Delicious idea for overhauling the corporate income tax: replace it with stocks

Thanks to rampant tax-dodging trickery and sophistry, corporate America is enjoying huge payoffs even as it complains loudly about the “sticker price” statutory corporate income tax rate owed to Uncle Sam. The complicated corporate income tax system we have today also advantages large multinational companies because unlike small business entrepreneurs, they can afford armies of lobbyists and tax lawyers. Clearly, our federal corporate tax laws are ripe for reform.

Here’s a delicious “what if” idea from economist Dean Baker: instead of manually calculating and paying a tax on its profits, a public company could be given the option to turn over some nonvoting shares to the federal government so that the profits are taxed automatically. To be clear, the government would not gain control over the company as the stock turned over would consist of nonvoting shares. The proposal is instead intended to make it harder for companies to avoid paying their taxes.

He explains the proposal’s intriguing advantages over the current tax system in The New York Times:

“Suppose that, instead of taxing corporate profits, we required companies to turn over an amount of stock, in the form of nonvoting shares, to the government. […]

The shares would be nontransferable, except in the case of mergers or buyouts, but they otherwise would be treated just like any other shares. If the company paid a dividend to its other stockholders, then it would pay the same per share dividend to the government. If it bought back 10 percent of its shares, then it would buy back 10 percent of the government’s shares at the same price. In the event of a takeover, the buyer would have to pay the same per-share price to the government as it did to the holders of other shares.

This way, there is no way for a corporation to escape its liability. A portion of whatever profit it makes will automatically go to the government. It also eliminates the enormous cost and waste associated with complying with or avoiding the corporate income tax (there would be some start-up and monitoring costs, of course, but nothing like what current enforcement requires). And federal revenues will go up, because companies will have incentive to do what is most profitable, not what minimizes their tax liability.”