A Brief History of U.S. Approaches to Corporate Tax Integration and Some Lessons

Abstract

This essay, to be included as a chapter in a volume on corporate taxation, briefly reviews U.S. efforts to achieve corporate tax integration, focusing especially on the Civil War years when enduring problems first surfaced and Congress approved four integration approaches in three years. The review highlights the important role corporate distribution policy has played in solving the integration puzzle. By distributing or retaining earnings, corporations can either advance or block integration objectives. Somewhat counterintuitively, the historical experience suggests the most feasible way to satisfy integration’s goals may be to retain two moderate and comparable, though separate, taxes on corporate income.

Keywords: corporate tax integration, dividend exclusion, shareholder credit, dividends paid deduction

JEL Classification: H20, H25, K22, K34