Question about business taxes

[Dominus Atheos]

So I'm not a young person anymore, so when I get ideas I know enough to look into why nobody has ever had that idea before. Unfortunately I can't seem to find any information directly related to it. (on wikipedia and the first 2 pages of google)

What would happen if we got rid of business taxes and started taxing all types of income (including capital gains)? The goal would be so that money that gets reinvested in the company wouldn't be taxed, but all of the profits that make it to shareholders and employees of any kind would be.

If I thought of this 10 years ago, I would have taken it as proof that I am smarter than everybody who ever lived. Now I'm smart enough to ask: So what are the reasons nobody has implemented this before?

[Mr Bean]

So I'm not a young person anymore, so when I get ideas I know enough to look into why nobody has ever had that idea before. Unfortunately I can't seem to find any information directly related to it. (on wikipedia and the first 2 pages of google)

What would happen if we got rid of business taxes and started taxing all types of income (including capital gains)? The goal would be so that money that gets reinvested in the company wouldn't be taxed, but all of the profits that make it to shareholders and employees of any kind would be.

If I thought of this 10 years ago, I would have taken it as proof that I am smarter than everybody who ever lived. Now I'm smart enough to ask: So what are the reasons nobody has implemented this before?

It's very easy for modern CEO's to hide their income in business expenses to the company.
Also shareholders don't get direct income from company profits.
Also foreigners. As in multinational conglomerations which already do 90% of their business in America yet have corporate headquarters just off shore and thus their tax burden is elsewhere.

[AniThyng]

So I'm not a young person anymore, so when I get ideas I know enough to look into why nobody has ever had that idea before. Unfortunately I can't seem to find any information directly related to it. (on wikipedia and the first 2 pages of google)

What would happen if we got rid of business taxes and started taxing all types of income (including capital gains)? The goal would be so that money that gets reinvested in the company wouldn't be taxed, but all of the profits that make it to shareholders and employees of any kind would be.

If I thought of this 10 years ago, I would have taken it as proof that I am smarter than everybody who ever lived. Now I'm smart enough to ask: So what are the reasons nobody has implemented this before?

Won't that just mean that the company will hide bonuses and perks as...well...business expenses.

[Magis]

What would happen if we got rid of business taxes and started taxing all types of income (including capital gains)?

Capital gains are taxed already, but at different rates. In Canada, for example, capital gains are essentially taxed at half the rate of normal income. There are a few reasons why capital gains are taxed at a lower rate, including the fact that the gains aren't inflation-adjusted and that the capital that was invested was already taxed when it was earned originally.

The goal would be so that money that gets reinvested in the company wouldn't be taxed, but all of the profits that make it to shareholders and employees of any kind would be.

Again, this is basically how the tax system works already. Any kind of disbursement to shareholders are taxed via dividend taxes. Like capital gains, dividends are taxed at a lower rate than normal income. I'll try to explain why below.

Normal wages/salaries paid to business employees are tax-deductible to that business. On the other hand, the money a company pays to shareholders via dividends are not tax-deductible to the business and therefore the business pays taxes on that money before it is distributed to shareholders. Once received by shareholders, those shareholders pay dividend taxes on it. So when profits are disbursed as dividends, those profits are double-taxed: once at the business level and once at the individual level. The tax rates are set up so that approximately the income tax rate = business tax rate + dividend tax rate. As a result, if I was the sole owner of a business, the total tax burden was the same if I paid myself wages compared to if I paid myself no wages and instead took all the profit as dividends.

Other types of re-investment to the company is also already tax-deductible, such as operating expenses, insurance, travel, equipment purchases and depreciation, advertising, legal services, etc.

[Dominus Atheos]

So it's been bugging me for 8 months now, but these answers are terrible.

I know capital gains are currently taxed at a lower rate then income, as I said in the OP what would happen if we eliminated business taxes and taxed all income at the same rate? And if we did this, "business expenses" and off-shore tax havens wouldn't matter, which is half the point.

[Welf]

So I'm not a young person anymore, so when I get ideas I know enough to look into why nobody has ever had that idea before. Unfortunately I can't seem to find any information directly related to it. (on wikipedia and the first 2 pages of google)

What would happen if we got rid of business taxes and started taxing all types of income (including capital gains)? The goal would be so that money that gets reinvested in the company wouldn't be taxed, but all of the profits that make it to shareholders and employees of any kind would be.

If I thought of this 10 years ago, I would have taken it as proof that I am smarter than everybody who ever lived. Now I'm smart enough to ask: So what are the reasons nobody has implemented this before?

