In 1958, on President Dwight D. Eisenhower’s recommendation, Congress enacted the Subchapter S portion of the tax code. This permitted business entities to avoid corporate taxation of profits by passing them directly to the proprietors so that the profits are subsequently taxed once at the individual rate. According to the IRS, 4.5 million corporations are registered as S corporations — twice that of C corporations, which pay corporate taxes.
In 1958, the top individual rate was 91 percent, while the top corporate rate was 52 percent. In this environment, there was more incentive to retain profits and invest in infrastructure and employees, which permitted enormous economic growth.
Today, the reverse is true. Corporate rates are higher than are individual rates at all levels of net income. While there is incentive for proprietors to receive more income at lower marginal tax rates, it undermines future investment, which fosters economic stagnation.
Higher individual tax rates will provide the necessary incentives for corporations to invest more in developing successful and sustainable businesses. Typically, this manifests in more productive processes, greater employment, higher incomes and more tax revenues.
In lieu of higher individual tax rates, stronger economic growth can be realized by reducing corporate tax rates to more globally competitive levels. The latter seems more prudent.
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