Corporate Income Tax: We Tried the Stick, How About the Carrot?

Abstract

Due to corporations’ on-going focus on tax planning and their continuous efforts finding new tax minimization strategies, multinational corporations are not paying their “fair share” in taxes for a long time now, and as a result the federal corporate income tax law is unable to generate much tax revenues. The government’s response to this problem has always been the same: introducing new tax laws and regulations, revising old tax laws in order to shut-down the so-called “loop-holes” and hoping this will put an end to the problem of corporate income tax evasion. For decades this approach has failed us.

This paper examines the history of the corporate income tax regime and the evolution of corporate income tax avoidance practice/industry, which corresponded with the corporate income tax policy the U.S. government chose to adopt (anti abusive/avoidance rules) and unfortunately had minimal success over the years as the tax revenues large scale corporate groups is fairly modest and it seems that there is a consensus that these entities do not pay their fair share. The paper finally proposes to change the mindset and to adopt a new policy that would encourage entrepreneurs and corporations invest in the U.S. economy through tax and other economic incentives.

Our proposal would recommend adopting series of rules that in a way would allocate the positive externality such economic activity has over the U.S. economy between the IRS and the corporations and its shareholders.

Keywords: Tax, International Tax, Corporate Tax, Tax Planning, Tax Avoidance, Tax Policy

JEL Classification: K34