Quote:
Originally posted by Mmmm, Burger (C.J.)
"double" taxation is just a catch phrase. The better question is whether it makes sense to tax corporate income at two levels, the corporate level and the shareholder level. There are a host of policy reasons and efficiency reasons why not.
Wonk makes the traditional argument that it's to pay for the privilege of becoming a recognized entity. It's a fair argument, but a lousy implementation. If there's some value for which society should be compensated for granting the privilege of incorporation (e.g., limited liability), why base it on income? Why not on gross revenue, or on asset value, or something going to the size of the entity (and hence the value it gets from society), rather than something that fluctuates wildly and bears little resemblance most years to any value the corporation has gotten from society?
And, if we go that far, why not do the more sensible thing and simply tax the dividends (and k-gains, and presumed dividends, if they don't distribute, if you must)? Wonk, I'm sure, will say that it's not fair to have some people pay more of the corporation's value than others, depending on their income. well, easily solved. Tax dividends at whatever personal rate, and then add a 5% (or something) corporate surtax on the dividend. Everyone pays that 5% regardless of whether they paid on the dividends--no offsets, deductions, hiding, etc. Pay it there.
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Thank you. Good summary. I have no idea why we don't base it on some of those things, or some combination of them. Except that income seems to be a good stalking horse for "ability to pay"; if a company fails to make money, is it really getting much benefit from its incorporation? (I know, the limited liability may be more valuable when it is losing money, but levying a tax on bankrupts does not seem to be a recipe for great tax collections).
