Corporate Tax Reform - options, prospects and issues

I've written frequently about the status of, need for and possibilities for reforming the corporate income tax. The 12/7/09 edition of Tax Notes has a wonderful, short article on this topic by Marty Sullivan - "A Hitchhiker's Guide to Corporate Tax Reform" (p. 1043) (also on Lexis-Nexis and excerpt here). The author notes four types of possible reforms:

1. Broaden base and lower rate of existing corporate income tax.
2. Integrate the corporate and individual tax system (no more double taxation).
3. Replace the corporate income tax with a VAT, such as a subtraction-method VAT that would apply to all forms of business. Sullivan notes that the burden of the tax would fall on consumers, not tax new capital and "would bring about a major improvement in economic efficiency" and would be better than the first two options.
4. New business tax with asset expensing - such as the flat tax or Growth and Investment Tax proposal of President Bush's Tax Advisory Panel. Sullivan notes that this consumption tax approach would yield the greatest positive effects on long-term economic growth among the four approaches.

Sullivan predicts that in the next few years, only approach 1 will be considered but that others might be of greater interest after the 2012 presidential election.

The article has a reference list of reports on each of the four approaches and on the incidence of the corporate tax. Sullivan notes that some economists of late believe that the corporate tax falls more on domestic labor than on capital, yet public perception seems to be that it falls upon corporations and their shareholders, which hinders effective reform.

I think the way that Sullivan has laid out the four approaches would lead to more meaningful discussions on reform than what we are likely to see - we'll lower the corporate rate, but how will it be paid for - what mix of tax breaks, such as LIFO and MACRS, will give. Instead, we should be looking at what makes sense in terms of economic growth, international competitiveness and simplicity. Also relevant is the effect on state taxation (most states already rely on consumption taxes for about 1/3 of their revenues).

Here is some information I've got on corporate tax reform and reform in general:

• List of short articles
• What is a consumption tax + VAT examples
• Links and government reports on tax reform

What do you think? Also, the California Commission on the 21st Century Economy proposed replacing the corporate income tax and state-level general sales tax with a form of subtraction-method VAT. One obstacle to the proposal is that this proposed new tax - the business net receipts tax (BNRT) is a tax on wages - but that is what a VAT taxes - the value added by the firm, which is primarily wages. How can a tax on wges be viewed as a job creator? It is more efficient for businesses? Must it be part of broader reform?