Abolish The Corporate Income Tax and Tax The Rich
Atlantic columnist Megan McArdle makes the case for why abolishing the corporate income tax (and then taxing capital gains and dividends at the same rate as other income) is a proposal that both liberals and conservatives should be able to agree on:
The incidence of “corporate” taxes is not necessarily progressive. The “employer half” of the payroll tax, for example, is thought by most economists to fall pretty much entirely on the worker; corporations compensate for the extra cost by lowering the wages they offer. Taxes on corporate profits are exactly the same for middle class families who have some shares in a 401(k), and multi-millionaire heiresses.
If we get rid of the corporate income tax, we could eliminate the special treatment for dividends and capital gains. The reason we currently have the special rates is to offset the “double taxation” of corporate profits. You can quibble with the term, but the fact remains that a 35% corporate income tax combined with, say, a 43% marginal income tax rate (once we add in the special Medicare surcharges), would be a hell of a disincentive for the very wealthy to invest; you’re talking about lowering the projected return on an investment by almost 3/4. There’s little question that this would be bad–there’s a reason that not even Sweden attempts to levy those sorts of taxes on capital. But if we get rid of the corporate income tax, we can simply roll capital income into ordinary income–which means that we’ll be taxing corporate income more progressively. The taxes on corporate profits will fall most heavily on wealthy people.
The corporate income tax doesn’t raise that much money It’s not nothing–about $300 billion. But we could recoup a whole lot of that simply by taxing dividends and capital gains as ordinary income, and perhaps tweaking top rates. That might be a bargain conservatives would go for.
Without the corporate income tax, a lot of the incentive for lobbying would go away Not all of it, by any means–I am not trying to paint some halcyon future here. But an enormous amount of effort goes into lobbying for tax laws, and politicians often reward favored constituent businesses with little sweetheart fillips to the tax code. Conversely, apparently neutral changes to the tax code often turn out to be excellent ways to hamstring your competition, particularly small businesses who cannot afford a huge tax department.
Want to get corporate money out of politics? Want to erode the power of the Chamber of Commerce? Take away one of their primary motives to get involved.