If I understand your idea correctly, that is basically the German tax system how it used to be. All kinds of income of a person are summed up, that includes income from self-employed work, as employee, from capital savings and investment, and so on. Then on the whole amount the income tax was calculated. Companies had to pay taxes on their profits, but the tax payers could get a refund for that money. So if someone had 70 K income from capital income, and had to pay 35 K taxes on that, he had to transfer only 12 K to the tax authorities because 30 K were already paid by the company.
In this system there still was a business tax. This was to prevent companies from keeping their money and avoiding tax payments. If they keep their money their stock price would increase and only when the stock was sold there would be a taxation (or not, since back then in Germany profits from selling stocks was tax free after 1 year). Also if companies keep their money and don't give it to the stock owners, they stock owners can not easily readjust their investments, so this is not something you want from a macroeconomic view.

The system was aborted in 2000 because it was not compatible with EU law. It discriminated stockholders from other countries because they could not apply the refund, and Germans who owned stock in other countries could not et refunds for foreign taxes. So sadly this very clean systemw as aborted and instead the capital gains tax was cut at 25%, turning into a system more similar to the US schedule system

[Arthur_Tuxedo]

I proposed a theory a few months back as to why neither Democrats nor Republicans have ever seriously proposed eliminating the corporate income tax. Here were my thoughts related to this New York Times article:

This is an issue that I've thought about for a few months now, and until now, I haven't seen it discussed in the media. The article's main point is that the corporate income tax makes the US poorer because it incentivizes outsourcing. Move jobs and capital overseas and companies avoid the high marginal rate. Eliminate the incentive and those operations will come back, in fact the incentives will work the other way as foreign companies might move operations here to avoid taxes in their own countries.

This is all well and good and I can't find a flaw in the reasoning, but it begs the question: If eliminating corporate taxes is so good for the domestic laborer, why do Democrats never suggest it? If eliminating taxes on big business is such good policy, why don't pro-corporate Republicans propose it?

I have become convinced that the reason is that the largest corporations in America like the fact that we have the world's highest marginal rate. Our current corporate tax system stacks the deck in favor of giant, established businesses that would go out of business or at least take lower profits in a properly functioning capitalist system. Consider this: You own a medium or large (but not giant) company that makes a product far superior to one that General Electric makes. It is superior in every way and cheaper to manufacture, your organization is more nimble and efficient, and your advertising and distribution is more effective. However, because you cannot afford to hire armies of lawyers and accountants to take advantage of every conceivable tax loophole or run your revenues through multiple tax havens, you pay close to the full 35% tax rate, while GE pays roughly 6%. This 29% gap means that you lose, no matter what. You go out of business, and the incumbent stays at the top. Meanwhile, due to lack of competitive pressure, the pace of technological advancement slows, resources are misallocated, there are fewer domestic jobs (which over a long period of time causes permanent loss of skills in that industry, reducing the country's economic output forever), and ultimately both higher inequality and lower overall wealth. The only winners in this situation are the stagnant organizations that can afford to contribute heavily to political campaigns, and who earned that wealth by (many years ago) being exactly the sort of savvy, upstart companies that are now denied the opportunity to compete.

Am I wrong, here? If so, please tell me how. If not, this is something that we should all be talking about, since eliminating corporate income tax is something people on the political left and right could both get behind once educated about the ramifications.

In that thread, it was pointed out to me that I was being a bit hyperbolic since taxes are assessed on profits and not sales, but that the point was essentially correct. The powers-that-be benefit from a high marginal tax rate that their upstart competitors will need to pay, but that they themselves have the resources and influence to weasel out of by exploiting a plethora of loopholes and tax havens.

It's true that eliminating the corporate income tax would incentivize holding onto profits and stock, but you could always assess a "phantom income" tax liability based on stock appreciation at the end of each fiscal year, similar to how zero-coupon bonds are taxed on accretion each year.

[Welf]

I proposed a theory a few months back as to why neither Democrats nor Republicans have ever seriously proposed eliminating the corporate income tax. Here were my thoughts related to this New York Times article:

This is an issue that I've thought about for a few months now, and until now, I haven't seen it discussed in the media. The article's main point is that the corporate income tax makes the US poorer because it incentivizes outsourcing. Move jobs and capital overseas and companies avoid the high marginal rate. Eliminate the incentive and those operations will come back, in fact the incentives will work the other way as foreign companies might move operations here to avoid taxes in their own countries.

