> If you want to tax profit throughout a supply chain, all you have to do is make sure that you only tax revenue exactly once and you're done. But that's still just VAT or sales tax. Pretending corporate income tax is something fundamentally different is just introducing exactly the sort of complexity that allows international corporations to avoid paying the same taxes that domestic corporations still have to pay.
You make an excellent point, and I agree fully. I wish more people understood it!
I'd also suggest an alternative way of looking at it: Rather than, as you suggest, taxing every dollar that is spent exactly once (thereby ending up with a VAT), you could instead tax every dollar that is earned (by a real person) exactly once. In this model all income would of course be treated the same. The current scheme where investment income receives a lower rate is required in order to make up for the cut already taken via corporate taxes, and once again, the second you start allowing different rates for different dollars earned by the same person, you end up with complex shenanigans whereby people find ways to shuffle dollars into the more favoured category. If you abolish corporate taxes, you can abandon special rates for investment income and capital gains, which removes the need for a ton of tax planning and structuring.
I'm not suggesting that as a good policy, I just find the logic interesting. Either way you look at it, corporate taxes create enormous scope for distortions and games that make us all worse off on net.
> Rather than, as you suggest, taxing every dollar that is spent exactly once (thereby ending up with a VAT), you could instead tax every dollar that is earned (by a real person) exactly once.
One of the problems with income tax is that there are a lot of things you don't really want to tax. For example, suppose you don't want to tax childcare. With VAT, you simply don't require childcare providers to collect VAT. With income tax, you need every individual taxpayer to file a tax return at the end of the year identifying how much childcare they paid for, and they have to accurately predict ahead of time how much that will be or they may overpay or underpay their taxes.
It's also an invasion of privacy -- you end up having to tell the IRS all about your life in order to get the tax deductions, instead of just not taxing those things to begin with.
Meanwhile there are a lot more individuals than businesses, which increases administrative costs and overhead.
If it's all the same in the end anyway then why choose the wasteful complicated invasive one?
Yes and no; some countries have much more stringent rules about what you have to do to avoid being resident for tax purposes. You might want to route your income through Panama, but very, very few of the ultra-wealthy want to be forced to actually live there.
Countries that currently have lax rules about tax domiciles do so in large part because it has no real impact due to other loopholes, but if you start to remove those, then tightening up residency rules will have a much larger payoff. Nothing stops the UK from saying that spending more than, say, 20 weeks a year in the UK makes you liable for UK income tax on your entire worldwide income (which is, very very roughly, the rule the US has).
That being said, it's always going to be easier to hide income, which is the practical advantage of a strong, universal VAT. It's much harder to hide consumption than income. (Or even better, land value taxes!)
You make an excellent point, and I agree fully. I wish more people understood it!
I'd also suggest an alternative way of looking at it: Rather than, as you suggest, taxing every dollar that is spent exactly once (thereby ending up with a VAT), you could instead tax every dollar that is earned (by a real person) exactly once. In this model all income would of course be treated the same. The current scheme where investment income receives a lower rate is required in order to make up for the cut already taken via corporate taxes, and once again, the second you start allowing different rates for different dollars earned by the same person, you end up with complex shenanigans whereby people find ways to shuffle dollars into the more favoured category. If you abolish corporate taxes, you can abandon special rates for investment income and capital gains, which removes the need for a ton of tax planning and structuring.
I'm not suggesting that as a good policy, I just find the logic interesting. Either way you look at it, corporate taxes create enormous scope for distortions and games that make us all worse off on net.