This rhetoric is ridiculous. If I were to stash trillions of income overseas to evade taxes, I'd go to jail, not have the law changed.
> It may look unfair to tax consumers to compensate for a major business tax holiday -- but then such a move would give businesses a strong incentive to keep prices lower to avoid a drop in demand.
A drop in demand? People are going to eat less food because taxes are now lower? Need less healthcare? Will move to a cheaper home? Just not use internet? Drive the car less to work and sit more at home?
Supply/demand is crooked. It doesn't work for the majority of the goods the majority of the people purchase. Demand is fairly fixed and based on population, and supply is provided by the only bidder in your area.
> Besides, liberated from corporate taxes, they'd have more freedom to increase wages.
Does anyone still believe this 'trickle-down' hogwash?
I really wonder when America will have its wake up call during its third part-time job to pay the rent that maybe change is needed, and that your government has no intention of making it.
If you had millions (much less trillions) in income to stash overseas, you wouldn't go to jail for it, even if it was flagrantly illegal. People don't go to jail for white-collar crime, generally.
If he'd paid a fine after they caught him, he wouldn't have gone to jail. He very openly refused to pay. He effectively went to jail for refusing to pay a fine.
The real argument for abolishing the corporate tax is not that they avoid it and therefore its worthless (though that is true). It's that taxing corporations doesn't really make sense. Corporations don't want things. Taxing them is just another way of taxing their customers and employees indirectly. And if you want to do that, why not just tax the customers and employees more in the first place?
Indeed they don't need roads, rails, fire departments, police departments, etc. Corporations don't exist in a vacuum.
Let's have a deal: we abolish the taxes if they don't use any these.
You might say: but citizens already pay for this! True. However, if you abolish taxes for companies then citizens will have to pay more for public services. You might say: but we will increase their wages. I say ok then, let's make it part of the deal: a decent minimal wage.
Sure but notice how Samsung and BMW get to use the same roads and police departments as Apple and GM, while their headquarters (with respective taxable wallet) resides some place else.
Only domestic companies' corporate earnings get hit to pay for this.
Because if you tax the margins (as opposed to the revenue, which would be patently absurd), you're not passing on the tax directly: you're incentivizing the corporation to move money smoothly through itself rather than stockpiling.
Because corporations then become vehicles for the wealthiest in society to hide virtually their entire income from tax authorities - whilst still being able to enjoy most of its benefits, and the problem of corporations hoarding huge moats of competition-intimidating money rather than paying out dividends gets even bigger.
Can you be more specific about the benefits? Every potentially benificial outflow of cash from a corporation to a person (dividend, distribution, RSUs, options, company car, corporate housing, phone bill paid by the company) is taxed as personal income to the recipient.
Two exemptions I can think of are health/dental insurance (exempted by law) and free food at Silicon Valley campuses (highly contestable benefit as far as IRS is concerned, the jury is still out on treatment of that).
How can one hide virtually their entire income while still being able to enjoy most of the benefits?
A large group of people (plumbers, electricians, landscapers, solo real estate agents) are actually incorporated and self-employed under this model, and yet are not massively wealthier in comparison to the rest of the population.
Aren't you forgetting power? For lowly employees and freelancers, money is just a voucher for consumption. But where money concentrates beyond the personally consumable level, controlling money equals power and attention, proportional to the amount of money retained, not proportional to outflow. This part is already undertaxed as it is, compared to outflow/consumption, going all the way to exclusively outflow/consumption based taxation would only make that worse.
It seems that if you're after taxing extreme concentrations of cash, annual corporate earnings are somewhere on the list, but not very high on that list (cash cows of yesterday are bleeding money today, and vice versa).
Various non-profits, university endownments, churches and pension funds, charitable trusts and charitable foundations have far higher concentrations of cash (and by your definition, power) that avoids the tax man entirely. States and municipalities also pay zero federal taxes on profits if they happen to end up with budgets in black. If you think the (somewhat easily fungible) corporate earnings are under-taxed, what's your take on non-profits and municipals?
Foundations are the embodiment of using money for power instead of as a consumption voucher. They might still be the lesser evil compared to unbounded dynastic wealth.
I am quite accepting of churches, as long as they keep their beliefs to themselves and fulfill their role as keepers of cultural heritage. Better keep them running than artificially converting churches into living history museums after they died. I would consider it a great cultural loss if, say, St Peter's would be just another ruin owned by the Italian government.
University endowments, at the scale they apparently exist, are weird indeed. Do they grow because giving money to add to the pool gives (temporary) influence over the application of the pool? That would be a surprisingly nasty scheme. A donations race like that is how the Roman bishopric originally became a political force in late antiquity/early middle ages, slowly displacing secular authorities.
The "pay your bills" part gets tricky as IRS considers that a fringe benefit taxable at regular income tax rates. A corporation also is not eligible to deduce a certain variety of bills (e.g. dependant spending, medical bills over certain amount, interest on home mortgage) so it's mainly a way to increase the amount of paperwork and decrease the amount of eligible deductions with very little to show in return.
