Chapter 17-The Corporation Tax Public economics
1 Chapter 17 – The Corporation Tax Public Economics
Introduction A corporation is a form of business organization in which ownership is usually represented by transferable stock certificates Stockholders have limited liability Corporations are independent legal entities Can make contracts, hold property, incur debt, sue, and be sued
2 Introduction • A corporation is a form of business organization in which ownership is usually represented by transferable stock certificates – Stockholders have limited liability – Corporations are independent legal entities • Can make contracts, hold property, incur debt, sue, and be sued
Why Tax Corporations? Only real people can pay a tax, so why not just tax incomes of corporation owners via the personal income tax? Justification #1: Corporations are distinct entities and ownership and control are separated Justification #2 Corporations receive a number of special privileges, such as limited liability. Corporation tax simply a user fee Justification #3: Corporation tax protects the integrity of the personal income tax. Cannot simpl accumulate income within the corporation to defer tax payments
3 Why Tax Corporations? • Only real people can pay a tax, so why not just tax incomes of corporation owners via the personal income tax? – Justification #1: Corporations are distinct entities, and ownership and control are separated – Justification #2: Corporations receive a number of special privileges, such as limited liability. Corporation tax simply a user fee. – Justification #3: Corporation tax protects the integrity of the personal income tax. Cannot simply accumulate income within the corporation to defer tax payments
Structure Tax system can safely be presented as a flat rate of 35 Statutory rate gives relatively little information about the effective burden because we must know what deductions are allowed
4 Structure • Tax system can safely be presented as a flat rate of 35% • Statutory rate gives relatively little information about the effective burden, because we must know what deductions are allowed
Structure: Deductions Employee compensation Interest payments, not dividends Depreciation No Investment Tax Credit Treatment of dividends versus retained Earnings
5 Structure: Deductions • Employee compensation • Interest payments, not dividends • Depreciation • No Investment Tax Credit • Treatment of Dividends versus Retained Earnings