Corporation Tax as Income Tax: A Necessity for a Fair and Future-Proof Tax Policy in the Age of Technological Progress

27-04-2025

Introduction: In today's globalized and technologically advancing world, fundamental questions arise regarding the fairness and efficiency of tax systems. The current practice of income tax is increasingly problematic as it no longer reflects the real conditions of an increasingly digitalized economy. Technological progress has fundamentally changed the working world and corporate structures. A reform towards a universal profit tax – for both individuals and companies – therefore appears to be a logical and necessary consequence in order to distribute the tax burden fairly and effectively. This tax should be a maximum of 73% and apply from an "relative poverty limit".

1. Income Tax: Originally a War Tax The income tax as we know it today has its origins in World War I. It was originally introduced as a temporary measure to cover the enormous costs of the war. In the USA, it was introduced in 1913, and many other countries followed suit with a similar development. Its original purpose was to stabilize the state budget during wartime, but it was not abolished when the war ended. Instead, it developed into a permanent component of tax policy.

However, income tax is no longer optimal in today's time as it becomes increasingly inefficient in a technologically advanced society. In a world where companies operate across borders and generate income from a variety of sources (e.g., digital platforms), it is becoming increasingly difficult to capture and tax individual incomes. The increasing automation and the associated shift of jobs into the digital space also contribute to the fact that income tax no longer guarantees the effective distribution of income that it originally intended.

2. The Necessity of a Universal Profit Tax A profit tax, which affects both individuals and companies, would unify the tax base and enable a fairer distribution of taxes. In a modern economy, the differences between the incomes of individuals and companies are often blurred. Even individuals who operate as "sole proprietorships" or run a digital business should not be excluded from the tax treatment of companies. Such a universal profit tax would make it possible to capture and equally tax profits from all sources - whether through work or capital.

3. From the Relative Poverty Limit: A Fair Approach An important basis for introducing a profit tax is the determination of a "relative poverty limit". This limit should be individually adjustable and based on the respective social and economic situation. It would ensure that people who earn less than this limit are exempt from tax, while all others are subject to tax from a certain level of profit.

An example of such a limit could be oriented towards average income levels within a country, with households living below this limit being exempted from taxation of their profits. People whose incomes exceed this limit would then be required to pay taxes on their profits - regardless of whether it is profits from a business or personal income. This would be a fair and equitable approach.

4. Maximum Tax Rate of 73%: A Scientifically Based Limit The question of what tax rate is fair and sustainable for the profit tax must be considered in detail. A maximum tax rate of 73% can be justified as an upper limit for a fair and stable tax policy. This figure derives from various historical and scientific considerations. In the past, there were tax rates that reached up to 90% or more in many Western countries, particularly in the 1940s and 1950s, when the standard of living in the USA and Europe was significantly higher.

Scientific studies show that extreme tax rates – beyond the 73%-mark – can have negative effects on investment and innovation. Research on the tax burden and its impact on the behavior of companies and wealthy individuals suggests that a tax rate of 70% to 73% offers a balance in which both tax revenue is maximized and economic activity is promoted. A maximum tax rate of 73% would enable the state to generate revenues without stifling innovation and entrepreneurial spirit.

5. 3-in-1 Law: Integration of Corporate and Personal Taxation The idea of a 3-in-1 law, which unites both companies and individuals under the same tax conditions, offers numerous advantages. In such a law, income from private and business areas could be considered as a single taxable unit, leading to a simpler and more transparent taxation. This would prevent entrepreneurs or self-employed individuals from taking advantage of tax benefits arising from the distinction between "private" and "business" income.

An example of applying a 3-in-1 law could look like this: A freelancer who runs both their own services and a small business would tax all their earnings (regardless of whether private or business) together as "profit." This would reduce bureaucratic burden and simplify the tax system for all parties involved. At the same time, such a unification would ensure that companies and individuals are treated equally, leading to a fairer tax policy.

Conclusion: The introduction of a universal profit tax, which affects both companies and individuals, is a necessary adjustment to the changes in the modern economy. It would not only improve the efficiency and fairness of the tax system but also increase tax justice by treating all profits - regardless of their source - equally. A maximum tax rate of 73% provides a scientifically sound limit that meets both the state's need for funding and the need for economic dynamism. The 3-in-1 law could additionally enable simpler and fairer administration of taxes, taking into account both entrepreneurs and individuals equally.

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AUTHOR:  THOMAS JAN POSCHADEL