Well, the answer is that there is no advantage to incorporation in a tax sense, because of course all income earned within a corporation is taxed at exactly the same rate as it is in the hands of a salaried employee, just at a different time. Small businesses pay 15% up front, and then they pay the balance of their tax owing on distribution.
So no, there is not an advantage. There is a different circumstance in that salaried employees don't need to keep capital in a particular enterprise, because their enterprise is their employer, which is separate from their own holdings.
My question is for Dr. Milligan, an economist for whom I have great respect.
I do want to politely challenge one of your assertions. You said that we need a neutral tax system. I think most people agree that we need more neutrality. These changes are being sold as though they are turning our tax system more into Switzerland—neutral—but there are examples of the contrary.
The passive income measure will mean that a business will pay higher taxes when investing in another business's operations than it pays when investing in its own. This is a bias further compounded by the fact that publicly traded companies will not face these higher tax rates on passive income held within the corporation, nor will their shareholders.
Finally, amendments to section 84.1 and the creation of proposed section 246.1 would make a family farm or a family business pay higher taxes to sell its enterprise to the children rather than to a stranger.
These are examples of where these proposals would seem to render the tax system less neutral, rather than more neutral. How would you respond to those matters?