Chairman of the Senate Finance Committee Orrin Hatch held a hearing on the question of integrating the new corporate tax reform. The reforms will allow US corporations to deduct dividends paid from their tax calculations.
Hatch said that “under the current system the income obtained only once on behalf of the shareholders is taxed twice because of fiction created by the law which considers the business and its owners as two separate taxpayers. In particular, the income is taxed at a rate of 35 percent. “
Hatch is also noted that “the current system of double taxation has led to a number of unpredictable economic distortions which might not exist in a more integrated system” – including the bias in the selection of a business entity in relation to the corporate model.
There are two main ways to integrate corporate and individual tax code to allow shareholders for the corporate tax credit or allow corporations to deduct dividends. One of the reasons why Hatch chose to follow the latter option is that it will allow companies to reduce their own effective tax rates.
It is also necessary to establish the relationship between debt and equity which may help with certain international tax issues by reducing the pressure on the company.