple 12 month cash accounting will suffice. In your deferred income example, it is just simple income in the year paid.

BC has it right. Taxing capital gains, interest, dividends is a double tax on the same income (The corporate tax is a triple tax).

Price of an investment is its NPV (net present value). That payment stream in the future is the same thing as the lump of money you have when you make the investment. Eat your apples now and get satisfaction X or eat your apples in the future and get satisfaction X.

In each case what you get out of it is "X". You already paid taxes on "X" when you were paid your wages.

Scott Sumner and many others have explained this quite well:

Only thing "equal" about taxing capital returns at the same rate as wage income is the temptation of envy and fallacy that afflicts both poor and wealthy socialists alike.

Laura, that's not what Sumner is saying. The post you linked is works from his belief that you should only tax consumption, not income. If you're going to tax income, taxing capital gains at an equal rate makes sense. It's not, in any sense, double taxation, since the gain hasn't been taxed previously. Only the basis has. It's a really simple mathematical identity.

Of course, if you don't think income should be taxed, the consistent position isn't to exempt a single source of income, but to exempt all of it regardless of source. Either way, unless you're trying to engineer more investing, you should treat all income equally.


Consumption Today + Deferred Consumption = Income Today. Its quite simple. Scott is talking about income. Its you who are "confused" by what is meant by income. Treating capital return as "income" is double counting the same income, hence the double (and, in the case of corporate, triple tax).

The most prosperous times were when corporate tax was high. It was something like 70% during the Eisenhower administration, and during Reagan's tenure it was higher than it is today. Lowering it to near nothing hasn't created prosperity for any but a few, and none of them are us.

Maybe this sounds really good when the other cult members are chanting it with you, but to the rest of us it just signals you are a witless automaton.

And what part of Age of Doubts statement do you say is untrue?

Corporate taxes were higher during times of greater prosperity. We don't need to encourage greater saving - the Fed funds rate is effectively at zero. Corporations raise capital in part by borrowing and that capital is effectively tax free. Whatever the nominal tax rate may be, the effective tax rate on corporations is lower.

One way to look at corporate taxes is that they are a draw on the taxes that will eventually be collected on dividends (this is effectively what happens in Canada)

no, actually, your reply is the only one here that incriminates its author as an ignorant ideologue.

1. The statutory corporate tax rate was 50% during the Eisenhower administration, and has never been higher than that.
2. By every conceivable measure, people were poorer back then.
3. It hasn't been lowered to "near nothing", we have the highest corporate income tax in the world.

Everything you just said was 180 degrees from the truth.

Right on all accounts.

I'll add a 4th that often gets ignored. When the marginal tax rates were much higher in the 1950's and early 1960's, much of the developed world was still rebuilding their infrastructure after World War 2 and the US had a distinct economic competitive advantage. It's easier to charge higher prices (which higher taxes are a part of) when you are the only viable producer for a large chunk of the worlds industrial goods.

Yep, so if we just bomb Europe (and now Asia) into oblivion, we can have high tax rates and everybody poorer, but hey it's worth it to stick it to the man!

Have a look at this. After tax corporate profits are higher than they've ever been:

While, Federal tax revenues have been on the decline since 2000:

Where is all the hardship these companies are experiencing? If anything, the facts indicate that corporate tax rates need to be increased.

If all you care about is "punishing" corporations and not helping the economy...

You may want to check out your compass. No one pays the statutory tax rate. As a point of fact, the _effective_ US tax rate is below the OECD average:,_2000-2005_Average.jpg

As evidence, the top 26 US companies pay almost zero taxes:

"As a point of fact, the _effective_ US tax rate is below the OECD average"

Isn't that a good reason to, at the very least, abolish non-standard corporate tax deductions, and lower the corporate tax rate? What's the point in having a 35% nominal rate but only a 14% real rate?

"As evidence, the top 26 US companies pay almost zero taxes:"

So, it wouldn't cost the US government any revenue to abolish their taxes then.

