As Congress crafts yet another budget, it is time to confront a quiet enabler of America’s growing wealth gap: the way we tax corporate profits.

The U.S. corporate tax system is a maze of complexity, distortion and avoidance. At the same time, the richest Americans — who own the lion’s share of corporate stock — see their wealth balloon not from income, but from capital appreciation fueled by retained corporate earnings. They pay little or nothing in taxes until they choose to sell — if ever.

Here is a simple idea that could transform that system: Replace the corporate income tax with a flat tax on retained earnings. Instead of taxing corporate profits on paper, tax the portion that companies choose not to distribute — those retained earnings that quietly accumulate on balance sheets, inflate stock values and end up driving inequality.

The logic is straightforward. Retained earnings represent profits that aren’t reinvested in capital or returned to shareholders. They sit — often offshore and untaxed — fueling stock buybacks or simply increasing book value. Meanwhile, shareholders can borrow against those unrealized gains, grow richer by the year and legally avoid income tax altogether.

Under the current system, corporations face a 21 percent statutory income tax rate. But due to loopholes and global tax arbitrage, the effective rate is often much lower — closer to between 9 percent and 15 percent. At the same time, the top 1 percent of Americans own more than 90 percent of stocks and mutual fund wealth, much of........

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