"Double taxation" is a fallacious argument, concocted by lobbyists for the rich to complain about the taxes that impact them personally.
This comic summarizes it perfectly: http://i.imgur.com/Lw61YGs.gif
This comic summarizes it perfectly: http://i.imgur.com/Lw61YGs.gif
Let's say I run a lemonade stand as an individual, and this year the stand makes a profit of $100,000. Let's say individual income tax is 30%. I'd pay $30,000 tax, right? So I'd be left with $70,000 in my pocket.
What if I had decided to set up the lemonade stand as a corporation instead? The corporation would pay some sort of profits tax (say 20%, so $20,000). There's now only $80,000 for me. But I have to pay personal tax of 30% of the $80k, so in this scenario I walk away with only $56k.
Why should the total tax take in the two scenarios be different?
How could I change the second scenario, to preserve the corporate structure, but maximise the money in my pocket?
Why shouldn't they? They are two different situations. Different situations can lead to different outcomes.
EDIT: Yes, I realise that corporations have specific legal attributes/benefits. However, taxing their profits twice doesn't seem (i) fair, or (ii) likely to provide good incentives.
The fact that the situation appears economically identical is irrelevant, and actually they're not economically identical. Doing business with a corporation is very different to doing business with an individual, because of those obligations and protections.
As another contrived example, stealing ten dollars from someone is economically identical to having that person gift you ten dollars, but they're not remotely the same thing.
You are right that the situations are not economically identical. That was not a useful over-simplification on my part.
Your personal income and savings, paid as wages, are immune to bankruptcy proceedings. The corporation loses its cash and holdings, but you don't lose your house.
This is a staggering fiscal and economic advantage. You absolutely should be paying a lot for it given the net effect on everyone else.
Wages are a pre-tax expense for the corporation.
(The required holding period is 60 days during the 121-day period that begins 60 days before the ex-dividend date.)
Taxing dividends would be like taxing ATM withdrawals.
Tax the income not the withdrawal.