US Corporate Income Tax…What To Do?

January 22, 2015
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US Corporate Income Tax…Should we take it or should we leave it?

Many have given their input on why should maintain or eliminate the US corporate income tax, and market experts recently provided some compelling arguments on this topic.

Columnist makes case for eliminating the US corporate income tax

On Dec. 29, 2014, Wall Street Journal columnist John Steele Gordon laid out 10 separate reasons for eliminating this tax. He delved into a brief history of the policy, noting that President William Howard Taft convinced Congress to include a tax on corporate profits in the Payne-Aldrich Tariff Act of 1909. At the same time, Taft asked for a constitutional amendment to create a personal income tax. The author contended that this approach constituted a plan to tax the rich, as they held almost all corporate stock at that point. While the corporate income tax was meant to exist only in the short-term, it ended up being permanent. In addition, the government implemented a personal income tax when it ratified the 16th amendment. The creation of taxes on both corporate and personal income resulted in the policies surrounding these levies growing increasingly complex, as industry professionals generated solutions to make one type seem like the other, Gordon wrote. Because of this intricate system, the author has singled out greater simplicity as the number one reason to abolish the corporate income tax. Gordon also argued that if the U.S. government eliminated the corporate income tax, $2 trillion that is currently held overseas would flow back to the world’s largest economy. The companies benefiting from this windfall could potentially harness the funds to boost dividends or increase investment in the nation, noted Forbes contributor Tim Worstall. If these firms were able to repatriate their earnings and use it either as previously specified, this development would increase income tax revenue and bolster aggregate demand. The author emphasized that eliminating the corporate income tax would push stock prices higher, which would also put upward pressure on consumer spending.

Counter-arguments for eliminating the US Corporate income tax

While the aforementioned arguments – which are only some of the reasons that Gordon has offered for eliminating the corporate income tax – may sound compelling, James Longstreet wrote in American Thinker that doing away with this duty would inadvertently create various consequences. He emphasized that a wide range of industries depend on their goods and services being tax deductible, and that many companies that thrive on the current complexity of the tax code could find themselves out of business.

Proposed alternative

Instead, Longstreet has proposed imposing a flat tax with phased-out deductions, expensing and depreciations. He emphasized that providing such a situation would deliver the simplicity that Gordon spoke to, but would not take a heavy toll on the tax industry. Finally, he noted that while creating a corporate income tax rate of zero would eliminate expending, depreciation and other writeoffs, a flat rate would create far fewer complications. Do you have any thoughts on what we should do regarding the US corporate income tax? Feel free a leave a comment below.