Tax Reform
Robert Bruner

Everyone admits the tax structure of the US is a mess, but every attempt to fix it seems to make it worse. Remember Reagan's 'simplification' which doubled the size of the tax code? [1]

When all attempts at fixing something fail, there is usually something fundamental that is being overlooked. I think I know what it is.

We should be taxing corporations only, not individuals.

This would quickly solve the complaint of the those who claim corporations should not be taxed at all, namely that corporate profits are being taxed twice, once when the corporation is taxed and a second time when the human stockholder receives the profits in the form of dividends. These complainants want to eliminate the first tax, but if they are truly only concerned with the unfairness of taxing twice, they should be just as happy with eliminating the tax on people.

There would be an enormous increase in efficiency: instead of the IRS having to deal with 100 million households, they would have to deal with a much smaller number of corporations. The resulting savings should impress advocates of smaller government.

Further, these corporations already have large staffs of accountants who can fill out all the appropriate forms, whereas, asking each individual citizen to do this wastes an enormous amount of our citizenry's energy, and creates unnecessary antipathy to the government in the process. This antipathy is unnecessary, because a lot of it is caused by the complications that result from the corporations' ability to get special provisions into the tax code, thereby complicating it. With a shift to taxing only corporations, these organizations can fight each other over the special provisions, a lot fairer fight than the fight between individual tax payers and corporate tax payers. GM will not want to allow GE to shift the burden to them, and will have the resources to make sure it doesn't happen. As it is now, GM and GE can agree that individuals should foot the bills, so we do.

This plan is not all bad for corporations: they will no longer have to do the accounting that is required by withholding income taxes from workers' pay. This will save the corporations money, and make them more efficient in the process.

Certainly, small businesses should also be exempt, just as individuals are, for all the same reasons. Only organizations with more than 100 employees should be taxed [2], with a smooth roll-in around this level so there is no sudden shock when the hundred and first employee is hired.

Finally, if corporations try to claim it is unfair, remind them that the society is providing them with police, fire, roads, utilities, educated workers, and all the other social goods that make business possible in the first place. Why shouldn't they pay for them?

[1] At least this is my memory of the ratio in size. I would bet that I have the right order of magnitude. It was certainly longer after being 'simplified' than it was before.

[2] This figure subject to adjustment after consultation with economists, but the ball park (i.e., order of magnitude) is probably right.

Copyright 2002, Robert Bruner