Stealth Inequity

Using Corporate Integration to Ease Unfairness in the Tax Code

Note from the Digital Editor: In order to highlight the high-level of research and scholarship from the authors who have published in the William & Mary Policy Review’s peer-reviewed print journal, we have reproduced the abstracts from Volume 2, Issue 1 along with a link to an electronic copy of the full form of the piece. 

(image by Ervins Strauhmanis)

This article explores the inequities inherent in the current corporate income tax structure. The author argues that notions of vertical and horizontal equity are violated in the current tax code. In particular, tax payers are taxed differently depending on the type of business entity that they invest in, which violates notions of horizontal equity; and higher income investors are allowed to invest in certain entities with lower tax consequences, that are not available to lower income investors, which violates notions of vertical equity. Hedge funds, partnerships, limited liability companies, and a variety of other business choices are only available to accredited investors who earn high incomes or have a certain amount of wealth. This makes the double tax on corporations unfair from both a vertical and a horizontal equity standpoint. Various approaches to alleviating the double tax and inequitable tax burden are introduced and analyzed including complete integration proposals which would eliminate the corporate income tax at the corporate level and partial integration proposals which, in some circumstances, would allow for dividend deductions at the shareholder level. Proposals face various criticisms including administrability concerns, loss of revenue and allowing certain tax-exempt and foreign investors to escape any sort of taxation on their earnings. The author explores each of these criticisms and introduces her own integration proposal, which seeks to alleviate equity and fairness objections to the current corporate income tax structure while keeping in mind the present concerns over integration; it includes a deduction for dividends and proposes to tax all income from any type of investment at the investor‘s personal ordinary income tax rate.

Find the full version of this article in PDF form here.

Meredith Conway is an Associate Professor of Law at Suffolk University Law School.

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