Exactly right. The top companies with the resources to pay a low effective tax rate have a huge advantage over their competitors who don't have the same resources and have to pay closer to the statutory tax rate. That puts the competition at a disadvantage and is a huge barrier to entry.

It would help competition in general if the statutory rate was lower for everyone. This way big and small companies alike can devote less resources to tax-loopholes and more resources to producing actual economically useful stuff.

@JWatts @AndrewL

Your argument seems valid and that's stop the deductions and plug the loopholes. But till there's the will to do that there's no point dropping the statutory rate. All that'd do is that the crafty top companies would pay effectively even lesser.

As evidence, the top 26 US companies pay almost zero taxes - See more at:

Not the top 26. 26 of the 288 Fortune 500 companies which had profits every year between 2008 and 2012. In addition to all the other problems with this steaming pile of propaganda, you're introducing more by misreading and/or misquoting it.

"CTJ said the companies are allowed to pay such low federal rates based on factors that include offshore tax sheltering, accelerated asset depreciation based on continued investment, stock options, and industry-specific tax breaks."

So, basically, they "calculated" "effective" corporate "tax rates" by including in the denominator things that aren't actually profits. Business as usual over at the CTJ.

Wrong. Companies that only operate in the US pay the statutory rate. Making them uncompetitive with multinational corporations.

What was the real (effective) rate in Eisenhower days? Have deductions and loopholes increased the gap between the nominal and effective rates?

lower. you could could use capital gains to cover property taxes , income taxes etc. You could writeoff losses to cover different types of incomes.

"Although the U.S. is the world’s largest economy, it accounts for only about one quarter of the world’s capital stock."
Non sequitur.
Plus US GDP = 15,700B$
EU GDP = 17,600B$

Why should the unit of analysis be the EU and not the individual countries? Aren't we talking about tax policy, which is mostly set by the member states?

Internal EU common market.

Good point, but it still seems that for tax policy the country is most important. Cover story in the NYTimes today about companies leaving France, many heading to London, due to taxes and regulation.

We have long since been multinational, with companies owning and cross owning national subsidiaries. They have long since gotten over borders.

The US is about one quarter of the worlds GDP so it would not be surprising that it represents one quarter of the worlds capital stock.

raising the sales tax and cutting entitlements is a good compromise in exchange for lowering the corporate tax

'in exchange'? Aren't both of those policies distributionally regressive?

I think he was joking, but I'll wait for Anti-ummm's analysis.

Actually no. One of the largest reasons for the increase in inequality is the fact that since Reagan the corporate rate has exceeded or been near the top individual rate. This encourages business owners to file as LLC's meaning their income counts as individual income. Back when the individual rate was higher than the corporate rate, rich people just hid their income by incorporating and voila, inequality was lower. So if you want to give Picketty & Saez prettier inequality graphs, the best thing you could do is lower the corporate rate.

"I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible. … because I believe the big problem is not taxes, the big problem is spending. I believe our government is too large and intrusive, that we do not get our money's worth for the roughly 40 percent of our income that is spent by government ... How can we ever cut government down to size? I believe there is one and only one way: the way parents control spendthrift children, cutting their allowance. For government, that means cutting taxes."

And how has that worked?

When government is cheap, people want more of it.

"First, [cut taxes / eat ice cream all day], and then people will be forced to [cut spending / exercise]."

In both forms, the second doesn't have to follow from the first, and you are left in a worse off position.

"How has that worked?"

How would we know?

It would be useful and save us readers a little extra effort to note in these posts who sponsored the research, because the results of these papers almost always agree with the positions advocated by the sponsor.

In this case, the sponsor is an organization with an innocous name-- National Center for Policy Analysis---, but a very distinct political agenda that implies it should not be relied on as a source of unbiased research.

.....In anticipation of comments that one should "focus on the intellectual arguments" and not on the motivations or sponsorship of the author, I should point out that there are many more of these articles published then there is time to read, let alone critically analyze. I've debunked enough of cases of biased and sloppy research buried in detailed math and statistics...

