Masters Thesis

A Policy analysis on corporate income tax in California

Several policymakers and economists believe that California’s corporate tax is in need of reform. To assist policymakers, specific policy measures are addressed in this research that should be included in its reform. In designing and evaluating potential corporate tax solutions, this thesis (1) reviews the current California tax system, (2) discusses corporate taxation literature, and (3) based on the research, present corporate tax reform policy alternatives. The importance of the corporate tax as a state revenue source has declined over time. In particular, the corporate tax system receives substantial attention from its double taxation, its high corporate rate, and its existing tax expenditures. This thesis discusses various measures utilized to evaluate various corporate tax reform proposals. It includes analyses based on the dynamics behind debt financing and equity financing. It also considers the differential treatment between corporations and incorporated entities. In addition, tax preferences are evaluated in reference to its administration and its existing purpose. An efficient tax system should be simple to comply with and administer, while also promoting competitiveness among California corporations. Commonly discussed corporate tax reforms include the integration of the corporate income tax and individual income tax, concerns to address the inefficiency imposed by a double tax. A further reduction in tax preferences and the corporate rate are also considered.

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