If You Must Tax Corporations…

I general, I think our tax code is nuts, allowing deductions for interest, and not dividends.  That creates a pro-debt bias in the tax code, which we are suffering from now.  I would reverse it, and allow deductions for dividends, and not interest, which would create a pro-equity tax code.

Leaving that aside, though I think corporations should not be taxed, and individuals should be taxed more heavily, if you must tax corporations, do not create a separate tax accounting basis.  There should be no social engineering through the tax code.  Instead, tax corporations on their GAAP income.  If there is some other figure that they highlight to investors, such as operating earnings, tax them on that.

A taxation method like this gets rid of two sets of games:

  1. The game of lowering taxable income below GAAP income.
  2. The game of boosting reported income above GAAP income.

It is far better for the nation as a whole to have one set of strict rules on taxation that are almost impossible to avoid that the Swiss cheese tax code that we have gotten post-Reagan.  Discretion in the tax code allows the wealthy to avoid paying their fair share, regardless of what the tax rates are.  Why do you think wealthy Democrats support increases in tax rates and estate taxes?  Because they have clever ways of avoiding those taxes.

Again, I support true tax reform.  But who else would support such a fair system, when politicians support unfairness to aid them in getting re-elected?