What if we eliminated taxes on corporations all together?
Who pays the taxes on corporations? Essentially the customers. Corporations simply raise prices to cover the taxes. They have to. Academics claim the taxes are absorbed between customers, shareholders, and employees. However, if we stop taking thirty-five cents of every dollar of profits from several companies providing the same product, and we believe in free market principles, it won't be long before the companies reduce prices to compensate. Follow along:
If a company wants to earn 10% profits on sales and they have costs controlled to 90% of sales and we assume no taxes, the company is where it wants to be. If we take 35% of the profits in taxes, the company misses it's target by 35%. Prices need to come up with no change in costs to make up the difference. It turns out, the company needs to raise prices 5.4% to earn enough to cover taxes and clear 10% profit margin. An example:
No Taxes 35% Tax increase 5.4%
Sales 55.00 55.00 57.97
Expenses 49.50 49.50 49.50
Gross Income 5.50 5.50 8.47
Taxes (35%) 0.00 1.93 2.96
Net Income 5.50 3.58 5.51
Desired Net Inc 5.50 5.50 5.50
Difference 0.00 -1.93 +0.01
If you lower the profit margin to 5%, prices need to be raised 2.7% to cover taxes.
Instead of charging a company taxes, the net income of the company should be allocated to the shareholders and/or owners according to their proportionate ownership. This would have no regard for where the money was made or how it was distributed. If you own part of a company, you will get a portion of the net income applied to your personal income and be charged at the applicable rate.
If you own a share of Schmuk Inc. and it earns $3.00/share wherever it files its statement, you absorb $3.00 in personal income. It doesn't matter if Schmuk-USA, Schmuk-EU, or Schmuk-NorthKorea earned the money if it gets rolled back to Schmuk Inc.
For the best effect, all countries would need to apply the same policy. Without a tax preference between countries, companies would be able to host their factories, distribution systems, and headquarters where it is most appropriate. Countries could still charge their citizens whatever tax rate they want on personal income, but it becomes a larger challenge to change your citizenship for preferred tax advantages.
Treating business earnings as direct income to the owners is realistic from an economic and logical perspective.
Economically, people only give money to other people. When you shop at Retail-Inc, physically you give money to a cashier; logically, you give it to the owners. The owners then give some of it to their employees and some to their suppliers. The suppliers then give some to their employees and the circle goes around. Whatever the owners of the businesses don't give to other people, they keep. When all is said and done, people gave money to people for products. People should be allocated that money less applicable deductions as income for tax purposes. Corporations serve the purpose of managing the income and deductions for owners according the the rules of the countries where the money is exchanged. (For the most part, those rules are going to be similar but if a country wants to allow greater deductions against money earned in that country to stimulate some policy, they have the flexibility. (I would not allow any special deductions and would instead award companies grants to stimulate policies. It would be more direct, transparent, and manageable.)) The underlying concept is still 'the owners get the money, the corporation handles the paperwork to determine earnings, and the owners absorb the earnings into their personal income'.
From a logical perspective, it removes the concept of a corporation or any other business being a "person". We start with the theory "A company is only a mechanism to channel money to a person". From there, we can have laws about how companies shield the owners or allocate liability among owners but those will be deliberate. (I would peal back some of the criminal shielding but that's a different conversation.) The foundation of the model is people are primary and businesses are simply tools for efficiency.
Removing taxes from businesses and corporations would free the owners to run the businesses where it makes most business sense and would allocate the income to individuals who are the beneficiaries of the taxes collected. It is much more logical and manageable to tax business owners.