Editore"s Note
Tilting at Windmills

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December 1, 2004
By: Kevin Drum

CORPORATE TAXATION....It's a slow day today, so that gives me a chance to toss out an idea that's probably pretty retarded but possibly interesting anyway. Here it is: why not join the Caribbean tax haven movement and get rid of the corporate income tax altogether?

First, here are a few arguments in favor of doing this:

  • Corporate taxes have been declining for years and don't really raise all that much money anyway. Last year corporations paid a mere $131 billion in taxes, about 7% of total federal tax receipts.

  • People complain about the complexity of the personal tax code, but personal income taxes are almost childishly simple compared to the byzantine regulations that govern the corporate tax regime. If you want to simplify things, the corporate tax code is the real place to start.

  • Eliminating the corporate income tax would give U.S. businesses a leg up against foreign competitors who have higher tax rates.

  • If you eliminate the corporate income tax, you also eliminate a huge amount of corporate welfare. It's easy to bury a tax break for a favored business in a 1000-page tax bill, but it's a lot harder to give that same business an outright subsidy in a spending bill.

  • Corporate taxes are eventually paid by consumers in the form of higher prices anyway, so why not eliminate the middleman?

  • We wouldn't have to listen to any more nonsense about dividend taxes being "double taxation."

Now, this is hardly a recipe for corporate nirvana for a variety of reasons. Corporate accounting departments will still have plenty of work cut out for themselves since SEC regulations, NYSE regulations, foreign reporting laws, and so forth still apply. What's more, unless we convince all 50 states to also eliminate their corporate income taxes, the tax lawyers will still have plenty of work to do. And multinationals will have to continue paying foreign taxes no matter what.

Oh yeah, and we'd probably have to tighten up the laws that prevent people from pretending that personal income is really corporate income and therefore not subject to tax.

Details, details. And what do liberals get in return for showering this largesse on our conservative friends? I don't know. How about a carbon tax? Higher dividend and inheritance taxes? An increased gasoline tax? Or higher income tax rates on top incomes? We need to made up that $131 billion somewhere, and the price of our support for this plan would be a replacement revenue source that appealed to liberals.

Is this ever going to happen? Of course not. Is it a dumb idea? Probably. Comments are open to tell me why.

Kevin Drum 6:47 PM Permalink | Trackbacks

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