As a professional model builder I'll note how these work.
1) Build model or simulation.
2) Examine model for defects and limitations and fix defects.
3) Run simulation and obtain results.
4) If results agree with preconceived ideas goto step 5, if goto step 2.
5) Have sufficient iterations of steps 2 and 3 been completed to make mistakes hard to find? If yes goto step 6 if no, goto step 2.
6) Write paper, notify sponsor, perhaps also press.

True in general - but in this particular case, if TC were interested he could find plenty of centrist or DLC-aligned arguments for revenue-neutral corporate tax broadening. It is not particularly right-wing, NCPA or not.

That's a great idea! It would save a lot of time that would be wasted reading the article.

Don't ya just love pieces that say tax cuts will just pay for themselves. And, from Larry (social security will kill us) Koltikoff.

I know that sentence triggered something in your head (because it triggered something in mine), but it didn't say exactly that. It said "making the tax cut self-financing to a significant extent."

Uh, because they do. Canada lowered it's corporate rate from 35% to 15% without any loss of revenue. Why is the the US the only country in the developed world that still penaltaxes corporations. Don't you want to be like the rest of the developed world (where have I heard that before)?

It's well established that investment is much more elastic with respect to tax rates than labor is, due to the fact that it's so much easier to invest in another country than it is to move to another country. Saying that corporate tax cuts will be revenue neutral is very different from saying that personal income tax cuts will.

Read page 3 in the introduction. They aren't saying the tax cuts are paying for themselves (they explicitly say they found no Laffer curve), they say that replacing corporate taxation with higher consumption or wage taxes pays for the corporate tax cuts and produces significant welfare gains.

Ooh ... I work with macro models too. Here's my advice: read people whose views likely differ from yours - there's a higher chance you might learn something or at least you will get to test your own knowledge. In that vein I would recommend the introduction of the paper. While there are drawbacks of this type of model, they do get the intuition of very complex dynamics down. Here's an 'unexpected' snippet:

"Higher capital per worker means higher labor productivity and, thus, higher real wages. Indeed, in the wage-tax simulation, real wages of unskilled workers end up 12 percent higher and those of skilled workers end up 13 percent higher."

Who actually 'pays' for which taxes is a really interesting and complicated question. I am not saying I agree with the paper's conclusions but I certainly think it is worth contemplating.

One can't read all of the papers...not enough time in the day....I reserve the most skepticism for those that claim dramatic results...They typically rely on failed assumptions or propose a policy (such as open borders) that has so many social ramifications so as to be totally unfesible...fortunately there are others reading papers also picking them apart.

I didn't say read everything ... I said read what you would likely disagree with. Otherwise, given your critique of this paper's funder, why are you reading here?

There's a subtle difference between a neutral yet divergent view or a counterpoint versus a tendentious, effectively sponsored piece.

One question to ask is, can you reasonably imagine Kotlikoff's publishing the opposite conclusion (i.e. don't reduce corporate taxes) had his models spewed some other numbers?

I think at that point, Kotikoff would ask the student or whoever is doing the calculation to revisit certain assumptions or check things again....

I don't think there is necessarily a strong national mood favoring high corporate tax rates, but eliminating them would require major increases in some other kind of taxation. There is something for everyone to oppose in that deal. Liberals and moderates will oppose any replacement that is regressive and conservatives will lobby hard to retain existing tax expenditures while opposing other forms of tax increase. Look at what happened to Dave Camp's, I think fairly reasonable, proposal.

No, it would not. Corporate taxes are about 9% of federal receipts. You could chop out a corresponding amount of corporate subsidies and get pretty close to break even without jacking up other taxes. Plus it has the added benefits of reforming Congress and making business more Coasian, peace be upon him.

Look, Congress spends a lot of time shaking down business for money. They offer various tax scams as the carrot. In turn, business spends billions on lobbyists. Eliminating the corporate tax tax one form of abuse out of the system. Business can also release the army of accountants and tax lawyers from bondage so they can do something productive. Those people can flow into more productive things like bank robbery and murder, rather than being used to game the tax code.