This is all well and good and I can't find a flaw in the reasoning, but it begs the question: If eliminating corporate taxes is so good for the domestic laborer, why do Democrats never suggest it? If eliminating taxes on big business is such good policy, why don't pro-corporate Republicans propose it?

I have become convinced that the reason is that the largest corporations in America like the fact that we have the world's highest marginal rate. Our current corporate tax system stacks the deck in favor of giant, established businesses that would go out of business or at least take lower profits in a properly functioning capitalist system. Consider this: You own a medium or large (but not giant) company that makes a product far superior to one that General Electric makes. It is superior in every way and cheaper to manufacture, your organization is more nimble and efficient, and your advertising and distribution is more effective. However, because you cannot afford to hire armies of lawyers and accountants to take advantage of every conceivable tax loophole or run your revenues through multiple tax havens, you pay close to the full 35% tax rate, while GE pays roughly 6%. This 29% gap means that you lose, no matter what. You go out of business, and the incumbent stays at the top. Meanwhile, due to lack of competitive pressure, the pace of technological advancement slows, resources are misallocated, there are fewer domestic jobs (which over a long period of time causes permanent loss of skills in that industry, reducing the country's economic output forever), and ultimately both higher inequality and lower overall wealth. The only winners in this situation are the stagnant organizations that can afford to contribute heavily to political campaigns, and who earned that wealth by (many years ago) being exactly the sort of savvy, upstart companies that are now denied the opportunity to compete.

Am I wrong, here? If so, please tell me how. If not, this is something that we should all be talking about, since eliminating corporate income tax is something people on the political left and right could both get behind once educated about the ramifications.

In that thread, it was pointed out to me that I was being a bit hyperbolic since taxes are assessed on profits and not sales, but that the point was essentially correct. The powers-that-be benefit from a high marginal tax rate that their upstart competitors will need to pay, but that they themselves have the resources and influence to weasel out of by exploiting a plethora of loopholes and tax havens.

It's true that eliminating the corporate income tax would incentivize holding onto profits and stock, but you could always assess a "phantom income" tax liability based on stock appreciation at the end of each fiscal year, similar to how zero-coupon bonds are taxed on accretion each year.

An important premise is wrong, that hits the rest pretty bad. Companies that pay taxes on profits make by definition profit and thus can't go bankrupt. Also, mega companies usually get most competition from medium sized companies who can hire small mercenary bands of lawyers themselves. Also, American companies have to pay taxes on their world income. Which means everything they earn. They can postpone the taxation by not returning the profits to the US. Reducing the income rate to 0 would solve that. But they still would produce there because the labour is cheaper. The only thing it would change is that the state takes in even less money and had no money for infrastructure and education, making outsourcing even more profitable.

[Ziggy Stardust]

Companies that pay taxes on profits make by definition profit and thus can't go bankrupt.

But isn't this necessarily excluding the group of companies that are on the theoretical threshold whereby the tax rate makes the difference between profiting or not? Especially in the US, with the tax code being so labyrinthine and arbitrary.

[Block]

Companies that pay taxes on profits make by definition profit and thus can't go bankrupt.

But isn't this necessarily excluding the group of companies that are on the theoretical threshold whereby the tax rate makes the difference between profiting or not? Especially in the US, with the tax code being so labyrinthine and arbitrary.

Don't corporations pay tax on gross profit not gross income?

[Welf]

Don't corporations pay tax on gross profit not gross income?

Technically yes, but there are deductibles. Since those include the costs for goods sold and ordinary expenses this is in effect a gross profit. Or approximately if you look over the average.

Companies that pay taxes on profits make by definition profit and thus can't go bankrupt.

But isn't this necessarily excluding the group of companies that are on the theoretical threshold whereby the tax rate makes the difference between profiting or not? Especially in the US, with the tax code being so labyrinthine and arbitrary.

Yes it is excluding them. The US tax codes approximately taxes the gross profits, but with all the special rules they financial authorities may tax more than you earn because you can't deduct something. Or you get a tax refund because some additional rule supposed to help some group of business. No one knows. And with different accounting rules on federal, state and local level you have to calculate profit multiple times and may have to pay to one level because it thinks your fine and not pay to the other one because it thinks you're broke. The US tax code is in dire need of reform and clarity.

[bilateralrope]

The US tax code is in dire need of reform and clarity.

And it's not likely to happen. Not when various companies are lobbying to keep it complex because simplifying taxes would kill their business.

