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Must Corporate Income Be Taxed Twice?

By Charles E. McLure

Recently in the United States there has been a surge of interest in the integration of the corporation and individual income taxes, partly because the rate of capital formation has been low. Many foreign countries have adopted some form of dividend relief, and many U.S. economists, businessmen, and tax experts feel that the double taxation of corporate earnings can no longer be justified.

A number of recent studies have dealt with the policy issues of integration—the distortions and inequities caused by an unintegrated tax system and the effects of integration on corporate financial policy, capital accumulation, and economic growth. But many other difficult questions would be involved in any decision to integrate taxes. For example, what are the practical problems of integration? How would tax preferences–a crucial issue—be treated? What would happen to tax-exempt organizations? How can international flows of capital be handled, particularly in a world of multinational corporations and interdependent economies? In sum, is integration administratively feasible?

After summarizing the arguments that have been made for and against integration and describing the systems of dividend relief found in Canada and several European countries, McLure delves into these complex technical questions. His general conclusion is that any scheme for integrating taxes is likely to be beset by serious administrative problems.

A substantial portion of this book was prepared as a background paper for a conference on the integration of the income taxes held at the Brookings Institution in October 1977. The concluding chapter summarizes the conference discussion.

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