Fixing the corporate income tax

Posted: February 22, 2012 by alephnaughty in Economics

First, businesses only ought to report their revenue from sales. Second, they should deduct purchases from other businesses. Third, they must also deduct labor expenses (wages & benefits). On the difference, they ought to be taxed at a flat rate. No further deductions, credits, etc. Simple.

‘Closing loopholes’ sounds good, but the devil is in the details. If it is code for taxing purchases from other businesses, for example, then these may not be loopholes worth closing. Also remember that means-testing raises marginal tax rates. If you want to close loopholes, close them for everyone, not just big businesses.

Finally, note that corporate income tax reform has little or nothing to do with stimulating the economy in the short run. By contrast, it has everything to do with long-run economic growth, the state of the government’s finances, and the distribution of wealth in society. So judge proposals on those terms.


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