Abolish the Corporate Tax?

An interesting paper by Eric Toder of the Urban-Brookings Tax Policy Center and Alan D. Viard of the American Enterprise Institute on replacement of the corporate tax with a shareholder oriented accrual tax program. (Via Martin A. Sullivan at The Tax Analysts Blog.)

The second option, which could be adopted unilaterally by the United States, would replace the corporate income tax with increased taxation of shareholders. American shareholders of publicly traded companies would be taxed on both dividends and capital gains at ordinary income tax rates and capital gains would be taxed upon accrual. The option would ensure that American shareholders in both U.S. and foreign based   multinational corporations pay tax on their worldwide income, while improving incentives for both domestic and foreign corporations to invest in the United States and increasing the competitiveness of U.S.- resident MNCs. It would also curtail a host of closed-economy distortions, including the current system’s biases against corporate equity‐financed investment, dividend payments, the sale of appreciated assets, and specific industries and types of capital. But it would face a number of design challenges and would reduce federal revenue. It would also confront severe political obstacles because it would be perceived as a giveaway to corporations, it would tax accrued gains that many shareholders do not consider to be income, and it would require other tax increases or spending cuts.

Major Surgery Needed: A Call for Structural Reform of the U.S. Corporate Income Tax

 

Posted in Finance & Economics, Public Policy and tagged , , .

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