Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
December 12, 2012
Tax Law Review (2013, Forthcoming)
UCLA School of Law, Law-Econ Research Paper No. 12-20
Currently, the graduated marginal rate corporate income tax has come under significant criticism because it neither redistributes wealth from large corporations to small businesses, nor accurately reflects the ability to pay of the individual stockholders who own the corporations. Moreover, Congress has introduced bubble rates that perversely result in some corporations paying higher rates than higher earning corporations. The Congressional Budget Office has identified the repeal of graduated corporate income tax rates on its list of potential revenue raisers and several observers have called the system “indefensible” and without “economic justification.”
This paper provides historical perspective for the topic. To the extent that historians have looked at this issue in their review of the period, they have concluded that the introduction of the progressive corporate rate structure in 1935 was purely symbolic, since the rates could not have possibly redistributed corporate wealth or led to the break-up of large corporate structures. This paper argues that the change was not symbolic – it was designed to introduce differentiation between large and small corporations – but this differentiation is no longer necessary because of the advent of alternative entities for small businesses.
Number of Pages in PDF File: 51
Keywords: corporate income tax, corporate tax rates, corporate wealth, redistribution of tax rates for corporations
JEL Classification: H20, H23, H25
Date posted: December 14, 2012 ; Last revised: January 24, 2013
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