Corporations should not pay income tax at all. It's a direct tax on savings and investment, which leads to slower growth and lower incomes for the country as a whole. S Corps and some other legally structured corporations (such as some LLCs, all "non-profits" and religious businesses) don't pay income taxes by design. Why should C corps be singled out to pay taxes on capital that could be reinvested?
If you really want a fair, progressive tax system, stop taxing corporations, and increase dividend and capital gains* tax rates back to ordinary income tax rates. Then for the first time the little old lady in retirement would pay low rates and the rich CEO would pay much higher rates.
Under the current system when the retiree in California living off $30k in annual retirement income gets a dividend a total of roughly 38% is lost to taxes (Federal Corporate Capital Gains, Federal Dividend tax, State Corporate Income Tax, & State Personal Income Tax). The CA CEO making a million dollars a year loses roughly 47% to taxes on that same dividend.
So that's what our progressive income tax system was intended for, to have the poorest paying 38% and the richest 47%? And all to discourage savings and investment?
*
Now you'd have to index capital gains for inflation if you reverted them to ordinary income tax rates. That's the reason we have a separate capital gains rate. Taxing someone on a 100% gain in their stock value when inflation was 100% during the same period would be taxing imaginary gains.
> Corporations should not pay income tax at all. It's a direct tax on savings and investment
No corporation pays (or has ever paid) a dollar of tax on money spent for investment in the business. Corporate taxes, by design, only affect those dollars the corporation has chosen NOT to invest in the business.
I invest $1M building a great new store for selling widgets. My first year I make a $1M profit. I want to build a second store, but I can't out of profits, because I only can net $700k because of state and federal corporate income taxes.
1) They can be reinvested back into the business.
2) They can be held by the business pending future investment opportunities.
3) They can be dividended back to the shareholders.
Taxing profits means less profits remain to reinvest (#1), and less remain to be held in (#2) bank accounts (which are lent out by banks for investments), and less can be dividended to investors (#3) which reduces investor returns and lower returns means less motivation to reinvest in businesses.
If you really want a fair, progressive tax system, stop taxing corporations, and increase dividend and capital gains* tax rates back to ordinary income tax rates. Then for the first time the little old lady in retirement would pay low rates and the rich CEO would pay much higher rates.
Under the current system when the retiree in California living off $30k in annual retirement income gets a dividend a total of roughly 38% is lost to taxes (Federal Corporate Capital Gains, Federal Dividend tax, State Corporate Income Tax, & State Personal Income Tax). The CA CEO making a million dollars a year loses roughly 47% to taxes on that same dividend.
So that's what our progressive income tax system was intended for, to have the poorest paying 38% and the richest 47%? And all to discourage savings and investment?
* Now you'd have to index capital gains for inflation if you reverted them to ordinary income tax rates. That's the reason we have a separate capital gains rate. Taxing someone on a 100% gain in their stock value when inflation was 100% during the same period would be taxing imaginary gains.