November 1978.

Recent years have seen considerable interest in the integration of the corporate and personal income taxes. Full integration, under which corporate-source income would be taxed only to shareholders, has significant economic advantages, but it suffers from severe practical difficulties. Some but not all of its advantages could be realized through dividend relief. Alternative means of providing dividend relief include a deduction for dividends paid, application of a lower corporate rate to distributed income than to retained earnings, and allowing shareholders a dividend-received credit for corporate taxes imputed to have been paid on their behalf. The proper treatment of tax preferences and international flows of corporate-source income raise important issues of tax administration and public policy. It is necessary, for example, to decide whether tax preferences are to be passed through to shareholders or nullified when preference income is distributed. Beyond that, "stacking rules" are required for the presumptive allocation of dividends between preference and taxable income. Further research on both economic effects and administrative feasibility is necessary for an adequate appraisal of integration.

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