Double Taxing

What Is Double Taxing?

Double taxing is the practice of taxing a similar income stream two times. It is most commonly utilized in reference to the combination of the corporate income tax and dividends tax. The tax code puts a levy against the income of a corporation when it is earned by the corporations, and afterward again once that income is distributed to shareholders as dividends.

Seeing Double Taxing

Conservative legislators have utilized the term double taxing or double taxation to attack the system of corporate taxation in the United States for ages.

For a long time before the entry of the Tax Cuts and Jobs Act of 2017, corporations in the United States paid a tax rate of 35% at the federal level, different corporate tax rates at the state level, while top earners paid a 20% tax rate on dividend income. This double taxing was onerous, as per these pundits, since it raises the overall level of taxation to a point that it distorts decision-production.

As the conservative Tax Foundation put it in 2006, Double taxing is "a common and frequently abused articulation in tax policy conversations. Not the number of tax layers matters, but rather the total effective tax rate — that is, the percentage of every income stream taken as tax."

It proceeds to contend that, to some extent in 2006, the double taxing of a 35% corporate tax rate followed by a 20% tax rate on dividends was so high as to distort the decision making of business leaders, who were evading coordinating as corporations to exploit lower personal income tax rates that different forms of corporate organization pay.

The Tax Foundation points out that somewhere in the range of 1980 and 2004, the growth of businesses utilizing non-corporate forms of organization, similar to partnerships, developed quickly, recommending that business leaders were picking their organization for tax as opposed to business reasons.

Analysis of the Concept of Double Taxing

Progressives contend that grievances about double taxing are tricky and that rivals of double taxing are just attempting to track down reasons to bring down the tax burden on business owners, a class of individuals who own a significant part of the wealth in America. This critique was corroborated by the decisions made during the discussion over the Tax Cuts and Jobs Act of 2017.

The principal goal of this tax reform was to bring down the corporate tax rate from 35% to 21%. Be that as it may, rather than halting there, the designers of the bill chose to likewise give a commensurate benefit to other business owners, similar to those of a partnership, by likewise introducing another 20% deduction on income earned through partnerships. Hence, the problem of disparate tax levels for various types of companies stays, just at an overall lower rate than before.

Highlights

• The fundamental contention is that the tax code puts a levy against the income of a corporation, and by and by when that income is distributed to shareholders as dividends.
• The term "double taxing" is most commonly used to reference the combination of corporate income tax and dividends tax.
• Double taxing is the practice of taxing a similar income stream two times.
• Progressive lawmakers contend that grievances about double taxing are crafty and that adversaries of the tax code track down any reason to bring down taxes on corporations and ownership, who hold the vast majority of the wealth in America.
• Conservative legislators have attacked the system of corporate taxation in the United States for ages with the concept of double taxation.