Managers, Shareholders, and the Corporate Double Tax

79 Pages Posted: 18 Dec 2008 Last revised: 17 Nov 2009

Michael Doran

University of Virginia - School of Law

Date Written: October 23, 2008

Abstract

The United States generally imposes two levels of federal income tax on corporate profits. The first level taxes income to the corporation; the second level taxes dividends to the shareholders. Academics and policymakers have long considered this double tax to be "unusual, unfair, and inefficient." Legislators from both political parties have proposed integration of the corporate and individual income taxes on many occasions, but the proposals consistently fail. Prior academic analyses have struggled to explain the failure of integration. This paper demonstrates how certain managers, shareholders, and collateral interests rationally favor certain integration proposals and oppose other integration proposals, while other managers, shareholders, and collateral interests rationally adopt contrary positions. The substantial heterogeneity of interests among managers, shareholders, and collateral interests generally accounts for the stubborn persistence of the double tax. Close examination of the lobbying positions taken by managers, shareholders, and collateral interests in response to the Bush Administration's dividend-exclusion proposal establishes that the heterogeneity of interests directly shapes the legislative process and affects legislative outcomes. The argument presented here implies that, as a political matter, the corporate double tax is much more entrenched than most prior analyses assume.

Keywords: tax, corporate double tax, integration

JEL Classification: K34

Suggested Citation

Doran, Michael, Managers, Shareholders, and the Corporate Double Tax (October 23, 2008). Virginia Law Review, Vol. 95, 2009. Available at SSRN: https://ssrn.com/abstract=1317429

Michael Doran (Contact Author)

University of Virginia - School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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