Return to Neptune, II: The Corporate Income Tax

Am I wrong to think that businesses can aviod the corporate income tax by being a partnership?

Nope, you're right.

A corporation can avoid federal corporate income tax by becoming a partnership or sole proprietor, as the case may be. It will then forfeit limited liability.

Alternatively, a C corporation can avoid federal corporate income tax by becoming an S corporation (if eligible) which is taxed as a partnership but which retains limited liability.

The normal person's mutual fund, 401k, etc will be invested in public companies. No public company can avoid the corporate income tax regime.

Even the rare publicly traded partnership pays an entity level tax.

I think Les' comment highlights what I see as a decent rationale for imposing the corporate income tax: owners of corporations are given limited liability. Limited liability isn't something the government has to grant. It seems to be the case that granting limited liability leads to socially desirable outcomes, given the importance of corporations to our economy, but surely limited liability isn't something the government should just give away for free. And while we might argue about the optimal level of the corporate income tax (or maybe propose an alternate way of charging for the privilege of limited liability), I think the "double taxation" meme serves to obscure the issue by implying that there is no legitimate reason for the corporate income tax other than government rapacity.