[Simon_Jester]

To expand on that for anyone who doesn't click the link, tax preparers lobby Congress to make sure no laws are passed that would make it easier for private citizens to file their taxes. A firm like H&R Block can bring in about $300 in exchange for a few hours of one of their accountants' time... thanks to people being reluctant to file their own taxes (I should know, I paid them this April because my finances have gotten more complicated with my recent marriage).

Now, this is in some ways a separate problem from the corporate tax rate, because even a medium-sized corporation can afford to have a tax accountant or three working in-house. But there is a strong relationship at work. A complex tax or legal system with numerous loopholes creates an ecological niche for professional loophole-exploiters, who will then strongly resist any attempt to simplify or clean up the system.

[Irbis]

And it's not likely to happen. Not when various companies are lobbying to keep it complex because simplifying taxes would kill their business.

And that would diminish US GNP, threaten service sector and destroy jobs. Why are you against democracy, commie traitor?

Fun fact - my last tax file was prepared 50% by my job place, 40% by IS (Polish IRS), and 10% by me (filing of 3 A4 cards, of which actual tax data was 5 numbers). I spent more time typing my personal data than calculating the tax

[Simon_Jester]

Honestly that's not so different than the US system.

The part that makes US tax filing 'hard' is taking the information from multiple forms you get from your bank, employer, and so on... and then collating it on the primary "1040" form. It's fairly straightforward as long as you know what forms to use and can do basic arithmetic.

What makes it 'hard' is that the instructions for what to do are massively detailed to cover every possible contingency... and the great majority of those details don't apply to any given person. So if you try to pay your taxes yourself, don't already know what to do for your own financial situation, and try to do it by following the entirety of the written directions... you have fifty pages of fine print to go through, most of which amounts to nothing in terms of what you actually do.

It's the sort of thing the average citizen just isn't willing to do.

[Magis]

An important premise is wrong, that hits the rest pretty bad. Companies that pay taxes on profits make by definition profit and thus can't go bankrupt.

This really isn't true. A company can be profitable, and therefore pay taxes, while at the same time being massively cashflow negative and unable to meet debt obligations. And of course, things like payroll taxes are paid by all businesses whether they are profitable or not.

[Irbis]

Honestly that's not so different than the US system.

The part that makes US tax filing 'hard' is taking the information from multiple forms you get from your bank, employer, and so on... and then collating it on the primary "1040" form. It's fairly straightforward as long as you know what forms to use and can do basic arithmetic.

What makes it 'hard' is that the instructions for what to do are massively detailed to cover every possible contingency... and the great majority of those details don't apply to any given person. So if you try to pay your taxes yourself, don't already know what to do for your own financial situation, and try to do it by following the entirety of the written directions... you have fifty pages of fine print to go through, most of which amounts to nothing in terms of what you actually do.

It's the sort of thing the average citizen just isn't willing to do.

Um, no? The 5 numbers I mentioned were in order, my income, advance tax I already paid, tax I should have paid, any deductions I want to declare, and total. First two numbers were on my payslips, third is % computed from my tax bracket, fourth are deductions you can calculate using online tool and know in advance from a single page helper anyway, last number is A - B + C nature. In my case, it turned out advance tax was larger than real tax minus deductions, so I got a transfer with difference a bit later.

That was it, ever since tax reform my family literally computed tax after dinner week before filing, we didn't need any outside help. We don't get 'multiple forms', all info I needed was on my wages or preprinted on my tax form. We do have contingencies on forms, but they are usually all mutually exclusive and you can skip 90% of them after a glance.

[Simon_Jester]

Put this way, things I've seen on a form:
-Taxes on work income (employer mails you a form)
-Taxes on capital gains and stock dividends (broker mails you a form)
-Taxes on bank interest (bank mails you a form)
-Taxes on rent income (gets a little screwy when you're renting a property to a tenant in order to cover the cost of the property's mortgage, but essentially, you get mailed a form).

Essentially, for each source of income, you get mailed a form. For some of those forms, they have multiple numbers reflecting taxable and non-taxable income (income from certain kinds of bonds is not taxed, for instance). But it always reduces to "copy number off form onto appropriate line of W2).

It really isn't very hard if you know where everything goes. When it is challenging is if your tax status has changed in the past year, so it isn't "do the same as last year only with different numbers." Or when you're innumerate, but then there's no helping you.

I did my own taxes on paper every year from the time I first had meaningful taxable income, up until this year. I went to a preparer because there were things about how my income would be taxed that I wasn't sure of, because I only just got married at the end of last year.

