TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, May 3, 2014

Rattner: It Is Time to Eliminate the Corporate Tax

New York Times op-ed:  End Corporate Taxation, by Steven Rattner:

After years of post-recession somnolence, corporate takeovers and mergers have ballooned to their highest level since 2007, fueled in part by American companies’ fleeing the United States to save tax dollars. Gaming the tax system has, of course, long been a popular blood sport for American business, particularly for pharmaceutical concerns and for technology. But these days, tax avoidance feels like a full-fledged business strategy, with American citizens as the losers. ...

Action is clearly needed. But most of the proposals floating around the capital are more focused on helping companies compete in the global tax race to the bottom. Nor has President Obama been able to gain international cooperation to end this self-defeating competition.

At a minimum, Congress should embrace the president’s recent proposal to both restrict the use of inversions and tax a merged company as an American company if it is managed in the United States and has substantial business here. That meritorious provision needs to be coupled with more aggressive action against other egregious practices, such as using tax havens to transfer vast amounts of profits out of Uncle Sam’s reach.

A more ambitious, and therefore more politically difficult idea, would be to scrap our unworkable corporate tax system altogether and instead tax shareholders, first by eliminating low tax rates on capital gains and dividends.


That would offset only a small portion of the loss of corporate tax revenue (a projected $350 billion in 2015), so we should raise the balance by eliminating loopholes enjoyed by wealthy Americans, increasing rates on their earned income and potentially introducing new concepts, such as taxing gains on investments as stock prices rise rather than when they are sold.

The wealthy need not fear; eliminating corporate taxes would lead to a jump in business earnings and, consequently, stock prices. That would encourage similar actions by other countries. Otherwise, their companies might move here to enjoy a zero corporate tax rate. Higher stock prices would also help pension funds, foundations and other tax-exempt institutions focused on social betterment.

While eliminating corporate taxation would be branded a giveaway, properly engineered reforms would provide a huge uplift to ordinary Americans.

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Another strategy would be to put CEOs, board members and their lawyers in federal prison for income tax evasion.

Not likely to happen, so some sort of unavoidable VAT tax may be in our future.

Posted by: save_the_rustbelt | May 5, 2014 4:50:13 AM