Ever since the Hudson Bay companies, corporations have been in our life. They began and continue to be a method for accumulation of capital by investors who wish to create a new company, finance a venture and launch new ideas. They never were intended to be taxable entities. Unfortunately our government insatiable appetite for money from anywhere it can get it found a way to tax its citizens twice. Once at the individual level and again at the corporate level.
The S Corporation is a means to tax only the shareholders, which is as it should be. I have written frequently about the idea of applying S Corporation rules to all corporations, from “Joe the Plumber” to IBM. The only opposition I have gotten is from people concerned about the mechanics and not the idea. I have not received one objection on the idea itself. Recent advances in computerized shareholder management, public owned partnerships and more sophisticated tax software make it completely feasible to treat all corporations as non taxable entities. In effect all shareholder would receive the familiar “Form K-1” that current subchapter S shareholders receive at the end of the year.
This is what it would do:
- Eliminate offshore companies who do not pay any tax. There would be no incentive.
- Eliminate tax avoidance by foreign shareholders. Taxable income on the form K-1 would have taxes withheld and paid the to government. These laws already exist. They are called “withholding at the source”
- Raise the Capitalized Value of all domestic corporations since the Weighted Average Cost of Capital uses taxes in the equation which suppresses the value of the corporation as perceived by the analysts. In other words, the stock market would go up for once for a legitimate reason.
- Initially government revenues may be lower due to a sudden loss of a tax source.
- Eventually tax revenues would go up because more individuals would be paying tax on the income of their investment’s earnings.
This coupled with a flat tax would go a long way toward simplifying taxes for everyone.