Corporate income tax

[Jonathan Buhacoff]

Proposal:

A modest corporate income tax on every non-exempt corporation, with no deductions. The tax rate would vary by income level with tiers.

Intent:

Corporations need to pay a fair share of income tax without playing games with deductions and loopholes. A tiered tax on top-line (“gross”) revenue will accomplish this. Tiers can start small with a low rate to help small businesses survive, while getting increasingly larger with higher rates on the higher tiers.

Discussion:

The tiers and rates can be tuned to minimize the impact on corporations so that we can switch to the new system, and then later adjusted as needed. Corporations that are financially healthy will be able to absorb any additional tax as a reduction in their profits or increase their prices so they end up with the same profits they had before.

This will not change the dynamics of “narrow margin” businesses — their margin will still be narrow, and since all of them will be required to pay tax the same way, prices will adjust as needed and their intense competition will resume with the new normal.

Having a fair corporate income tax will reduce compliance expenses for corporations because the rules will be simple and unavoidable; it will reduce the audit expense for the IRS for the same reason, allowing the IRS to complete more audits with the same staff; and the increased overall revenue to the government along with the proposed sales tax will eliminate the need to have a personal income tax, which will then further reduce the compliance expense for millions of residents, reduce the processing expense for the IRS because it will only be looking at income tax and sales tax from businesses and not individuals, and ensure that even illegal residents pay tax and contribute to government funding because it will be built into purchases and they don’t have to send any separate payment to the government. The IRS can then focus on tracking down non-compliant businesses, which is a much smaller number than the number of people.

Corporations that have grown very large at the expense of taxpayers through special deals and deductions and loopholes will find that they can’t afford to stay that big and will need to downsize. This will be a win for the people because that will create more opportunities for other companies to compete fairly and that will bring more choice and more tax revenue to the people.

Government tax revenue would be a lot higher than today, and we would eliminate a lot of wasteful paperwork, if we simply impose a flat tax on corporate gross revenue.

To help startups and small business, while ensuring that really large business pays their share (they used to depend on externalities, now their tax will go up to compensate the public for this behavior). The gradual tax brackets will help startups and small companies that don’t earn a lot of revenue by demanding a lower corporate income tax rate from them, while large established businesses with higher revenues will need to pay more. For example, pay 1% of revenues up to $1 million (this also means the IRS can drop the complicated rules about “S-Corporations”, because paying an additional 1% tax on top of personal income tax won’t be much, so this will help with having less exceptions and less paperwork), then 3% of all revenues above $1 million and under $10 million, then 6% of all revenues above $10 million and under $100 million, then 9% of all revenues above $100 million and under $1 billion, then 12% of all revenues above $1 billion and under $10 billion, then 15% of all revenues above $10 billion. This easy system means revenue x10 but incremental tax only x3 for each subsequent bracket.

Looking at some of the wealthiest companies, Apple paid $9.68 billion of income tax in 2020, which is an effective tax rate of 3.5%. With the revenues in $274 billion, the taxes they pay on their first $10 billion dollars are in the lower brackets, and then 15% of revenues above $10 billion so that’s at least $26 billion in taxes. Their taxes would nearly triple under the new scheme. In comparison, Sleep Number, with an effective tax rate of 20%, would pay less because it only has $1.8 billion in revenue so it would be paying the lower brackets up to $1 billion then 12% on the next $800 million.

Related topics

Taxes
No personal income tax
Sales tax

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