I see what you are saying, but pretend you are the CBO scoring this. Can you make the numbers work?

My bill would eliminate the CBO, so that is a counter factual ;-)

Seriously, that bit of political nonsense is easily overcome. Just look at how they gamed the health care bill. The CBO is just a sock puppet for whoever runs Congress.

I'm just trying to get you to think pragmatically about how this could actually happen! You can'e eliminate the CBO before you pass your bill and of course they would score the leg using the same rules and assumptions they always do. You have to be very convinced that Congress could do this, politically, meaning enough stakeholders would line up behind it. Part of getting there would be having a CBO score that shows it is at least revenue neutral in the first 10 years.

Jan: The question is how to buy off enough Congressmen and Senators. The Stupid Party would be all in even with a hike in taxes on rich people. Simply treating cap gains as normal income would make the plan revenue neutral. Even if it does not, they can pretend which is what they always do anyway. The trick is giving The Evil Party something to support. Cutting corporate welfare is one idea. Raising the top rate a few points is another.

"I see what you are saying, but pretend you are the CBO scoring this. Can you make the numbers work?"

The money would almost immediately start flowing into investors income statements in the form of dividends (and taxed). Or assuming that the business can justify not implementing dividends to its stock holders, it will rely on spending the money on productive investments, which will then act to increase the economy, decrease employment and result in higher taxes.

In what likely scenario does the money not manage to find its way to some individuals pocket and thus be subject to income taxes?

Lowering the corporate rate would result in a wave of new revenues. There's over a trillion dollars in corporate income parked in foreign accounts as companies try to escape our confiscatory taxes. Lower the rate, and all that money floods back into the US.

Wouldn't you have to go really low on taxes for that money to return? What's the statutory rate in the tax havens the money gets usually parked in?

If one thinks about it, corporate income taxes are levied equally (as a percentage of one's stock holdings) on wealthy individuals and low income unionized pensioners alike. Taxing at the individual level allows better fine tuning of progressivity.

Also, we already have pass-through corporate structures like LLCs and partnerships (LPs) that avoid the double taxation of corporate income tax. Such entities may be limited in numbers of owners, although there may be ways to get around such limitations. Perhaps more significantly, I believe that such entities are more difficult, if not impossible, to take public, although some LPs in the energy industry, so-called MLPs, are exceptions. I'm not sure what public interest is being served by penalizing public companies with broad ownership over private companies, but I'm guessing that most modest-income 401(k) and IRA investors own a lot more public stock than private LLC and LP interests in those accounts.

Economic tax incidence does not equal statutory incidence, and it's not even clear who the intended underlying individual targets of corporate taxes really are anyways.

Since corporations claim to be people with the rights of people shouldn’t corporations pay personnel income tax?

Shareholders that own corporations are people. For example, corporate free speech rights are actually the free speech rights of the underlying shareholders to pool their resources to exercise their free speech. Shareholders do in fact already pay personal income taxes on their investment income.

But the corporations themselves are now saying they are people.

They want it both ways, switiching back and forth between them being people and corporations whenever it most advantagous

No they're not. The claim is always that the people who own the corporation are people, and don't surrender their first amendment rights just because they organize. Yes, of course those people should pay an income tax...and they do! That's the point. The corporate tax forces them to pay income tax twice.

They can organize without becoming a limited liability corporation, people have been doing it for 200 years when it comes to the First Amendment.

Its just that they want the government issued privilege of limiting their liability, something they don’t get when they are individuals or organize without corporate privileges. Stand up as individuals or groups and you have the First Amendment but don’t hide behind some government privilege.

Also there is no such thing as limiting liability, all they are doing is transferring liability to someone else. People create a corporation with $50,000 in assets and that corporation runs up debts of $100,000 why should the owners liability be limited to what they put into the corporation rather then what is owed? Instead the person owed gets stuck with the rest of the bill.

