A POLITICAL-THEORY OF CORPORATE-TAXATION

The U.S. tax system subjects corporate profits to two levels of tax. This double taxation, almost unique in the industrialized world, has been criticized widely as both unfair and inefficient. Previous attempts to explain the continued vitality of the corporate tar have relied on various accounts of popular support for the tax. In this Article, Professors Arlen and Weiss argue that populist explanations are inconsistent both with public opinion data and with many features of the current tax regime. Instead, they contend, the double tar is yet another ill-effect of the separation between the ownership and control of large corporations. Although shareholders support integration, managers are unwilling to lobby to eliminate the double tar. Professors Arlen and Weiss argue that most forms of integration would initially create a windfall to shareholders but would provide few benefits to managers. Managers prefer those tar policies, such as investment tax credits, that stimulate new investment to those, like integration, that create windfalls. Some managers may even oppose integration. Because double taxation can trap earnings in the corporation, it enables these managers to pursue investments from which they benefit at the expense of shareholders. If efforts to integrate the tax system are to succeed, reformers must take managers' preferences into account.