Comprehensive Business Income Tax

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One model previously for tax reform favored by some Bush Administration policy advisors is a Comprehensive Business income tax.

"Under this proposal, which would be phased in over several years, interest and dividends would be neither deductible by corporations nor taxable to investors. The same regime would apply to noncorporate business entities, so that all business income would be taxed at the same flat rate."

"Any incentive to distribute dividends to lower-bracket shareholders, who would then pay lower taxes on income produced by personal investment of the dividends, would be eliminated by extension of the same flat tax to all business income under the CBIT proposal."

"[T]he Treasury report concluded in 1992 that its comprehensive business income tax integration alternative would increase revenues by $3.2 billion annually. The CBIT proposal would tax all business income at the entity level, so that corporate interest payments now flowing tax free to foreign portfolio lenders and U.S. tax-exempt institutions would be fully taxed, because such payments would no longer be deductible."

Source: TaxAnalysts.com

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