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 evaluating the tax base. Distortions can be entirely avoided in the sector of publicly traded corporations. Evaluation 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 in shares trade or dividends. The deferral is remedied by the corporate income tax. Below, t is the tax rate, i is the variable interest rate on specially designed constant-value "cv-bonds".
The discussed system replaces (1) corporate income tax - with interest on the deferred G*t, and (2) taxes on investors' dividends and capital gains - with interest on B*t. To collect both, the IRS would periodically take to auction a fraction i*t of publicly traded shares outstanding to the private sector.
(Note: (2) is a neutral simplification: Investments can be split into B(1-t) stock and B*t cv-bond portfolios. Bond interest buys back the auctioned shares, and tax-free divestment matches the original yield. 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 (fraction i*t 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.