Monday, February 27, 2006

Corporate taxes serve a purpose

I’ve often read of all corporate income taxes being eventually paid by the consumer. The writer then advocates doing away with corporate income taxes.

I wish to suggest that it makes more sense that there should be a simpler flat tax for all income, corporate, partnership, or individual. If we do away with corporate income taxes, entrepreneurs would simply arrange their income to be derived through corporations. If we repeal corporate taxes, the revenue would have to be replaced by raising the rates of other taxe(s), or creating new taxes. Corporate taxes are an additional paper trail for the enforcement of personal taxes. It would be desirable to have similar tax rates and accounting concepts for both personal and corporate taxes.

I also wish to comment regarding consumption taxes such as sales or “value added taxes”. The advocates of VAT always propose it as a means to replace income taxes.

I think all nations that have VAT or sales tax, also have income taxes. That’s because if they did away with their income taxes, they would have to raise their consumption tax rate to more unreasonable levels. For example Great Britain’s rate for most goods and services is 17% and their income tax rates are greater than ours.

We can not "wish" government expenses to vanish. If we must obtain a given amount of revenue, it's prudent to spread it among different types of taxes and not to permit any type of income tax rate to approach 1/2. Many believe that well before we approach the 1/3 rate, w're creating a very wasteful expense account environment and much greater tax evasion.

Beware of what you ask for, your wishes may be granted. The USA may eventually have VAT and both individual and corporate income taxes.

Respectfully, Supposn


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