Personal income tax was deployed in the 1910s to make the most of the rise of salaried jobs: taxing workers’ income was made easier by the introduction of the worker’s salary, a single-sourced, recurring revenue stream. The modern corporate tax on profits, meanwhile, was established in the 1920s by a group of economists working for the League of Nations to avoid large corporations seeing their profits taxed twice by two different governments as they expanded their businesses across national borders. VAT was invented in the 1950s to account for the lengthening of value chains in many industries. [...]
This realization gave rise to a more practical idea: Instead of fixing the current, dysfunctional corporate taxation, we could simply get rid of it altogether and levy taxes exclusively on individuals rather than corporations, by taxing personal income on one hand (personal income tax and payroll tax, for example), and individual transactions on the other (such as with VAT or sales taxes).
There are three obstacles to implementing such as revolutionary change. First, renouncing taxing profits would privilege certain individuals over others and raise questions of fairness. In many cases (but not all), taxing corporate profits is simply a way to correct the imbalance, from a tax perspective, between workers and shareholders and to prevent the latter from escaping income taxation altogether. Indeed, taxing a corporation’s profits is simply a centralized way of taxing its shareholders’ dividends. It also makes it possible for a government to tax dividends paid to foreign shareholders.
The second obstacle is that in the current state of tax administration, it’s still much easier to tax a corporation’s profits than to go after its many individual stakeholders. A corporation is a hub for financial flows: Prices paid by customers and paid to suppliers; wages paid to workers; dividends and stock buybacks paid to shareholders. Instead of running after each of those individuals to tax their income or the transactions they take part in, it’s easier to tax the corporation itself — all the more so because it has a proper accounting system and various auditors and legal services that can certify the corporation’s financial position and operating results. Individuals, on the other hand, are harder to track, scattered, and often messy in their personal finances.
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