The Jane Galt Tax Plan, “guaranteed to please no one but its author,” involves a number of simplifications, including the elimination of corporate income tax and the special treatment of capital gains:
Eliminating the corporate income tax while equalizing treatment between capital gains does a number of things. It mitigates the current bias towards (tax deductible) debt financing. It ends all the ridiculous distortionary crap that corporations do to get around taxes. It ends the bias towards retained earnings that helped produce such interesting results in the stock market. It takes away a large chunk of the ability of the rich to avoid taxes by deferring their income in capital gains. It ends the tax preference for stock options that helped make the start of the new millenium so lively. Under this plan, income is income is income, no matter where it comes from. Thus we can stop the multi-billion dollar industry in shifting income from tax-disadvantaged to tax-advantaged forms.
If you just end the corporate tax without changing capital gains, you keep much of the distortion and shelter for the rich. If you eliminate special capital gains treatment without eliminating the corporate tax, you bias the economy away from investment, because now income is taxed at a high level twice — once when its made by the company, and a second time when its distributed to the company’s owners. This way, we tax it once, when it hits a real person.
As one commenter noted:
Today corporate profits are triple taxed. You pay 35% for corporate income tax. Then you pay 10% to 37% for individual income tax on the same money. Then you pay 20% capital gains tax when you sell on the increase in value of the company, which is equal to the increase in expected future income stream from the company. That is three taxes which ultimately fall on the same income. The total rate is usually well over 60%.And the distortive effects these taxes create when we try to avoid them build a web of complicated transactions. The corporate accounting chicanery was largely a result of stockholders giving accountants leeway to scheme in order to avoid triple taxes.