I fully intend to do my own taxes next year again, without any real difficulty; if I'm feeling *really* bloody-minded I'll do it without a calculator.

But there are a lot of Americans who don't feel confident in doing this sort of thing, or have complicated and rapidly changing sources of income, or who want a preparer's assistance in things like setting up to pay taxes on installment plans because they have minimal savings. I am fortunate that I don't fall into any of those categories, and those people are getting milked for all they're worth by the tax accountants.

[Arthur_Tuxedo]

An important premise is wrong, that hits the rest pretty bad. Companies that pay taxes on profits make by definition profit and thus can't go bankrupt.

This is what I was referring to with the "a bit hyperbolic" comment. The point still stands, it just means that smaller corporations take home a smaller percentage of profit vs being run out of business entirely.

Also, mega companies usually get most competition from medium sized companies who can hire small mercenary bands of lawyers themselves.

Sure, but a regional corporation will have a much harder time running their operations through Ireland and headquartering in the Cayman Islands to reap maximum tax savings, thus putting them at a significant competitive disadvantage.

Also, American companies have to pay taxes on their world income. Which means everything they earn. They can postpone the taxation by not returning the profits to the US. Reducing the income rate to 0 would solve that. But they still would produce there because the labour is cheaper. The only thing it would change is that the state takes in even less money and had no money for infrastructure and education, making outsourcing even more profitable.

Cheap labor only gets you so far if it comes from countries that do not have adequate infrastructure and education systems, especially after increases in transportation costs due to fuel prices and the increase in labor costs in countries like China which previously had a high quality workforce with good infrastructure but cheap labor. Most of the goods that benefitted from outsourcing in past decades can be produced even more cheaply in developed nations with automation (unless the tax code rewards outsourcing, that is).

The reduction in tax receipts would, of course, be offset. The best way to accomplish this would probably be to eliminate the differential treatment of capital gains and dividends, but however it is done, it would be easy to make it revenue-neutral.

[Welf]

An important premise is wrong, that hits the rest pretty bad. Companies that pay taxes on profits make by definition profit and thus can't go bankrupt.

This really isn't true. A company can be profitable, and therefore pay taxes, while at the same time being massively cashflow negative and unable to meet debt obligations. And of course, things like payroll taxes are paid by all businesses whether they are profitable or not.

If a profitable company goes bankrupt because of short term liquidity constraints it means the financial system is broken. A company could just as well go bankrupt because it has to pay vendor invoices, payroll or because a customer doesn't pay on time. I'm not saying this is not a factor, I saw first hand how companies have to juggle with cash and panic when the day of payment approaches, but this is not something that should happen to a company with good outlook and good financial planning. And financial authorities can make payment plans, too (at least here they do because they want companies to survive and pay more taxes).
Payroll taxes are paid by all business, but are something that can be planned in advance.

An important premise is wrong, that hits the rest pretty bad. Companies that pay taxes on profits make by definition profit and thus can't go bankrupt.

This is what I was referring to with the "a bit hyperbolic" comment. The point still stands, it just means that smaller corporations take home a smaller percentage of profit vs being run out of business entirely.

Why does the point stand? If I understood that right, the initial thesis was, that smaller and medium corporations go out of business because of the tax difference (Please correct me if I'm wrong). Now the thesis is, that small businesses make less profits.
What does that mean?
Do they make too small profits to invest the optimum amount? That claim is not so obvious as it may seem. There are signs that profits are too high for megacorps currently, meaning that maybe lower profits for small companies are still sufficient for an optimal investment rate.
Second, do small and medium sized companies pay the full 35% on their real profits? They do pay on what they report, but what about indirect benefits? Company owners that work in their companies can get additional profits by buying expensive cars, always fly 1st class and take the best hotel rooms. That is not taxable but still a profit. Small companies or self employed people get away with a lot of crap because it's usually not worth the trouble to dig too deep into their stuff. Tax authorities tend to be understaffed and overworked, so checking every invoice to maybe get a few hundred bucks out of it when they can get much more elsewhere.

Also, mega companies usually get most competition from medium sized companies who can hire small mercenary bands of lawyers themselves.

Sure, but a regional corporation will have a much harder time running their operations through Ireland and headquartering in the Cayman Islands to reap maximum tax savings, thus putting them at a significant competitive disadvantage.

This isn't a matter of regional or not. You just need to hire someone to set it up. At places like the Jersey islands it's not uncommon for locals to be CEO of several dozen companies or house a few hundred headquarters in your 90 m² apartment.

