The Rise and Fall of Post—World War II Corporate Tax Reform

The United States is unique in subjecting corporate income to two layers of tax. In what is called a classical system, corporate income is taxed once at the entity level when earned and a second time at the individual level when distributed to shareholders in the form of a dividend. By contrast, in most other countries, corporate- and shareholder-level taxes are fully or partially integrated through some form of credit or deduction. America\u27s double taxation of corporate income is a much-criticized but persistent feature of its current tax system despite numerous reform proposals over the last half-century or so. Here, Bank discusses why dividend-tax relief was so long in coming, given the initial momentum for reform and determines what led dividend-tax reform to rise to the top of the agenda in 1954

The Rise and Fall of Post—World War II Corporate Tax Reform

The United States is unique in subjecting corporate income to two layers of tax. In what is called a classical system, corporate income is taxed once at the entity level when earned and a second time at the individual level when distributed to shareholders in the form of a dividend. By contrast, in most other countries, corporate- and shareholder-level taxes are fully or partially integrated through some form of credit or deduction. America\u27s double taxation of corporate income is a much-criticized but persistent feature of its current tax system despite numerous reform proposals over the last half-century or so. Here, Bank discusses why dividend-tax relief was so long in coming, given the initial momentum for reform and determines what led dividend-tax reform to rise to the top of the agenda in 1954

The Progressive Consuption Tax Revisited

Over the last decade, it has become increasingly evident that our current federal income tax is too complex, too easily evaded by the wealthy, and too likely to distribute the burdens of taxation to the people least able to bear it. Several years ago, frustration with these realities led to a groundswell of reform proposals, ranging from replacing the current graduated income tax rates with flat, or proportionate, rates to abolishing the income tax altogether in favor of a national sales tax. While this tax reform frenzy dissipated almost as quickly as it began, the seeds of discontent remain. Professor Edward McCaffery seeks to revive the tax reform debate in Fair Not Flat: How to Make the Tax System Better and Simpler. In his book, the University of Southern California law professor proposes combining elements of both the flat tax and sales tax proposals of the mid-90s. The twist in his proposal is that he abandons the flat rate that most politicians and commentators erroneously characterized as the most significant innovation of the flat tax. The flat rate always concealed the more radical proposal to exempt savings and investment from the tax base. McCaffery should be commended for highlighting this feature and acknowledging its true significance. In doing this, however, he forgoes the flat tax\u27s rhetorical appeal by explicitly embracing the introduction of progressivity through graduated rates. The proposal is therefore unique in the politically charged world of tax reform because it combines features that should be appealing to members of both ends of the spectrum. For liberals, it embraces the progressive ideal of the modern income tax. For conservatives, it fully exempts savings and investment from taxation and therefore operates as a consumption tax. It appears to be the perfect compromise - a progressive consumption tax

Tax, Corporate Governance, and Norms

This Article examines the use of federal tax provisions to effect changes in state law corporate governance. There is a growing academic controversy over these provisions, fueled in part by their popularity among legislators as a method of addressing the recent spate of corporate scandals. As a case study on the use of tax to regulate corporate governance, this paper compares and contrasts two measures enacted during the New Deal-the enactment of the undistributed profits tax in 1936 and the overhaul of the tax-free reorganization provisions in 1934-and considers why the former was so much more controversial and less sustainable than the latter. While some of the difference can be explained by the different political and economic circumstances surrounding each proposal, this Article argues that the divergence in the degree of opposition can be explained in part by an examination of the extent to which each provision threatened an underlying norm, or longstanding standard, of corporate behavior. The Article goes on to test this norms-based explanation against several recent attempts to enact corporate governance-oriented tax provisions and concludes that it has modern relevance. The implication is that while Congress may use the Tax Code to reinforce existing norms of corporate behavior, it is likely to be less successful when it tries to use the Code to change existing norms or introduce new ones