Limited liability isn't a government granted privilege. A sole proprietor could write up a contract with his suppliers that says if he goes under all debts he can't pay are cleared and none of his personal assets are at risk. Government grants nothing. Of course the supplier doesn't have to agree to those terms, but if all of his customers have the same terms, what's he to do? It's exactly the same as limited liability. Of course their are issues involving 3rd-parties, but that's why you have to carry liability insurance to incorporate.

“”””could write up a contract with his suppliers “”’

Instead the government does it for free and mandates it even to 3rd parties

There's no mandate. That's why creditors are free to demand personal guarantees, and do.

If corporate taxes are passed on to consumers, some corporate taxes are ultimately passed on to foreign a US exporter or multinational opating abroad when it repatriates profits. I like taxing foreigners.

Do you like when ostensibly American companies set up shop in other countries and give those countries their tax money, forcing all of us to pay more?

Kpres, a US corporate foreign sub still pays taxes to the US via repatriation, so the foreigner is paying US taxes. An American firm setting up shop abroad is still subject to US taxes

Corporations are persons, and use governmental and public resources.

I don't doubt that you can build a model favoring zero corporate tax rates, but isn't there more to it than that? Here's an excerpt from a post by Justin Fox last year:

"If the corporate tax rate were zero, we would all incorporate ourselves. Accountants, tax lawyers, and economists who actually spend time around the tax system point out that when you eliminate one form of taxation, you have to raise rates on other taxes to make up for the lost income, and those higher rates increase the incentives for tax avoidance and evasion. That means we should want a broad tax base and low rates."

Others stress that the politics of government budgeting make it prudent to have a broad tax base (including imperfect revenue sources), to mitigate the challenges of maintaining or raising taxes on any particular group.

Here's the Fox link for anyone interested:

You might be able to incorporate yourself but your earnings as 100% owner would still be subject to personal income tax. Remember, corporate income taxes are double taxes. In fact, you can already "incorporate yourself" using an LLC structure, which avoids the double taxation or corporate taxes. (LLCs are pass-through entities.)

It's generally not legal to incorporate yourself. You have to be able show that there is a legitimate business venture to be granted the license. That's what keeps everybody today from filing as LLC's and taking advantage of the corporate veil.

All true - I took Fox's comment to mean that opportunities would open up to reduce taxes by more than you would think on a first pass (although not by everyone incorporating which is clearly an exaggeration). I'm not sure what those specific strategies would be, or why they would differ from what you can do with LLCs. Maybe it's easier to convert ordinary income to cap gains than you can with LLCs, or maybe there's a greater opportunity to divert income to lower-tax bracket shareholders. I don't know exactly where the opportunities would be, but I'd be surprised if there weren't new loopholes to exploit.

KPres, that's interesting. So, you're saying that, instead of being an employee of your present employer, you can't form KPres Consulting LLC and enter into a consulting/contracting agreement with your employer?

The elimination of corporate income tax would be a boon to this country. Do you think all of those activities located in Ireland and other low tax countries is because they are such a wonderful location to be other than low tax rates. Create jobs in the US and then tax the income of the job holders. Tax the sale of common stock and dividends at individual income tax rates. Life would be a lot easier and fairer and we would attract a lot of investment and create a lot of jobs in the USA. As an example my son's company has hundreds of high paying jobs in Ireland because they relocated activities there to take advantage of low corporate tax rates. My son guarantees me that those jobs would be in the USA if it were not for the lower tax rate. He has a more difficult management job since he needs to manage those employees form the USA.

I'd settle for just waving the US tax on foreign-earned income.

The idea that we give all US corporations a 28% tax break for keeping money OUT of the United States is flat-out insane.

The central problem of taxation efficiency is encapsulated in the debates surrounding the Single Tax Movement a.k.a. Georgism. - How to collect revenues with minimal economic distortion. Corporate taxation doesn't tax undeveloped inactive land value but perhaps it can be argued that it taxes the average inflation-adjusted rate of return on wealth. Hence, paraphrasing Winston Churchill: Corporate taxation is the worst system of taxation except all the other ones that have been tried. (The pass-through argument about citizens doesn't fly - the fundamental issue is about the productivity of wealth, not incomes. Corporate income tax is a kludge to indirectly assess wealth, hopefully stagnant hereditary rentier absentee-landlord type wealth.)

