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Mitigating the Potential Inequity of Reducing Corporate Rates

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Publication Date: July 2009

Publisher(s): Tax Policy Center

Author(s): Dan Halperin

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Federal Budgets & Fiscal Policy; Budget Issues; Fiscal future; Corporate

Type: Paper


Some tax proposals would reduce the marginal corporate tax rate. Others would boost the top individual rate. Although a differential between corporate and individual rates could reduce the overall tax on distributed corporate income, it could also enable higher-income taxpayers to shelter income from taxation. This paper explains how denying the lower corporate rate to income from services and passive investments combined with provisions that prevent people from permanently escaping tax on retained earnings would mitigate this problem.