Corporate Income Tax

The marginal income tax for C Corporations in America is 35%. This is approximately the same as the marginal income tax for individuals, which also is 35%. Most small businesses are formed as LLC’s, LLP’s, or individual proprietorships, so that they do not pay any taxes at the corporate level. The reason for this is to avoid double taxation: if one owned a small company and it was a C Corporation and it made $50,000.00 per year in profit, and this profit was distributed as a dividend, one would be taxed first at the corporate level, and then when the money was distributed, one would then be taxed a second time. The same is true if the small business made $1,000,000.00. If, however, the corporate tax were substantially less than the personal tax, then at such time as any small business made more money than the owner of said small business needed for his or her personal expenses, it would be advantageous to form a C Corporation and leave that money in the business.

Large US corporations don’t tend to distribute all of their profits to their shareholders. However, all dollars distributed by the corporation to the shareholders are subject to double taxation, in that both the corporation and the individual pay taxes on each such dollar that was earned by the company.
Our goal here is to create jobs and an environment where the Middle Class in America is more competitive.
Large companies and small businesses create and provide jobs. Today in America’s private sector, small businesses create 75% of the jobs, and large corporations create 25% of the jobs. Lowering the corporate federal income tax burden creates a more favorable business environment for large corporations and small businesses – and this means a more favorable job environment for the Middle Class.

The Obama Administration realizes that we need to reduce corporate taxes and has proposed a corporate tax rate cut from 35% to 28%. Likewise, the Republicans, as stated for example in the Ryan Plan, also want to reduce corporate taxes. All parties here understand that doing so would make America more competitive. However, nibbling around the edges won’t get this done.

Given the above facts, I would suggest that the corporate tax be revised as follows: the first twenty million dollars of taxable income would be exempt (i.e., essentially subject to 0% tax rate); thereafter, corporations would be taxed at 10%. Additionally, most deductions should also be eliminated, which would help to get rid of the situation where large corporations, such as Google, pay virtually no taxes (Google is currently only paying an effective corporate tax rate of 2%).

Such a tax structure would encourage small businesses to form C Corporations rather than pass-through entities. These small businesses would thrive because they wouldn’t be subject to taxes. Only money pulled out of the C Corporations for personal use would they be subject to taxes. Furthermore, if the marginal corporate tax was small, say 10%, it would encourage large corporations all over the world to incorporate in the United States. Changing the corporate tax structure in these ways will increase job creation by small businesses and large businesses alike.

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