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Post by Sapphire Capital on Feb 19, 2009 22:20:48 GMT 4
Parity Lost: The Price of a Corporate Tax in a Progressive Tax World Richard Winchester Thomas Jefferson School of Law Nevada Law Journal, Vol. 9, No. 1, 2009 TJSL Legal Studies Research Paper No. 1288180 Abstract: The United States has always taxed income at progressive rates, so that an individual's tax burden would increase with his ability to pay. Whenever the United States has had an income tax, it has also imposed an entity level tax on the profits of certain businesses, but not others. Both the structure of the progressive tax rates and the design of the entity level tax on business profits have evolved over time, resulting in a wide range of incentives and outcomes. This article recounts the early history of the income tax in the United States, focusing on how an entity level tax on business profits operated within the context of a system that taxed individuals at progressive rates. It highlights how the combination of rules created disparities in the taxation of business profits, setting the stage for individuals to exploit those disparities in an effort to minimize their tax bills. Although Congress adopted measures to reduce the disparities and curb tax avoidance, such measures proved increasingly less effective as the income tax took on a more progressive design, resulting in distorted outcomes that seemed to get worse over time. In light of this experience, the article questions whether the system ever achieved any form of parity in the taxation of business profits, potentially undermining its very ability to operate in a progressive way. papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1334450_code699328.pdf?abstractid=1288180&mirid=1
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