All commercial income belongs to the people which is the individuals who matter. My point here is different from the financial theory of tax incidence. To the degree people change what they do to lessen their tax burden, part of that burden is shifted to other people. Usually, total income and welfare are also reduced.

When taxes are reduced, the change of that reasoning is that work to reduce the burden is curtailed and part of what was shifted disappears. This benefits someone against whom the tax was not straight evaluated while increasing total income and welfare. There is nearly some shift in the incidence of the organization income tax certainly, but the first step is to understand that the immediate burden of the organization income tax is on the owners of the corporation–that is, the stockholders. There is certainly little reason to truly have a special tax on the income stockholders earn from businesses organized using the organization form and certainly no reason for the high taxes of 21% significantly less 35% or even more.

While the average income of these owning shares of stock is relatively high, there are many stockholders who have quite modest earnings. Most obviously, many with defined contribution retirement plans to use savings to purchase stock, indirectly through stock-index funds sometimes. The corporate tax reduces the return on these stock investments so the income open to working people when they retire.

Since this impacts the amount of saving essential to generate a satisfactory retirement income, it adversely impacts the welfare and consumption of average working people in today’s. In order to avoid imposing unfair and unreasonable tax rates on people of modest means, it is necessary to stop taxing corporations and instead tax people who own the corporations.

Those with lower incomes may then be taxed at a more modest rate. Suppose a corporation will pay out its income as a dividend to its stockholders. 65 for the stockholder’s dividend. 56. The national government has taken nearly half of the share of the profit belonging to this taxpayer. 79 for the dividend.

100 incomes. But why? 100 as he or she would pay on any other income? While for most people that is income, it also includes profit and interest produced from other business forms such as a proprietorship or a partnership. It would be possible to impose a particularly high tax on people earning high incomes from businesses organized as corporations, but that basically doesn’t make any sense either. 40, so the federal government is taking about 60% of the earnings. After the taxes cuts, with the new lower commercial tax rate and the slightly lower top taxes rate on personal income, the government will need more than 1/2 of the earnings slightly.

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However, why should the income from commercial income be taxed at 50% while interest from bonds (including corporate bonds) or profit from proprietorships or partnerships be taxed at 37%? While I believe the new top taxes rate is too high rather than too low, having an especially high taxes rate for income from corporate income is unreasonable and unfair. There is an important complication that could result from taxing personal income at an increased rate than corporate income. Without corporate tax and a personal tax, there can be an incentive to use the organization form to build up prosperity without paying any tax.

Conceptually, this can be corrected by allocating all commercial income to the stockholders whether they are distributed as dividends or held as retained revenue. An alternative approach is to continue to tax corporations but to give a refundable tax credit against each stockholder’s personal tax. However, there’s a good case to be made for expanding the capability to accumulate wealth without paying tax. From that perspective, the problem would be that the ability to do so is limited to those who buy and hold stock in a specific corporation. It will also be possible to accumulate wealth tax free for those who shift funds between corporations or keep money in a savings account or purchase bonds.

Perhaps the simplest way to do this administratively would be to remove the limitations on deductions for efforts to IRA accounts as well as the penalties for early drawback. The result will be a shift from taxes on personal income to a tax on personal intake. Some would complain that taxing consumption is unfair because most of us must spend a few of our income on consumption and the ones with higher earnings have more remaining that can be saved and so avoid tax. Perhaps the argument just takes the taxes rates as given, though I think that those making this state are usually supposing a proportional usage tax. That would be true of the sales tax.