Replace the Corporate Tax with a National Sales Tax

Source: https://1.bp.blogspot.com/

Why should the government tax corporate earnings if they will be taxed as soon as they are distributed anyway? That is a good question, and many economists argue that corporate earning should NOT be taxed. However, there are issues with the elimination of the corporate tax that should be discussed.

The primary problem with a zero corporate tax rate is that the corporations depend heavily on the government for support. Corporation use roads and highways, they utilize the communications networks, they depend on law enforcement and border protection, they engage in interstate commerce, they export goods to other countries, etc. All of these activities have a cost, and if the corporations are paying taxes on their income at a zero rate all of these costs will be passed along to the investors and other taxpayers which may not sufficiently cover the impact of corporate activities on society at large.

Therefore, I propose, as an alternative to the corporate income tax, a national sales tax on all revenue generation, including foreign revenue that is generated when goods are imported into the United States. Since a sale typically involves the movement of goods or of intellectual capital across our physical and digital highways, a national sales tax will directly address the related costs. Also, by taxing foreign revenue in the form of a duty on imports, the impact of foreign goods entering the U.S. will be similarly mitigated.

I estimate that a national sales tax rate of 2% would be more than adequate to replace the revenue lost to the government by the elimination of corporate income tax.

By eliminating the corporate income tax and replacing it with a national sales tax, the United States will benefit in several ways:

• Greater fairness in taxation by eliminating the double-taxation of corporate earnings.
• Increase in domestic savings which can be used to finance loans by eliminating all incentives to shelter corporate earnings in foreign tax havens.
• Greater potential for economic growth and employment since the money saved by corporations can be plowed back into their operations.
• The capture of income on revenue earned by foreign corporations who wish to access our market.