Mr. Obama proposes a Reaganesque approach to reducing the corporate income tax rate: reduce the rate and also the loopholes. I would take it one step further: abolish the corporate income tax altogether and tax revenues instead.  That way, no business escapes tax free.  This is only fair, since they all use the US systems of justice, policing and defense to protect their property; the US physical infrastructure to get their goods to market; the US financial infrastructure to finance their operations; and the US regulatory system to create and support stable mass markets.

My back-of-the-envelope calculation shows that a no-loophole tax rate of 6.5% of revenues would be revenue-neutral. Oh, by the way, it would also cover employers’ shares of payroll taxes. Think how beneficially that would affect employment in the US!

I think this is a much better idea than the one that Republicans are offering: a national sales tax.  What business needs now is customers, but a national sales tax would reduce demand. Of course, businesses would add my proposed revenue tax to their expense base for calculating prices, but the elimination of income and payroll taxes would completely offset that for many businesses, and others would need to take into account the elasticity of demand for their products when calculating prices: maybe they would reduce CEO pay and other elastic expenses instead of increasing prices.

So what are the favored loopholes?  That was a pretty misleading headline.

The revenue tax is an interesting idea, but how would it work for companies that are just starting up or are losing money?  Under the current system, they pay no tax and can even take NOL credits against future profits.

There are too many inconsistencies in revenue recognition for a revenue tax to work, e.g. a retailer’s topline is the amount of cash in the door while an auctioneer’s topline is only the fees earned for the sale. That’s why net income is taxed. But many ‘loopholes’ are legitimate, such as depreciation. The ‘loopholes’ get there to begin with because someone legislated an incentive, presumably for a reason. Sure, it is good to clean up the resulting mess periodically, but there are many consequences. A consumption tax is alluring because a very small rate gets a very big result without any appreciable dent in demand. It’s great until it creeps up to the VAT levels in Europe of 12-20%...once at those levels there is no taxing flexibility left.

Here’s what the top US companies paid in 2009 - almost nothing in comparison to net profit:
http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-washington-corporate-taxes.html

A link out of this ProPublica article to one in the NYTimes showed a quick $24Billion that could be added to revenue by removing 3 such tax loopholes, however the question really is: How much could we add to revenue by removing all loopholes and leaving the current tax rate where it is? That would be a start, and a simple question that deserves an answer.

I’ve recently read the suggestion of eliminating the corporate tax and increasing tax on capital gains to be the same as the income tax.  If this really did balance out, it sounds like a perfect solution to me.  Eliminate a tax that hurts businesses and throw the cost on the back of over paid bankers and the super rich.

Terry, more tax on"over paid bankers and super rich’.
Did you read the begging of this article? The lowest income people pay the lowest percentage on the least money. The highest income pay the highest percentage on the most money. Why are they being charged more for success? Why are the lower income being rewarded for less “success? I find it troubling people find that fair and equitable. Tax the rich , tax the rich, divide and conquer, rob from the rich give to the poor, let the government disperse the money like mother Russia did. Point fingers and say things that are not true like ” the rich should pay their fair share. Higher % on more money, when is the fair share enough?

@Matt- John Paulson has made $9b in the last two years alone and pays only 15% taxes.  He has made his money by purchasing credit default swaps on securities that he thought would fail.  He is not a financier that moves money into its best location.  He does not create anything.  Granted, he was smarter than the people that sold him the swaps.  I am only saying that he should pay the same % as the rest of us.  I paid a higher percentage of my income into taxes than he did - is that equitable and fair?

As a corollary, eliminating corporate taxes would increase dividend payments anyway.  Wealthy people that own equities would see more income from these dividends.  However, eliminating the corporate tax rate would eliminate the need for businesses to spend so much time and money on tax planning and would give a big boost to income right away.  This would encourage business to lower prices and/or hire more staff.

They could start by assessing payroll taxes on all forms of income including dividends, inheritances, and capital gains.

