Paul L. Caron
Dean




Wednesday, November 25, 2020

It Is Time To Eliminate The Federal Corporate Income Tax

Edward Lane (Albany) & L. Randall Wray (UMKC), Is It Time to Eliminate Federal Corporate Income Taxes?:

As the nation is experiencing the need for ever-increasing government expenditures to address COVID-19 disruptions, rebuild the nation’s infrastructure, and many other worthy causes, conventional thinking calls for restoring at least a portion corporate taxes eliminated by the 2017 Tax Cuts and Jobs Act, especially from progressive circles. In this working paper, Edward Lane and L. Randall Wray examine who really pays the corporate income tax and argue that it does not serve the purposes most people believe.

AUMKC2

The authors provide an overview of the true purposes and incidence of corporate taxation and argue that it is inefficient and largely borne by consumers and employees, not shareholders. While the authors would prefer the elimination of the corporate profits tax, they understand the conventional thinking that taxes are necessary to help finance government expenditures—even if they disagree. Accordingly, the authors present alternatives to the corporate tax that shift the burden from consumers and employees to those who benefit the most from corporate success.

https://taxprof.typepad.com/taxprof_blog/2020/11/it-is-time-to-eliminate-the-federal-corporate-income-tax.html

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Comments

One easy way to do this is a dividends-paid credit. Keep it simple. Dollar-on-the-dollar. If management would rather pay taxes than dividends, it is up to the shareholders to complain.

Posted by: Dale Spradling | Nov 28, 2020 1:01:48 PM

Government operations should be funded by a flat tax on gross business income from retail sales (essentially a consumption tax). Wealth-transfer programs should be funded by a flat personal income tax, with the amount paid out being limited to the amount actually raised by the tax.

Posted by: John Edgington | Nov 26, 2020 6:15:36 PM

SSRN is one of the incubators for policy proposals.

100% in the tank for corporate America.

Notice the logic—eliminate the corporate tax because it’s inefficient and born by consumers/employees anyway—no mention of how such a proposal further elevates the value of capital over labor.

Extend their logic though and the better approach is to eliminate the tax on labor.

It’s far more inefficient at generating revenue and unlike the corporate tax, can’t be passed on.

The tax on labor today is simply a credibility tool to prop up the dollar.

I’m waiting on one of these think tanks to come up with the “revolutionary idea” that the first 75k of your labor—indexed to inflation—is all yours, immune from all direct taxes.

But of course, this will never happen. Can’t make labor more valuable than capital, even a little—capital might lose some of its value.

Besides, those who earn their money with labor are suckers, second-class, not really human actually.

Who cares about them?

The mendacity of the authors sickens me.

Imagine if they used their intellect in service of the general welfare rather than their sinecure.

Posted by: Tom | Nov 26, 2020 7:26:02 AM

The Federal "Corporate Income" tax is actually structured as an excise tax. So, lets put the tax where it should be: at the point of sale. Converting the tax into a sales tax will eliminate the loopholes and inefficient (from a productive point of view) tax avoidance schemes. Because corporations would no longer create inefficiency to avoid taxes and would also avoid the complexities of the tax code and reporting, a large part, if not all, of the tax would not be a burden for the consumer.

Posted by: mark | Nov 26, 2020 6:58:57 AM

I don't mean to be an apologist, but the main reason the corporate tax receipts are such an infinitesimally small proportion of GDP is insane government spending. Perhaps it would be fairer to compare it to C + I + Xn. And not G.

Posted by: Anon | Nov 26, 2020 6:12:32 AM

As I recall, the reduction in the U.S. corporate income tax put the country more in-line with other industrialized nations. Before Trump floated the idea, Obama also paid lip service to it.

Also, this chart doesn't actually show receipts after the law took effect. That would be interesting to see, perhaps?

Posted by: MM Classic | Nov 25, 2020 6:42:44 PM