It currently makes up about 10% of federal revenue. http://www.cbpp.org/cms/?fa=view&id=3822
I'd think it would be healthy too move to a model of looking at corporations are simply intermediaries for organizing people. Ultimately the money that flows into the corporation has to flow out either through salaries, dividens or sales - and the money should be taxed at those points. If you tax it in the middle people just end up thinking "oh, well they're taxing the evil corporates, so that's good!" without seeing the dampening effect on salaries and their investments.
I understand that it's a bit simplistic, but I think the current model of hidding taxes is parasitic. You look at the insane sales taxes they have in Europe. They keep going up and the citizens don't really perceive it and so there is no push-back. Here in the US, when the sales tax goes up by half a percent people are up in arms.
The more money a company has, the more money they can use to employ people and be productive. The general public usually gets upset at what they see as severe profits to a corporation, but in general those profits aren't being "wasted" on the rich until they draw them out in salaries or dividends. It makes more sense to simply tax them at that point (at least, according to NPR)
That said, "[t]he more money a company has, the more money they can use to employ people and be productive" is still true and relevant because money is fungible. It is just less extreme than if corporate taxes were applied to that money as well.
http://en.wikipedia.org/wiki/File:Effective_Corporate_Tax_Ra...
http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_Sta...
Changing our tax rates seems downright benign.
It would also decrease the incentive to invest in their own company because the cost of building a new factory or raising workers' wages or hiring more workers would actually increase. Think about it, if a company were considering giving all of its workers a $5,000 raise. In a world with a 30% marginal corporate tax rate, the actual cost to your company's bottom line of such a raise would be $3,500/worker, because you only pay tax on net income. But with a 0% tax rate, the cost would be $5,000/worker, that's a 43% bigger cost. Plus, presuming that personal income taxes would need to be raised by ~11% to make up for the loss of corporate income taxes, the workers are going to end up a lot less likely to get substantial raises.
The benefits of eliminating the corporate income tax are going to have to be huge to make up for the disincentives it would create.
By "corporation owners" you can only mean "shareholders" for publicly traded companies. My retirement is invested mostly in the stock market, as is most people's. I would benefit, and so would anyone else that owned stocks.
The current corporate income tax structure favors large bureaucratic institutions that can afford to pass the barriers-to-entry to avoid taxation. Thus small enterprises end up spending more on taxes than large institutions do: it's a regressive tax.
Eliminating the corporate income tax would heal that inversion.
Theoretically it would also be easy to game payroll and income taxes this way. You could essentially file articles of organization for a corporation with you as the sole shareholder, and have your employer pay your corporation your wages, instead of you directly.
When it comes time to take money out, you pay a fat dividend with 15% dividend tax rate, instead of 35% income tax rate. There are of course some exceptions to this and it isn't possible in some states, but it would be possible.
If we were to eliminate the corporate tax we'd need to simultaneously eliminate the preferred tax status of qualified dividends and long term capital gains. We'd also need to crack down on wage substitutes (aka fringe benefits).
Still think it'd be a worthwhile tradeoff.
"The bottom" is the best service/price tradeoff (with the desired service level delivered as efficiently as possible, ie. at the lowest price).
Ireland luring businesses with a low tax rate and Americans and other higher tax countries complaining about a "race to the bottom" is much more similar to the creative destruction that takes place when say Postgres and MongoDB displace an expensive Oracle DB (and the reactions of both Oracle and high-tax advocates are pretty similar).
EDIT: thinking a bit more, I guess sales taxes could still be collected. Could a government function almost entirely off sales taxes?
This IRS page says that benefits are taxed like income: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employ...
My mother is self-employed, and there are strict rules about deducting business expenses (like home office square footage) but not personal expenses (like the rest of the house's square footage).
On its face, a sales tax is highly regressive, so it disproportionately harms poor and middle class citizens.
So the Fair Tax answer is for the government to refund to everyone a stipend for the basic costs of living. This creates a collection of personal data the same size as the IRS (they need to know where to send the check), AND a government entitlement program larger than Medicare and Social Security put together.
As for the data collection, for most people the government already has all that info anyway.
The stipend would open the door for the possibility of the guaranteed basic income some people have been going on about lately. People would already be accustomed to the government sending them a monthly check for essentially being alive.
In fact, you might see an uptick in revenues. If people see they might save money with that method then more people might be likely to buy the item they, otherwise, may not have.
It all depends on how the taxes are structured.
Of course, we then slide into complicated tax code like we have now.
I'm not a fan of the fair tax but a more sophisticated understanding of it might be warranted.
1) A flat federal sales tax. 2) A "prebate" to offset the regressiveness, which is a check sent by the federal government to every U.S. household every month.
Edit: Found it. It wasn't the CBO, it was a Bush-appointed advisory panel. See the "Chapter Eight - Nine" pdf, page 20:
http://govinfo.library.unt.edu/taxreformpanel/final-report/i...
His housing is paid for, his drivers are all company employees, and he is given a generous "expense account" for all of his regular needs. I believe his salary has only been used for vacations (where he couldn't do any business) or for his son's tuitions at U.S. universities.
If you have contract income you assign it to a corp and then pay yourself a wage so you can live and keep the rest in the corp to invest / pay dividends. (No you can't deduct everything, but the more frugally you live the less tax you pay)
The thing is most people don't like to live in the most frugal way possible and therefore end up paying some taxes on the things they like.
Small businesses are mostly proprietorships, partnerships, and LLCs anyway, which don't generally need to pay corporate taxes. Mid-sized businesses might be hurt by the corporate tax, though.
On the other hand, the corporate tax is a great way to ensure corporations retain profits instead of paying them out, thereby making the corporations larger.
This would all be obvious if people remembered rule 1 of economics, which is that actors respond to incentives.
I'd much rather eliminate the personal income tax and shift to user fees, and a flat corporate rate (a user fee for limited liability, if you will) and equal flat tarrif. But that's not popular for some reason.
Theres also Pikettys argent that return on capital grows faster than the economy.
But there are counter-arguments, and its always good to consider and experiment with new ideas, so believe what you will. But I think people have a prettty good reason for liking a progressive tax, even rich people like this.
Personally I think the economy has deep flaws. Like private ownership of natural and limited resources being a thing (which i believe will cause wealth to consentrate in a counter-meritocratic way) and the transfer of money not accurately reflecting the value of intellectual "property" (transfer of money of physical goods, which money is supposed to model, is zero-sum. sharing intellectual products is not). So I welcome new thoughts. But I dont think anyone has the right solutions yet, and flat fees/tax isnt exactly a new idea.
Corporations pay taxes on the money they retain, and not on the money they pay out in wages or other costs of doing business.
Of course, they also do pay taxes on money they pay out to shareholders, and they don't pay taxes on money overseas affiliates retain...
But "corporate taxes are an incentive to retain capital in the corporation" is generally incorrect.
I'm open to a "first world tax rate" for corporations, but dropping it to zero would do more harm than good.
Key cases (you can find them all at http://supreme.justia.com/ ): Dartmouth College v. Woodward, 17 U.S. 518 (1819) Providence Bank v. Billings, 29 U.S. 514 (1830) Santa Clara County v Southern Pacific Railroad Company, 118 U.S. 394 (1886) United States v. United Auto Workers, 352 U.S. 567 (1957)
"A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it."
Anything not-business-related a corporation spends money on is considered to be a misuse of funds (or fraud).
People are already taxed in similar ways to corporations.