American Civility

It is important to recognize that most corporations are taxed as partnerships at the owner(s) level today. These include sole proprietorships, S-corporations, limited liability corporations (LLC), and limited liability partnerships (LLP).

The Friedman-Reich proposal simply treats all corporations -- mostly what the IRS classifies as C-corporations -- who now pay a separate tax in addition to the taxes paid by their owners, the shareholders.

In 2007, the IRS reports there were 2.5 million such entities who paid $395.5 billion in taxes. Compare this to the $1.4 trillion collected from individuals (see: http://www.irs.gov/taxstats/article/0,,id=102886,00.html).

Where does that nearly $400 billion come from that corporations pay in taxes? Clearly that money is collected from the business' customers as a part of the profit in the product or service. This is profit that rightly belongs to the company's owners. Clearly, also, that tax money is a) just passed through from customer to the IRS, and b) could have used to lower prices of products, raise wages, hire more employees, or make greater investment in the business. And just as clearly, the profit is taxed twice, since the part of the profit -- the owner's money -- is sent to Washington by the corporation and the part of the remaining profit is sent to Washington when the indiviudal owner declares dividends or capital gains they receive from the business. This is folly.

The Friedman-Reich proposal allows all of the business' profit to be taxed at the individual level and the taxes paid by the owners, as many other business owners who are not part of C-corporations do presently. The IRS will still receive the tax money, but in a much more direct and simpler manner.

The advantage, though, is that capital will be attracted to the business again because profit is taxed only once. Capital gains taxes will no longer be needed, removing one point of contention between Republicans and Democrats.