Paul L. Caron

Thursday, March 12, 2009

Bank Presents The Lost Moment in Corporate Tax Reform Today at Northwestern

Steven Bank (UCLA) presents The Lost Moment in Corporate Tax Reform at Northwestern today as part of its Advanced Topics in Taxation Series organized by Tom Brennan and Charlotte Crane.  Here is the abstract:

If the integration of the corporate and individual income taxes and the removal of double taxation ever had a “legislative moment,” it was the decade following World War II. Between 1943 and 1946, individuals, trade associations, government agencies, and members of Congress forwarded more than sixty proposals for the relief of double taxation, many of which were repackaged or reintroduced several times over the subsequent eight years. Most advocated a variant of one or more of the following three methods of integration: (1) an exclusion for some or all of dividends from shareholder income, (2) a credit against shareholder income taxes for some or all of taxes paid on dividend income earned at the corporate level, or (3) a deduction at the corporate-level for dividends paid. It was not until 1954, though, as part of a comprehensive revamp of the Internal Revenue Code, that Congress enacted a modicum of dividend tax relief in the form of a phased-in $100 exemption and a four percent shareholder credit.

This chapter in a forthcoming book on the history of the corporate income tax in the United States considers three questions: (1) Why did it take so long for dividend tax relief to be enacted given the initial momentum in favor of reform; (2) What led dividend tax reform to rise to the top of the agenda in 1954; and (3) Why, given the degree of interest in integration proposals, was the relief initially so modest and why did it not ultimately take hold as the first step toward full integration. As more fully explained in the chapter, a significant part of the story is the rise and fall of a perceived equity crunch and the reaction to it among managers who had previously given the integration issue lower priority.

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