Why Not Large Passthroughs as Corporations?

The essence of reform is getting rid of loopholes -- hopefully to pay for lower tax rates. There is no better corporate tax loophole than complete exemption from corporate tax. If some big businesses can remain completely exempt from corporate tax for no good policy reason, the signal is sent. If the biggest beneficiaries from loopholes do not have to sacrifice, why should anybody else? This tax reform is not about principle. It is about power, so start flexing your muscles.

In his State of the Union address this year, President Obama told the nation he intended to reform the corporate tax. Given the logic of tax reform, taxing large passthroughs as corporations should be included in that effort. So it was no surprise when the Treasury Department revealed its interest in a plan that would tax passthrough entities with more than $50 million of receipts. And after all -- although given zero attention by the press, the public, and Congress -- the president's tax reform commission, chaired by Paul Volcker, did include such a proposal in its list of possibilities. "Many individuals with whom we met suggested that it was neither fair nor good tax policy for businesses of similar size and engaged in similar activities to face different tax regimes and different tax rates," the commission reported.

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True tax reform would completely eliminate the double taxation of corporate income. Short of that, we should reduce its effects across the board, not piecemeal. The causes of fairness and economic efficiency would be served by not allowing large businesses to escape corporate tax and using the revenue gained to relieve the double tax burden for all.

View TaxAnalysts' Martin Sullivan's opinion in its entirety on TAX.com.

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