Accounting Business Essay

Submitted By StephyLee3
Words: 666
Pages: 3

your paper should invlude a conclusion discussing your opinion on the fairness of indvidual taxation as compared to corporate taxation. Specifically, do you think individuals pay more tax on their incomes than corporations because of the differences in the tax rate structures and the deductions available to corporations and not available to individuals

In my opinion, I think the tax regime is not fair for individual taxation and corporate taxation due to tax rate structure. The statutory corporate tax rates are lower than personal income tax rates, especially for small firms. This tax difference may lead to various problems. First, any divergence between corporate and personal tax rates creates incentives to shift taxable income from the higher to the lower taxed income category (Feldstein and Slemrod, 1980). One example is to grant employees stock options instead of wage payments if the corporate tax rate is lower than the top personal tax rate (Gordon, 1998). While, in practice, there are limits to the ability of individuals to minimize their tax burdens through income shifting, empirical evidence for the US indicates that income shifting does take place (Gordon and Slemrod, 1998). If income shifting involves real resource costs, this tax wedge also induces a welfare loss in addition to the loss of tax revenue for governments.
A second potential problem is that low corporate tax rates create incentives for individuals to set up corporations as savings vehicles. Thus, an individual can save taxes by holding financial assets not personally but through a lightly taxed corporation. Again, this can be restricted in practice by various tax rules, but it is plausible that such rules (for example that corporations face tax penalties if their financial assets are viewed as excessive) will also involve some efficiency costs. Finally, differences between corporate and personal tax rates may distort the organizational choices of firms, i. e. whether to set up a business as a corporate or a noncorporate firm. Gordon and MacKie-Mason (1994) show that the effects of these tax wedges on the choice of organization involve an (albeit small) welfare loss.
In addition, corporations are economic entities and they do collect and remit many types of taxes, such as income, sales and use, employment, capital gains, property, and personal property. The basis on which corporations are taxed is profit. If a corporation earns a profit in any given tax year then it will owe taxes on the profit only. Corporations do not pay tax on gross revenues. As individuals, we pay taxes based on our adjusted gross income less personal exemptions and standard or itemized deductions. If corporations don’t earn