Corporate Income Tax Is a Hidden Tax That the Public Pays in the Prices It Pays for Goods and Services; Personal Tax Rates Are Highly Graduated on Paper but It's Pure Window Dressing

The personal income tax is sadly in need of reform. It professes to adjust the tax to "ability to pay," to tax the rich more heavily and the poor less heavily and to allow for each individual's special circumstances. It does no such thing. Tax rates are highly graduated on paper, rising from 14 to 70 percent. But the law is riddled with so many loopholes, so many special privileges, that the high rates are almost pure window dressing. A low flat rate--less than 20 percent--on all income above personal exemptions with no deductions except for strict occupational expenses would yield more revenue than the present unwieldy structure. Taxpayers would be better off--because they would be spared the costs of sheltering income from taxes; the economy would be better off--because tax considerations would play a smaller role in the allocation of resources. The only losers would be lawyers, accountants, civil servants, and legislators--who would have to turn to more productive activities than filling in tax forms, devising tax loopholes, and trying to close them.

The corporate income tax, too, is highly defective. It is a hidden tax that the public pays in the prices it pays for goods and services without realizing it. It constitutes double taxation of corporate income--once to the corporation, once to the stockholder when the income is distributed. It penalizes capital investment and thereby hinders growth in productivity. It should be abolished.

--Milton Friedman and Rose Friedman, Free to Choose: A Personal Statement (San Diego: Harcourt Brace and Company, 1990), 306.