Major Surgery Needed: A Call for Structural Reform of the US Corporate Income Tax

A corporate income tax can play a useful role by preventing shareholders from deferring tax on retained corporate profits. The current U.S. corporate income tax is deeply flawed, however, because it relies on definitions of corporate residence and income sourcing that corporations can easily manipulate, causing economic distortions and erosion of the corporate tax base. Two structural reform options to address these problems are securing international agreement on better ways to allocate the corporate tax base among countries and replacing the corporate income tax with full taxation of American shareholders' dividends and accrued capital gains on stock in publicly traded companies.