I explain the root of the persistent failure of efforts to remove tax-induced distortions of economic incentives. It lies in the fundamental impossibility of objectively valuating the tax base. Distortions can be entirely avoided for publicly traded corporations. Valuation can be bypassed by taxing that sector in shares (to be auctioned) rather than in cash.
Stock capital includes cost basis $B$ and unrealized gains $G$. Gains are presently tax-deferred until realized as dividends or upon divestment. The deferral is remedied by the corporate income tax. Below, $t$ is the tax rate and $i$ is the variable interest rate on special constant-value ("cv") bonds.
The discussed system replaces the corporate income tax with interest on the deferred $G*t$. And for simplicity, it replaces the shareholder taxes with a tax $t$ on the implied interest $i$ on $B$. To collect both, the IRS periodically takes and auctions a fraction $i*t$ of publicly traded shares held in the private sector.
(Note that the simplification is neutral: Investments can be split into $B(1-t)$ stock and $B*t$ cv-bond portfolios. The bond interest buys back the auctioned shares, and tax-free divestment matches the original return. The Treasury can similarly hedge itself with the corresponding volume of outstanding bonds. Note also: stock and cv-bond portfolios of equal value yield equal tax.)
The system's main feature is that nothing companies and investors do can change their tax (an $i*t$ fraction of shares), so business decisions would be exactly the same as without taxes. No longer would taxes on dividends and capital gains impede capital flow; companies would forget the bewildering maze of tax laws, regulations, and precedents, and Congress would still collect the same revenue it does now.
[ The Treasury assures constant value of cv-bonds (denominated in constant dollars) by committing to buy and sell them on demand at nominal prices. To manage supply and demand, it holds the power to change their interest rate at will, with appropriate advance notice. ]