I am not sure how "make investments from your company" is just an overwhelmingly better option than "make investments from your personal account". Not only the corporation doesn't get a variety of tax advantages, such as 401(k), IRAs and Roth IRAs, there's an added burden of an additional K-1 for the investment vehicle.
Have you ever actually attempted any of the "obvious" optimizations you provide here? Has anyone ever used your advice for their tax planning?
Contrary to popular disbelief, folks at the IRS weren't quite born yesterday.
You could say that about anything that isn't personal income tax. There's nothing about personal income tax that makes it any more authentic than any other kind of tax. The federal government spent most of its existence supported by other forms of taxation, without a personal income tax. An equally valid argument (though it still wouldn't be true) could be made that we should just abolish personal income tax and have nothing but corporate taxes.
Corporations are given many rights by the government, such as diffusion of responsibility.
It seems only reasonable that they pay for this, as it costs society every time a company breaks the law and the directors wring their hands but change nothing.
Food, healthcare, housing, land, education, etc. are almost always taxed differently from everything else, so changing the corporate tax reality should have no effect there. Also note that healthcare and food, (food especially) are heavily subsidized by the government already. While I personally believe that distorts the market and should probably stop, even in some doomsday tax-burden-shift scenario that you fear, a bump to subsidies could resolve the worst effects.
Really this is just like any other situation where the government due to structural weaknesses can't set/enforce policy effectively. Just like in the Prohibition or the War on Drugs, neither of which the government was equipped to make happen, the solution is to remove the problematic policies and take a more realistic approach.
>healthcare and food, (food especially) are heavily subsidized by the government already. While I personally believe that distorts the market and should probably stop
If you want to see riots in the streets because people literally can't afford food and healthcare, yeah, sure, go for it.
This is the big problem that has accumulated after generations of government-intervention and fiddling with the market.
The price of labour is now artificially cheap because the price of food is not taken into account due to subsidies and foodstamp programs, as well as the huge labor/population supply that such policies have created. There is no way the market could peacefully absorb such a massive distortion and so if we were to ever attempt it, no doubt there would be countless individuals chanting "see, we told you the market isn't the solution". These things need to be phased out over generations so as to avoid massive starvation and riots by the poor.
Obamacare is quite recent, and Medicaid has only been available in all states since 1982. There are some tax deductions for medical care, though those usually only apply to middle-class workers with benefits anyways.
Which healthcare subsidy would result in riots in the streets?
Also keep in mind that the US has been without the 16th amendment longer than it has been with it, so anything based off of an income tax must not be intrinsically important enough to automatically result in street riots. Though of course an irresponsible and sudden withdrawal could certainly cause problems.
> Which healthcare subsidy would result in riots in the streets?
Off the top of my head, Medicare and veteran's health benefits. I don't know that ceasing flexible spending accounts (money put in an account, pre-tax, just for medical/health expenses) and the tax deduction for medical expenses above a certain amount would be riot-worthy.
The subsidies probably overall increase the cost that the consumer is paying. The federal government pays farmers to not plant or reduce the overall supply thus leading to higher prices. There tend to be more tariffs in the US on food stuffs as well which prevents cheaper imports that would benefit the consumer.
One item in consumer's favor is that food items are usually exempt or treated at a lower sales tax rate.
Climate change has near unanimous support from climatologists. Most (rightly, imho) point that as a reason why it should be accepted by the general public. And those doubting the experts are considered ridiculous.
Here, however, we have an issue to drop corporate taxes which has near unanimous support from economists (across the political spectrum). Yet we call the experts ridiculous.
Why the flip? Why should the general public accept the expert advice in one field, but then turn around & call it ridiculous in another?
Scientists are often correct in their predictions, whereas economists sort of aren't. It's an epistemology question; these experts are not the same as those experts.
Unfortunately economics is one of those areas where many people who have never studied it think they know everything about it. It doesn't help that politicians (of all types) take advantage of this ignorance to pander to their potential voters to tell them what they want to hear.
Actually, I'm not 100% opposed to abolishing corporate tax altogether and finding other ways to structure tax. I'm not an expert, so I wouldn't know what the most robust structure is.
But I am calling the arguments that they use in the article ridiculous, and in particular the parts that I've quoted in my post above.
It's easier to convince people who have no priors. The majority of people doesn't ever consider the temperature at the polar ice caps unless they are climate scientists, so they'll take accept it easily. But lots of people with a folkish understanding of local weather, specially after some huge snow storm, will mumble something like "so much for global warming".
Even if you put all methodological issues (and citations from Richard Feynman) aside or even whether corporate taxes work or not, lots of social science findings would seem dubious simply because they deal with human behavior, which is something which is almost impossible to not have an opinion on, specially because it attempts to describe our own behavior.
