In that case, why would anyone remove money from a corporate entity? All those who could afford it would just act through corporate avatars. I think this already happens to some degree.

A person might still enjoy certain (taxable) benefits. I can buy a castle through a company. This is possible and not a problem.

However, if I want to go live in said castle, I usually have to pay some tax on the benefit received. Or pay market rate rent to the company. If I just want to hold the castle as an investment, then obviously I wouldn't have to pay personal tax on that.

What you are suggesting is that the company could provide compensation while declaring it as a cost of doing business.

If they do that (legally or not), it wouldn't count as profit for the business anyway, so a tax on profit doesn't help the situation.

Double taxation is the price you pay as a shareholder for protection from liability for the corporate debts. If you don't want double taxation, you're free to choose a structure that doesn't shield you from liability (i.e., a partnership), though in the US and most of Europe you can now get the best of both worlds (liability protection and no double-taxation) though the LLC or limited company forms.

But why? Double taxation of the same group of people with the same behaviors is equivalent to a higher tax. So why complicate matters?

I guess you're suggesting that it's a means to tax the special privilege of incorporation (and the protection it offers to investors). But that seems like a bad reason. Again, why not just tax the investors directly for the privilege?

"Double taxation" is actually taxing two different - though related - events:

The first is when the company makes profit, whether it is distributed to shareholders or not.

The second is when the shareholders receive their income.

If we did away with the first of these and raised the rate of the second, companies would no longer be paying any taxes on money they accumulate without disbursing. This would make them comparatively less likely to invest it in the short term in ways they can write off. I'm not going to make any particular case here as to whether that's good or bad (and for whom) but it's clearly a change.

Allowing companies to count disbursal of profits as an expense and raising the income tax on those receiving those funds would, I think, leave things more-or-less unchanged but that means there's also no particular reason to do it. It wouldn't simplify paperwork any - both corporations and individuals would still need to be accounting for their income and paying taxes.

> so why not just eliminate corporate taxes and raise capital gains and dividend taxes

This doesn't make sense.

Tax corporations for their income/profit and then zero dividend taxes (since this money paid tax in the form of corporate taxes).

Capital gains is another issue entirely, while it applies to buying/selling stock it also applies to a lot of other things, so most likely it can't/won't be eliminated.

Can you explain why my idea doesn't make sense? (Real question, not a challenge.)

Well, to be fair I can see the point of a dividend tax

Corporate profits usually become either investments or dividends.

It could be said that by removing corporate taxes you would increase corporate investments or more dividends payment (which would be taxed more, but probably would still be smaller than the tax you would have gotten with corporate taxation)

Also see dilthomas and charlesdm comments