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1 Scott Greenberg, Corporate Integration: An Important Component of Tax Reform 1 (2016)

handle is hein.taxfoundation/corpintictxr0001 and id is 1 raw text is: TAXS FOUNDATION FISCAL FACT No. 506 Apr. 2016 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) non-profit organization. @2016 Tax Foundation Distributed under Creative Commons CC-BY NC 4.0 Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org Corporate Integration: An Important Component of Tax Reform By Scott Greenberg Analyst Key Findings: The combined top federal tax rate on equity-financed corporate income in the United States is 50.47 percent, compared to a top federal tax rate of 43.4 percent on other business income. Equity-financed corporate income is subject to a higher tax rate than other business income because it is subject to a double tax: once on the corporate level, through the corporate income tax, and once on the shareholder level, though the individual income tax on dividends. Taxing equity-financed corporate income at a higher rate encourages the misallocation of investment capital. Ideally, all business income would be subject to the same top tax rate, regardless of the legal form of the business or the method of financing. Short of reforming the entire U.S. tax code, integrating the corporate and individual income taxes could eliminate the double taxation of corporate income. There are several ways to integrate the corporate and individual tax codes, including allowing shareholders a credit for corporate taxes paid (credit imputation) or allowing corporations to deduct dividends paid (dividends paid deduction). Each of these strategies for corporate integration presents different opportunities and challenges. Corporate integration would accomplish many of the same goals as a corporate rate cut, such as making the U.S. business climate more competitive. It could also end several economic distortions created by the current tax code, including the tax preference for debt financing over equity financing.

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