Corporate Tax Integration in the United States: A General Equilibrium Approach

• Published in: The American economic review 1981-09, Vol.71 (4), p.677-691
• Main Authors: Fullerton, Don, King, A. Thomas, Shoven, John B., Whalley, John
• Format: Article
• Language: English
• Subjects: Capital income; Corporate; Corporate income tax; Corporate income taxes; Corporate tax planning; Corporate taxes; Dividends; ECONOMIC POLICY; Financial management; Franchise taxes; INCOME; Income tax; Income taxes; Integration; Low income groups; METHODOLOGICAL CONCEPTS; MODELING, MODELS; Personal; Personal income; Personal income taxes; Property taxes; Retained earnings; State court decisions; Stockholders; Tax rates; TAXING, TAXATION; United States
• ISSN: 0002-8282; 1944-7981

Four alternative plans for corporate and personal income tax integration in the US are analyzed by using a recently constructed medium-scale general equilibrium model of the US economy and tax system. The plans are: 1. total integration, 2. dividend deduction from corporate income tax base, 3. dividend deduction from personal income tax base, and 4. dividend ''gross up'', which is actually only a partial plan because it reduces only part of the tax on dividends. Results show that total integration of personal and corporate taxes would yield a significant annual static efficiency gain. Partial integration plans yield less. Dividend deductibility from either the corporate income tax or the personal income tax results in a static efficiency increase of slightly less than half of the gains from full integration. The distributional impacts vary among plans. Dividend deductibility from the personal income tax is shown to have a beneficial effect slightly to the advantage of high-income groups, while dividend deductibility from the corporate income tax redistributes from high to low income groups.