Halting The Elimination Of The Corporate Tax System

It seems obvious that the US needs a complete overhaul of the corporate tax system. As it stands, there is a 35% tax on US corporations, which essentially taxes the workers. Corporations are pretty smart at shifting their income to lower tax rate jurisdictions. This would mean that the corporation would minimize its investments in the US until they reach the same return-on-investment.

So should we be rid of the corporate tax system? Eric Toder and Alan Viard thought so a few years back and increased shareholder-level taxes on capital gains and dividends. They have since scrapped that sentiment and decided it would be best to lower the corporate tax rate while still taxing the shareholders.

“A Proposal to Reform the Taxation of Corporate Income”

 

This proposal would reduce the corporate tax rate from 35% to 15%. The major talking point is that the proposal would impose a tax on foreign shareholders, not US shareholders. Here is the thinking: The government can already indirectly tax US shareholders. Thus the marginal tax only directly falls on the foreign shareholders creating a steady revenue stream, since they do not otherwise pay any direct tax.

There are a lot of goals for this proposal such as stopping corporate borrowing, reducing tax penalty on some organizations that are taxed twice unfairly, and, the monster, ending the shift of income and investments.

On the surface it seems fair. What do you think?

I am an Editorial Associate at TaxConnections providing you with tax news from around the world.

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