Also, American companies have to pay taxes on their world income. Which means everything they earn. They can postpone the taxation by not returning the profits to the US. Reducing the income rate to 0 would solve that. But they still would produce there because the labour is cheaper. The only thing it would change is that the state takes in even less money and had no money for infrastructure and education, making outsourcing even more profitable.

Cheap labor only gets you so far if it comes from countries that do not have adequate infrastructure and education systems, especially after increases in transportation costs due to fuel prices and the increase in labor costs in countries like China which previously had a high quality workforce with good infrastructure but cheap labor. Most of the goods that benefitted from outsourcing in past decades can be produced even more cheaply in developed nations with automation (unless the tax code rewards outsourcing, that is).

The reduction in tax receipts would, of course, be offset. The best way to accomplish this would probably be to eliminate the differential treatment of capital gains and dividends, but however it is done, it would be easy to make it revenue-neutral.

First, I support this suggestion to eliminate the differential. Second, I'm not sure I would work. With high enough income you can employ the same lawyers and consultants and avoid taxes just as well as corporation (Obligatory Mitt Romney link). And if it's possible to get rid of the loopholes for individuals, why not also for corporations? And in doubt you can transfer all your money to a trust or company, as did Romney.

[Arthur_Tuxedo]

This is what I was referring to with the "a bit hyperbolic" comment. The point still stands, it just means that smaller corporations take home a smaller percentage of profit vs being run out of business entirely.

Why does the point stand? If I understood that right, the initial thesis was, that smaller and medium corporations go out of business because of the tax difference (Please correct me if I'm wrong). Now the thesis is, that small businesses make less profits.
What does that mean?
Do they make too small profits to invest the optimum amount? That claim is not so obvious as it may seem. There are signs that profits are too high for megacorps currently, meaning that maybe lower profits for small companies are still sufficient for an optimal investment rate.

The thesis was that the current corporate income tax persists because it puts smaller companies at a competitive disadvantage so that they either have to accept less profit or raise prices.

Second, do small and medium sized companies pay the full 35% on their real profits? They do pay on what they report, but what about indirect benefits? Company owners that work in their companies can get additional profits by buying expensive cars, always fly 1st class and take the best hotel rooms. That is not taxable but still a profit. Small companies or self employed people get away with a lot of crap because it's usually not worth the trouble to dig too deep into their stuff. Tax authorities tend to be understaffed and overworked, so checking every invoice to maybe get a few hundred bucks out of it when they can get much more elsewhere.

While these things do happen, they pale in comparison to the low effective rate of the largest corporations. How many 1st class flights and fancy hotel rooms would it take to equal the money GE saves every year by paying a 6% effective tax rate instead of 35%?

Sure, but a regional corporation will have a much harder time running their operations through Ireland and headquartering in the Cayman Islands to reap maximum tax savings, thus putting them at a significant competitive disadvantage.

This isn't a matter of regional or not. You just need to hire someone to set it up. At places like the Jersey islands it's not uncommon for locals to be CEO of several dozen companies or house a few hundred headquarters in your 90 m² apartment.

Some of the most lucrative loopholes require actually having operations off-shore. An HQ at Ugland House only gets you part of the way there.

Cheap labor only gets you so far if it comes from countries that do not have adequate infrastructure and education systems, especially after increases in transportation costs due to fuel prices and the increase in labor costs in countries like China which previously had a high quality workforce with good infrastructure but cheap labor. Most of the goods that benefitted from outsourcing in past decades can be produced even more cheaply in developed nations with automation (unless the tax code rewards outsourcing, that is).

The reduction in tax receipts would, of course, be offset. The best way to accomplish this would probably be to eliminate the differential treatment of capital gains and dividends, but however it is done, it would be easy to make it revenue-neutral.

First, I support this suggestion to eliminate the differential. Second, I'm not sure I would work. With high enough income you can employ the same lawyers and consultants and avoid taxes just as well as corporation (Obligatory Mitt Romney link). And if it's possible to get rid of the loopholes for individuals, why not also for corporations? And in doubt you can transfer all your money to a trust or company, as did Romney.

Tax avoidance takes on a whole different scale on the corporate level. Even a billionaire typically does not employ a full time accounting staff whose primary job is to save the company money, and a large number of wealthy individuals will have a much harder time agreeing on strategy and unifying to push a political agenda than a few dozen CEO's of the largest companies. There are economies of scale when it comes to screwing the taxpayers.