This is an excellent article. The key takeaway starts here:
> I know what you’re thinking. You want a simple tax code that raises a bunch of money by closing the loopholes. Many people think this because they think that taxing income is simple, so “loopholes” must be illicit backdoors placed in the tax code at the behest of greedy corporations.
> And to be sure, the tax code contains plenty of senseless giveaways to corporations. But these are small beer. Most of the “loopholes” that we argue about are not a result of congressional pandering, or even sharp lawyers who bend sensible rules. They’re an artifact of the fact that calculating corporate income is really hard.
I realized this when I was taking an introductory course in federal income tax, and trying to figure out the effect of different depreciation schedules. There's a neat logic to the income tax, including complex concepts like depreciation.[1] Yet, things that are simple to state as an equation are quite complex to implement in practice. For example, things like loss carry-forwards arise from trying to tax a continuous parameter (changes in wealth over time), in discrete, annual time-steps.
I disagree with people who think corporate taxes are "double taxation" or anything like that. Taxing corporations falls naturally out of treating them as distinct legal persons. A corporation's income is treated, and taxed, distinctly from shareholders' income for the same reason a corporations legal liabilities are treated distinctly from shareholders' liabilities. It's just the flip side of the coin.
That said, while corporate make sense within the logic of the tax code, in practice they are probably more trouble than they are worth, and create bad incentives for companies to relocate their operations out of the U.S.
> I know what you’re thinking. You want a simple tax code that raises a bunch of money by closing the loopholes. Many people think this because they think that taxing income is simple, so “loopholes” must be illicit backdoors placed in the tax code at the behest of greedy corporations.
> And to be sure, the tax code contains plenty of senseless giveaways to corporations. But these are small beer. Most of the “loopholes” that we argue about are not a result of congressional pandering, or even sharp lawyers who bend sensible rules. They’re an artifact of the fact that calculating corporate income is really hard.
I realized this when I was taking an introductory course in federal income tax, and trying to figure out the effect of different depreciation schedules. There's a neat logic to the income tax, including complex concepts like depreciation.[1] Yet, things that are simple to state as an equation are quite complex to implement in practice. For example, things like loss carry-forwards arise from trying to tax a continuous parameter (changes in wealth over time), in discrete, annual time-steps.
I disagree with people who think corporate taxes are "double taxation" or anything like that. Taxing corporations falls naturally out of treating them as distinct legal persons. A corporation's income is treated, and taxed, distinctly from shareholders' income for the same reason a corporations legal liabilities are treated distinctly from shareholders' liabilities. It's just the flip side of the coin.
That said, while corporate make sense within the logic of the tax code, in practice they are probably more trouble than they are worth, and create bad incentives for companies to relocate their operations out of the U.S.
[1] I recommend http://www.amazon.com/Chirelsteins-Federal-Income-Taxation-S... for a very approachable introduction to the topic. Don't be scared off by the page-count: it's big type on paperback pages.