ABSTRACT
This chapter provides a brief overview of the origins of the US corporate income tax, its structure, and its significance as a part of total federal receipts. It addresses the effects the corporate tax may have on various aspects of business decision making—organizational form, capital structure, investment, and dividend policy. The chapter discusses the possible incidence and efficiency effects of the current corporate income tax, and a number of suggested modifications under various integration proposals. The United States employs a “classical” or double-tax system on most corporate income. The United States remains the most significant country without at least partial integration of its personal and corporate taxes. The tax disadvantage of dividends stems from the existence of the double tax on corporate income. Since corporate income has already been taxed at the entity level when earned, the payment of a dividend triggers a second level of tax on the earnings at the shareholder level.
