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Change Corporate Tax

June 30, 1985

In "Corporations Do Pay Income Taxes" (Letters June 16) Jonathan Aurthur establishes an implausible premise, then builds a case upon his "house of cards."

In his refutation of Times Board of Economist member Don R. Conlan, Aurthur postulates that a corporation is, by legal definition, a (fictitious) "person" and thus pays income tax like all other taxpaying persons. He fails to consider two factors, however.

First, most state (including California) corporate taxes are, legally, franchise taxes based upon net income. They are not legally defined as income taxes, although they effectively are just that.

Secondly, corporate income taxes differ from personal income taxes in that they are based upon net profit, after deduction of all costs, whereas personal income taxes are not.

Conlan's implication that corporations set prices to yield the desired profit after deduction of corporate profits tax is well known, and so entrenched that it is now fact.

If we would only recognize this fact, we would then eliminate all corporate profits tax (except perhaps on profits not distributed as taxable dividends to shareholders), which would result in (1) lower prices for the goods they produce; (2) reduced corporate extravagances and increased efficiency because the government would no longer be paying half the cost of business' wasteful and exaggerated expenditures, and (3) increased plant expansion and modernization. What's wrong with that?

OLIVER BERLINER

Beverly Hills

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