Corporate Tax Reform, Finally, After 100 Years
George K. Yin
University of Virginia School of Law
September 1, 2009
Toward Tax Reform: Recommendations for President Obama’s Task Force 114 (Tax Analysts 2009)
Future increases to the top income tax rates for individuals and reductions to the corporate tax rate will invite the widespread use of C corporations as tax shelter vehicles, an old problem that has never been addressed successfully. The changes could even resurrect the need for the collapsible-corporation provision, described by the ALI as “characterized by a pathological degree of complexity, vagueness and uncertainty.”
This short essay, to be included with a group of submissions for the Volcker Tax Reform panel, urges that the corporate tax be limited to public firms, with all non-public firms taxed under a passthrough tax system. In addition to preventing the tax shelter problem, the change would improve equity and efficiency by taxing the owners of all closely held firms in a more similar fashion, and allow for simplification and reform of the corporate tax. The proposed change would reverse a policy decision made exactly 100 years ago when the income taxation of the owners of corporations was impermissible. Although Congress may soon be forced to adopt income tax rates reminiscent of years prior to 1986, it need not and should not bring with that change the same impenetrable problems and failed solutions of that bygone era.
Number of Pages in PDF File: 5
Keywords: tax reform, corporate tax, tax shelters, public firms, private firms, passthrough entities
JEL Classification: A10, D00, D30, E62, H00, H20, H24, H25, H26, K00, K20, K34, K42Accepted Paper Series
Date posted: August 10, 2009 ; Last revised: June 7, 2013
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