Advancing to Corporate Tax Integration: A Laissez Faire Approach

71 Pages Posted: 7 Mar 2007


The classical double taxation system applicable to corporations has been flawed for decades. It has introduced serious allocative distortions into the economy. Its effect on the distributive justice of the tax burden is most charitably described as uncertain but might also be described as arbitrary and capricious.

In an idealized income tax regime, individual participants of various business enterprises would bear tax liability without regard to the form of those business enterprises. As a practical matter, however, the idealized alternative to the double tax system - an integrated income tax - is not attainable. Conventional wisdom has always held that anything approaching the integrationist ideal would entail prohibitive administrative burdens, and its comprehensive adoption by a sweeping piece of legislation is politically unlikely even under the best of circumstances. Even the George W. Bush Administration, which originally proposed a very far reaching tax integration scheme, settled for no more than partial temporary dividend relief. Moreover, even that mitigation is scheduled to expire at the end of 2008.

At the same time that the double tax regime seems unlikely to yield to a single comprehensive solution, it is leaky, and increasingly so. Taxpayers avail themselves of a plethora of opportunities to avoid double taxation. Policy makers have created some of those opportunities quite intentionally, others arise out of the exploitation of the unavoidable interstices that exist in the tax law as much as in any other area of law. The existence of these leaks has, at least in the past, led the Treasury and Congress to attempt to minimize the taxpayer-driven evisceration of the double tax regime. That effort has produced legal complexity and administrative burdens for both tax collectors and taxpayers.

The Laissez Faire Approach proposes an alternative that accepts the flawed nature of all tax systems and attempts to use taxpayers' native desire to escape double taxation to good use. There are numerous points in the existing tax regime in which taxpayers' successful attempts to avoid taxation would have the effect of mitigating or nearly eliminating the excess tax burden of the double tax regime. In as much as taxpayers seek to avoid double taxation, the Laissez Faire Approach counsels acquiescence and even affirmative steps to facilitate that self-help mitigation of the excess burden of double taxation. The Laissez Faire Approach seeks further to advance the integrationist ideal, building on the Bush Administration's recent partial success, without incurring the burden of actively pursuing that unattainable ideal. At the same time, it spares the tax system of the administrative cost generated by defending the integrity of a double tax regime that ought in any case to be eliminated.

Suggested Citation

Polito, Anthony P., Advancing to Corporate Tax Integration: A Laissez Faire Approach. South Carolina Law Review, Vol. 55, p. 1, 2003. Available at SSRN:

Anthony P. Polito (Contact Author)

Suffolk University Law School ( email )

120 Tremont Street
Boston, MA 02108-4977
United States
617-573-8518 (Phone)
617-573-8143 (Fax)

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