ABSTRACT
This chapter explains the economic rationales for collecting taxes from businesses rather than individuals and focuses on the question of how businesses should be taxed to promote economic efficiency. It examines strategies for improving business taxation and reviews the policy implications of taxing businesses according to the social costs they generate. The chapter presents the social cost rationale as well as several other reasons for taxing businesses: exporting tax burdens to nonresidents, capturing locational rents, and taxing persons indirectly to compensate for perceived deficiencies in existing personal taxation. Taxes on business property will reflect such increases in asset values and therefore compensate in part for the preferential treatment of capital gains under existing income taxes. Taxing businesses according to the social cost rationale would require that unprofitable as well as profitable businesses be taxed for external costs and to offset the cost of governmentally provided inputs.
