Pipeline Theory

Some companies keep their profits, using them to reinvest in the business, or as a rainy day fund. Other companies (investment vehicles, mostly) pass all their earnings on to their owners. All dividends, all profits, all capital gains...everything gets routed to the firm's owners.

The pipeline theory states that these companies should not be taxed at the corporate level. Under this thinking, the firms only provide a pipeline for the money, cash that travels directly from the firm's coffers to the owners. The owners get taxed when they receive the funds. Therefore, the theory goes, taxing the companies as well would constitute double taxation.