You make some very good points. What I meant by correcting for externalities is imposing fines for things that have a social cost or burden. And, related to that, what I meant was 0% corporate income tax, and my thinking was one could charge directly for costs incurred by society because of a corporation. But the obvious question is how? Charging for some costs is straightforward, and some not. Part of the answer would be a high unimproved land value tax. I want the dream restaurants to be taxed less than the union carbides, you know? But I feel like the way I want to do it adds complexity. Maybe it would be too complicated to do things this way? On the other hand, it sort of seems like how a lot of local govenments operate right now.
I think a lot of our disagreement is that you have a theoretical framework that hasn't been much tested by reality, while I have a realistic framework that has trashed the shit out of theory. Corporate taxes are low, d00d. We're honest, upstanding, upright citizens who pay what we're supposed to and our corporate tax rate is about 1/4 what our individual rate would be at the same value. I've had three corporations; two of them were tax dodges to take advantage of the friendliness of the US tax code to corporations. They've saved me up to 100% of my taxes in the past. And a corporate income tax is a terrible idea because all corporations do is hide income. Which makes sense - right now the tax code rewards anything you can do that might vaguely build your business so you pile it into that instead. This is one reason it's much, much easier for a corporation to write off box seats at the arena than for you to do it. As to unimproved land value, what you're doing is assigning future developability or present conservation a value of zero. Which, considering it's the public good that everyone benefits from, doesn't work. Australia did this: you could have all the land you wanted for nearly free so long as you put sheep on it and grazed it. No sheep? Pay taxes. Consequence? Australia is the tip of the spear of the environmental apocalypse. If Lebanon hadn't been overgrazed two thousand years ago it'd probably still have some cedars. Tax codes are complex. If you have complicated taxes, hire an accountant. "complex" doesn't mean "unfair" it means plenty of people have hashed out these issues and some have won, some have lost but trust me on this: whenever you see someone calling for a "simple" tax code, know that he's reaching for your wallet. Whenever you see a "progressive" tax code, you're looking at a poor man reaching for a rich man's wallet.