Abolish the corporate income tax. That’s right, eliminate it altogether. There would be a number of beneficial side effects from doing this:
- It would reduce the size of corporate accounting departments a bit. Most of the data collected by the accounting departments would still be needed for other purposes, but they would save the cost of preparing the corporate tax return and collecting the data needed to take advantage of loopholes in the corporate tax code.
- It would eliminate the jobs of some tax lawyers whose sole reason for being is to find those loopholes and figure out how to take advantage of them. I don’t there would be to many tears shed over the idea of these folks loosing their jobs.
- It would eliminate some jobs at the IRS, namely of those employees who process the corporate tax returns after they are filed. Not too many tears shed here either.
- Republicans have used the corporate income tax as an excuse for the differential tax rates for capital gains and dividends. Eliminate the corporate tax and you take away that excuse.
- As soon as you tax one kind of income differently than other types of income you will have people gaming the system to convert income taxed at a higher rate to income taxed at at lower rate. An example: A number of CEO’s, Jeff Bezos of Amazon and Meg Whitman of HP being two of the most recent, have announced that, from this point on, they will work for a salary of 1$ per year. Now you might think that this was some sort of magnanimous gesture on their part, but you would be wrong. I am willing to bet that before they made their announcement that they got the board of directors to agree to give them sufficient additional stock options to make up the difference between 1$ and their previous salary. When those stock options are exercised, the income from them would be considered a capital gain and taxed at fifteen percent instead of the top income tax rate of thirty five percent.
The result of these changes would be that Mitt Romney would be in the forty percent income tax bracket, but with zeroed out corporate tax he would still have a ‘real’ tax rate of only forty percent, a ten percentage point reduction from what he was paying.
With a ten percentage point reduction in his tax rate Mitt Romney, and the rest of the Republicans, should leap at the chance to implement theses reforms, right?
Don’t hold your breath.
Update: It seems someone else had the same idea a little earlier than I did.