Corporate Taxation

Dear President Obama,

How about this for a crazy idea - cut corporate profits tax to zero.  Corporate profts would be passed through to the shareholders and taxed at the shareholders marginal rate.  A corporation would distribute its profits to its shareholders as additional shares.  The market value of the shares on the distribution date would be the shareholders basis and the value taxed to the shareholder as ordinary income.  Shareholders could decide to sell the shares or hold them as investments.  If the shares are held and sold later, any gain would be taxed as capital gain.  The basis would be the value that was taxed when the shares were received.  Dividends would no longer be necessary since the total profits would be distributed in the form of shares.  If dividends were paid in a year when the company did not make a profit, the dividends would be taxed as ordinary income.  Corporate losses would offset gains.  Losses could be carried forward until all gainis have been offset.

Capital gains result from the growth in market value of the asset being held.  The entire amount invested is at risk.  Market values can fluctuate wildly.  Therefore, only realized capital gains are the subject of taxability.  Since much of the gain in market value of the asset can be the result of inflation, the taxable portion of the capital gain needs to reflect this.  For assets held for more than one year, the capital gain would be adjusted for inflation.  Only the portion of the gain that exceeds inflation would be taxed.  That portion would be taxed at the taxpayer's marginal rate.

Allen

Pennington, NJ 08534-2008