I'm sure you realize that many "businesses" are created to shelter income from personal income taxes. E.g. http://articles.mone...rOwnBusiness.aspx

Isn't your basic argument that people are going to do whatever it takes to reduce their taxes? Many people who hate taxes (and think they contribute too much to society as it is) find ways to do so. I'm sure you'd agree that at least a few are bending or breaking the rules in the process.

All people with AGI above $200k pay federal income tax, right?

Not so: http://www.irs.ustre...sprbulinhitax.pdf (49 page .pdf):

For 2006, of the 4,064,883 income tax returns with AGI of $200,000 or more, 8,252 (0.203 percent) showed no U.S. income tax liability; and 4,123 (0.101 percent) showed no worldwide income tax liability (the top panel of Figure C).


If tax shelters exist for corporations, individuals will form corporations to try to take advantage of them. If rates are lower as an individual than as a corporation, they'll file as an individual.

The answer to the problem of the rich and corporations sheltering income from tax isn't to lower the rates, it's to crack down on the shelters.

HTH.

Cheers,
Scott.