Director of Federal Fiscal Policy
Bloomberg’s Evan Soltas suggests eliminating the corporate income tax. It’s a terrible idea that would:
Soltas mentions that a carbon tax or value-added tax (VAT) could help fill the revenue hole. But, given the need to reduce long-run deficits, eliminating the corporate income tax is hardly a good priority for any revenues that such policies would generate.
two a replacement for the corporate income tax that Soltas suggests — a carbon tax and VAT — is generally regressive, so the net result would be to shift tax burdens to low- and moderate-income people in order to cut taxes for the wealthiest.
Soltas also notes that we could replace the corporate income tax with higher taxes on individuals’ investment income, like dividends and capital gains. But, that would give individuals a bigger incentive to delay those taxes for as long as possible by hoarding income in corporations or accumulating capital gains on corporate stock indefinitely.
Despite news stories about corporations running circles around the IRS, the truth is that the corporate income tax helps prevent cheating. A public company may have thousands of shareholders; the tax aims to help ensure that all of them pay at least some tax on their corporate income. While the corporate income tax could certainly be improved (see our six tests for corporate tax reform), it nonetheless plays an important role in fulfilling the tax system’s basic goal — raising revenue fairly and efficiently — while also reducing income inequality.