An Addition to the Corporate Income Tax

Our corporate income tax currently is insane. Many large corporations plan their finances to pay little or no taxes, (source 1 and 2) which means the majority of corporate taxes are paid by small businesses, making it by definition a regressive tax on those corporations that can't hire the best tax accountants to cook the books. It clearly must be modified or even replaced.

A corporate tax is however not a bad idea and if done correctly could be an incentive to improve the economy by rewarding activities that are good for the economy and fining companies for activities that are bad for the economy. Robert Reich argues that we need to cap deductions for pay at $1 million and I agree with him, but on top of this the very nature of the corporate income tax deductions should be made somewhat progressive.

Instead of deducting all the pay to employees at 100% like we currently do, I propose that the income tax deduction be made somewhat progressive based off of the state of residence of each employee. With modern software this shouldn't take any longer for a corporation with modern bookkeeping practices to implement. It is not a progressive income tax like the personal income tax in the way that the percentages apply to the entire earnings of that individual. Here is a sample tax structure:

Important definitions

• I define living hourly wage as the hourly wage needed so that an employee working 40 hours per week 48 weeks per year to make the cost of living used for income tax purposes (like previous tax posts). For salaried full-time employees it will be determined by the total pay and benefits in a year.
• This will apply to employees domestic and abroad for all corporations with American management. Domestic employees will have their expected wage calculated as their state wage and foreign employees by the cost of living in their country as calculated by the American government.
• Income is defined as all compensation defined as the sum of stock options, bonuses, salary. Benefits such as education and health care don't count because I consider them to be necessities for a successful society.

Tax brackets:

• Employees that make 50% of the living hourly wage or less will have their income taxed at 100%.
• Employees that make at least 50% and below 100% of the living hourly wage will have no deduction on their income.
• Employees that make at least 100% and below 250% of the living hourly wage will have 100% of their income deducted from the corporation's taxes.
• Employees that make at least 250% and below 5000% of the living hourly wage will have 125% of their income deducted from the corporation's taxes.
• Employees that make at least 5000% of the living hourly wage will have no deduction on their income.

At a cost of living around $20,000 the brackets would be $10,000, $20,000, $50,000, and $1,000,000.
I predict this would have a few positive effects on the economy.

1. First of all, corporations will have a real incentive to pay their employees more money instead of giving all their gain to the top. This will improve the livelihoods of average Americans, and this will make the economy more efficient because the people who will benefit the most from this are likely to spend a larger percent of their income which is needed to grow small businesses that create the majority of new jobs.
2. Secondly, it will penalize companies for underpaying employees which will make it easier for Americans to get started in life because they will be paid more.
3. Thirdly, it is better for the businesses in the long-run. By paying employees more it makes it so employees will be more likely to stay with one company for a career. This means companies will retain more cash to grow in the future, which is good for the employee through immediate compensation, the employer through long-term savings, and the customer through better service from experienced employees, which is an excellent way to retain customers, and increase revenue for the business to invest and grow with.

It just makes sense.