The tax rate for corporations should be zero. The need to do tax accounting and associated financial engineering is a deadweight economic loss. Eliminate corporate income tax and raise taxes on the highest income employees and investors to make the change revenue neutral. Ultimately the profits flow to those individuals one way or another so better to collect all the tax revenue from them anyway. This change would increase economic growth and benefit everyone.

That would work if you were going to use VAT for everyone, but as long as you're using income tax for individuals, setting the corporate rate to zero would be an obvious tax dodge. You'd put all your assets and income into a corporation that pays no taxes and then have it loan you money when you want to spend it on something.

That's not an actual problem. The IRS already has clear rules requiring that certain corporate expenses are treated as taxable individual income if they directly benefit a particular employee or investor.

> The IRS already has clear rules requiring that certain corporate expenses are treated as taxable individual income if they directly benefit a particular employee or investor.

I replied to GP with the same thought as you, but I think there might be some merit in the "loan" angle.

Lets look at the case that you operate as a consultant/contractor/etc. Your "startup" starts making some very large revenue, and you'd like to use that money to pay rent, go on vacation, pay for surgery, etc.

Any money (say, $amount) the business pays on your behalf (hospital, landlord, etc) is considered your personal income and taxed appropriately.

But, if the books reflect that it was given as a loan, and you are now on the books as a debtor (with the business being your creditor), then that specific $amount isn't taxed as your personal income (loans aren't considered income, as far as I know, because they are a liability).

So, as long as you are in control of the business, the business doesn't need to initiate the "pay back now or we start legal proceedings" process. What instead happens is that this loan amount in the business books just grows and grows (interest accumulates) until the business dies/ends/is sold without ever collecting on it.

As long as the business itself does not have outstanding creditors when it eventually comes to an end, that "loan" can be just written off.

What's the revenue service going to do? Claim that businesses can't write off debt anymore?

There's a simple way out of it if you want to get rid of double taxation though: Just make dividends a tax deduction to the corporation. Then if the corporation makes money and doesn't issue it as dividends, they pay tax on it. If they do, the corporation doesn't, but the investor does. And then it gets taxed once either way but not twice.

> That would work if you were going to use VAT for everyone, but as long as you're using income tax for individuals, setting the corporate rate to zero would be an obvious tax dodge. You'd put all your assets and income into a corporation that pays no taxes and then have it loan you money when you want to spend it on something.

Unfortunately this doesn't work for individuals: tax codes in, well, every first world jurisdiction, are very clear that any money going to an individual for their exclusive use is taxed.

I operate as a consultancy (registered tax-paying business); If I use my revenue to pay my bond or get surgery, that $amount is considered personal income even if the company pays for it.[1]

The real problem is that corporations are taxed on profit and individuals are taxed on revenue!

All the costs that a corporation has to foot just to remain in existence is tax-deductible. All the costs that an individual has to foot to remain in existence is taxed (double-taxed, in some cases).

A corporation that pays $amount for rent won't pay tax on $amount in income, while an individual who pays $amount in rent is taxed on the $amount in income.

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[1] I hear what you are saying about a loan that is paid back, and maybe that is one loophole I can explore, but the revenue services have seen all "hacks" and this is no doubt one of them. This is why the tax codes are so complex and convoluted - each time a hack is discovered, a new code is added to specifically shutdown that loophole. The only remaining "hacks" are those that are allowed anyway by the overall tax policy, like "individuals are taxed on all revenue, corporates are taxed on profits only"

I think each company should pay a low rate on all money passing through. Let’s say 0.1 to 1%. Building huge pyramids of shell companies has probably no economic benefit and is mostly done to evade some regulation or taxes or liability. The ideas how to abuse this are too numerous to count so the government should not try to but simply disincentivize the use of corporations just a little bit. The cost would be borne by the individuals who have the most elaborate company architectures which is probably synonymous with the biggest tax evaders.