Chap17 The Corporation Tax(西方财政学-厦门大学,曾建华).ppt

Chapter 17 – The Corporation Tax Public Economics Introduction A corporation is a form of business organization in which ownership is usually represented by transferable stock certificates Stockholders have limited liability Corporations are independent legal entities Can make contracts, hold property, incur debt, sue, and be sued Why Tax Corporations? Only real people can pay a tax, so why not just tax incomes of corporation owners via the personal income tax? Justification #1: Corporations are distinct entities, and ownership and control are separated Justification #2: Corporations receive a number of special privileges, such as limited liability. Corporation tax simply a user fee. Justification #3: Corporation tax protects the integrity of the personal income tax. Cannot simply accumulate income within the corporation to defer tax payments. Structure Tax system can safely be presented as a flat rate of 35% Statutory rate gives relatively little information about the effective burden, because we must know what deductions are allowed Structure: Deductions Employee compensation Interest payments, not dividends Depreciation No Investment Tax Credit Treatment of Dividends versus Retained Earnings Structure Employee compensation Wages and benefits are excluded from taxable income Structure Interest payments, not dividends When corporations borrow, interest payments to lenders are excluded from taxable income. When corporations finance activities by issuing stock, dividends are not deductible. Structure How should durable goods be treated in determining taxable income? Buying a drill press (that lasts for 10 years) is initially just an exchange of assets, not an economic cost. As it is used, it is subject to wear and tear, which decreases its value. This decrease in value, called economic depreciation, is an economic cost to the firm. Structure Each year’s worth of depreciation should be deductible from that year’s gross income. Difficult to measure true depreciation