The amount of income tax withheld from my annuity just doubled. Must be from the Bush tax cut extension.

Thank you, commenters, for your interesting takes on the idea of a corporate revenue tax replacing the corporate income tax and the employers’ shares of payroll taxes.  Let me address a few of the issues that you raised:

Jack, I would exempt startups for a set (short) period of time, but not companies that are losing money after that set period.  All companies benefit from the government support that I listed in my post, but startups need any additional help they can get for long enough to determine if they are viable and can create jobs on their own.

Grace, there is nothing more inconsistent than the recognition of income.  Generally Accepted Accounting Principles (GAAP) are all over the lot, and tax law is much worse when it comes to net income. GAAP has different rules for different industries, and tax laws differ for individual companies within industries.  Indeed, under Federal tax law, the same company can legally declare entirely different versions of net income: one version tells the stockholders how much money they’re making and the other tells the IRS how much they’re losing!  This is the weak membrane that is so vulnerable to the loopholes referenced in the article.  Revenue recognition is a little less subject to manipulation because it omits the whole expense side, which involves many estimates, projections and intangibles.  GAAP rules for revenue recognition constitute the solid basis from which deviations for taxation purposes should be few and extremely well-justified. 

Terry, the original article in the New York Times did cite some specific loopholes.  But it failed to note what, to me, is the biggest loophole of all.  As noted above, this is the ability of companies to issue different financial statements to the public than to the IRS.

Various commenters mentioned other alternatives for increasing the Federal tax take, but the specific subject of this discussion is the counterproductivity of the corporate income tax in terms of a healthy economy.  Legitimate alternatives to the corporate income tax include the Value Added Tax, which, when assessed at each stage of production/distribution,  is very similar in spirit to my suggestion of a gross revenue tax;  and the Consumption Tax, which is a Federal sales tax to be assessed at the point of final sale in addition to existing state and municipal sales taxes.  Another version of this idea would substitute it for the personal income tax, at a humongous rate (which its advocates attempt to conceal).  However the consumption tax is configured, it is a miserable idea at a time when demand for goods and services fails to support anything even remotely resembling a full-employment economy.

I agree with the 2nd comment - your portend to tell what the loopholes are and the article is just more empty talk.  Did you previously serve in Congress, or are you an attorney?  Sorry, cheap shot.  I prepared tax returns for small businesses for 35 years, and I’m telling you there are no loopholes for regular every-day domestic corporations.  The government has for many years designed the tax code to suck up any remaining cash they have.  International corporations, now, that’s another matter.

MH:  .I am neither a politician nor a lawyer. I have a master’s degree in accounting. I definitely sympathize with you and your small business clients. It is mostly the big guys who get away with stuff. You should read the original article in The New York Times; the Pro Publica version was considerably edited. Even so, Leonhardt, the Times columnist,  hardly scratches the surface of corruption in connection with the corporate income tax.  Try reading almost anything by Abraham Briloff (things have only gotten worse since Briloff was writing more than 40 years ago).  For a more modern take, read The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron by Peter Elkind.

Any tax code reform will be ultimately useless unless the reform leads to the most open and honest (verifiable) alternatives.  The current system with its comlexity, deductions and loopholes favors those who have no problem hiding or lying about income or revenue.  In my opinion, a flat low tax rate (no deductions) on personal income and corporate revenue, plus a low consumption tax on items other than food would be fair and more transparent.

Matt

Progressive tax rates don’t punish the wealthy for succeeding—was that out of a coloring book?

Rather than mindlessly spouting inanities, try looking at actual information which shows what is going on in the US economy. Like the tables showing income info dating from 1947 on at the Census Dept. site. Or the graph showing that federal income tax revenues are currently at the same level they were at 60 years ago, as a percentage of GDP.

The Reps say the federal gov’t doesn’t have a revenue problem—that is a lie.

As to reform of the corporate tax scheme, eliminate ALL loopholes and cut the rate to 25%.

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