"The pass-through argument about citizens doesn’t fly – the fundamental issue is about the productivity of wealth, not incomes."

I fail to see how you countered the pass-through argument. The money will pass through. And then it will be taxed at the individual rate.

And the phrase about productivity of wealth makes little sense at all. Corporate taxes aren't currently based upon productivity but upon income. Rent seeking corporations all have very nice offices in Washington DC and are doing just find under the current law. It's hard to see how all of that lobbying adds to national productivity. But it certainly effects the net income of the corporations involved.

This paper is a project of the Tax Analysis Center -- newly created as an alternative to the Tax Policy Center (Brookings/Urban Institute). the web site is here:

I don't see how allowing high-wealth individuals to incorporate and thus avoid all tax in a world without corporate income taxes would be a net revenue generator.

Because, at some point, if those wealthy people want to take that money and do anything with it for themselves like buy a mansion or a yacht, they have to pull it out of the corporation and pay taxes on it. At best they can delay, but never escape, the individual taxes. In the meantime the money is being out to productive purpose.

Unless we also treat dividends and capital gains like earned income, it would create a tax loop hole for everyone whoś marginal tax rate is more than 15%.

If a blog post is titled with a question, the answer is typically "No".

This is one of those cases.

Well, of course it makes sense to fund government by taxing poor people - they are the beneficiaries of government, aren't they?

Thank you for informing

You would create a lot of wealth that would be subject to taxation and reduce the pension funding shortfall by eliminating corporate taxes. Since the value of a stock is the PV of its cash flows the value of all stocks in the US would go up by the reduction in the tax rate. Approximately 30% or so. All pension shortfalls at the state and city level would immediately decrease. When sold the gain recognized by the owner would be larger and taxed at the ordinary income rates. If you own a stock that earns $1,000 and sells at a multiple of 15 it is worth $15,000. If that stock now earns $1300 it is worth $19500. Sell the stock in a tax free state pension fund and use the increased proceeds to pay pension benefits or sell it as an individual and pay higher taxes.

Let's see, when corporate marginal tax rates are at 50%, the cost to profits of hiring a new employee is 50% of the wages and benefits.

When corporate marginal tax rates are at 0%, the cost to profits of hiring a new employee is 100% of the wages and benefits.

When corporate marginal tax rates are at 50%, the cost to profits of depreciating new equipment is 50% of the depreciation; the cost to profits of accelerated depreciation of new investments in R&D which have often been immediate writeoff is 50% of R&D costs.

When corporate marginal tax rates are at 0%, the cost to profits of depreciating new equipment is 100% of the depreciation; the cost to profits of accelerated depreciation of new investments in R&D which have often been immediate write-off is 100% of R&D costs.

With zero corporate tax rates, all real investments decrease profits - using stocks to buy the stocks of other corporations is not real investment. Hiring employees decreases profits. Zero corporate tax rates place all the costs of taking risks 100% on profits. Thus with zero tax rates, businesses will want much more certainty of net profit when investing or hiring than when tax rates are 50% of profit.

Replace it all with a progressive consumption tax.

I thought the case for eliminating business income taxes (and replacing them with progressive consumption taxes) was as well established as for eliminating taxi medallions or rent controls.

Note that Laurence J. Kotlikoff isn't a lunatic libertarian, so the argument is credible.

Meh... Sure, get rid of the corporate income tax, but I can think of a few other taxes that I'd bag first. The payroll tax and dividend taxes would be first on my own personal chopping block. But hey, why not?

I think that we should get rid of corporate income tax, but also we are in need of an overall corporate tax reform. America's federal corporate tax is already really high compared to other developed/ industrialized countries, but the tax revenue is a lot lower due to tons of loopholes and credits. I think we need to reduce uncertainties over taxes and then lower the tax rate as well.

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