The problem is that, if I were to understand reality through my own behavior, it would be through an unwarranted generalization of my own conditions to the population as a whole. It's like that joke of "why don't they just buy themselves some money?".
Your HN comments have repeatedly been uncivil. We ban accounts that do this, especially when they ignore our requests, and we've asked you to fix this before. If you want to keep commenting here, please be civil from now on.
I don't recall what you're referring to, but if we sent you an email that wasn't a reply, it was probably with the intent of giving you helpful information about your HN account. Most people like it when we do that, so I tend to assume it's ok. I'm sorry that I guessed wrong in your case.
You've been downvoting all my comments for months now. Would you please stop doing that? Abusive downvotes are dropped by the software, but they still add noise to the data.
Edit: Ok, since you've responded by doing even more of it, I'm going to take this as a signal that you're not using HN in good faith and ban your account. If you don't want it to be banned, you're welcome to email hn@ycombinator.com.
> Besides, liberated from corporate taxes, they'd have more freedom to increase wages.
Can someone explain this to me? I was under the impression that wages were expenses and non-taxable. So if they paid higher wages so they ended up with no profits they would have to pay no tax.
Shareholders want a certain amount of profit on their invested capital, say 10%. The exact percentage depends on type of company and the industry it's operating in. Tax is an expense, one that comes after all other expenses are paid, but an expense nevertheless. If I have $100 in profit, and I have to pay 30% tax, I'm left with $70.
If a company today is returning 10% to its shareholders per annum (and is paying, say 30% tax), then reducing the tax rate to 15% frees up additional cash to reinvest in the business that wouldn't have been available / would've otherwise gone to taxes. Or that money could flow back to shareholders, who could then reinvest it in other businesses.
If I'm a shareholder I don't want 10%, I want as much profit as possible. This is why economics is based around the assumption that stakeholders are profit maximizing.
The last three are already being attacked on separate fronts, a compromise would be hard to make. My state just eliminated its estate tax and Republicans have been clamoring to attack it at the federal level as well.
It's weird how much the Republican side of politics is against the estate tax, given the high level of 'founding fathers desire!' rhetoric coming from that side. The estate tax was put in place for a philosophical reason, not a revenue-raising one, so it is part of the mosaic of the 'ff desires'...
If the idea of having part of your hard-earned wealth confiscated rather than passed on to your children doesn't boil your blood, you're made of different stuff than I am.
From experience, passing substantial unconditional wealth to my children (above and beyond education) seems far more likely to turn them into assholes than decent citizens.
I'm always amazed at the distaste that the idea of generational wealth receives here. For me, it is the foundation stone of my well-being. My great-grandparents scrimped and saved in the depression, and passed on a small nest-egg to my grandparents. They scrimped and saved and passed on a slightly larger nest egg on to my parents. My parents lived and raised me in many years of poverty, saving what they could, and then inherited the wealth of generations. I expect that I will inherit that nucleus of the family's fortune in due time, and will do my utmost to husband it and grow it in trust for my descendants.
Whatever I achieve in this life is not my own, it is the culmination of the efforts of all the generations that put me in position to do what I do, and a legacy to leave to all the future generations of my family.
At micro-economic level this makes sense, at macro-economic level it reduces economic mobility. In countries with no artificial taxes on generational wealth the richest families of 2016 are likely to be largely the same as richest families of 1916 and richest families of 1816.
As their wealth is typically preserved via real estate and
land ownership, there's a politicial motive to decrease the cost of that, so economies also suffer from high barriers to entry and need to inflate taxes on something else to pay for the government services.
Repealing estate tax would work when combined with higher property tax rates or land value tax, but is rarely politically doable, as well-connected political families and large landowners tend to be the same families.
I value the spirit of passing something on, but I despise the inequality that emerges from repeated iteration.
The value lies in long term thinking, sustainability. A farmer can either maintain the soil, carefully rotating crops so that it will be able to feed future generations as good or better than his predecessors, or he can go for the agricultural equivalent of strip mining and move on to the next plot when the previous one is depleted.
But when you replace the soil with fungible assets, all that long term thinking benefit goes out the window. Sticking to the farming example, repeated slash and burn farming will only encourage more of the same, as long as there is something left to burn. Larger operators will grow faster than smaller ones, and after a few generations, when there is nothing left to burn, the descendants of those who burnt the most will employ the losers to tend the desert.
The same can be said of any tax, period, corporation tax included. Money that some person or corporate entity has paid tax on gets taxed again at or after the point it changes hands; estate tax is no different in that respect,
If the income was legitimately made from sales overseas fine that's a fitting analogy, but many companies will have a company in a low corporate tax area hold all the IP and the portions of the company that are making money and selling products will 'license' that IP to make it seem like they have lower profits. The overseas income is just from the company paying itself to shuffle money into a cheaper tax location.
I was under the impression that the trillions in question were made here, accounting tricks (e.g. IP licensing) were used to pretend that the money was made overseas, and then it was left overseas until the political system could be bribed into allowing a tax holiday. CMV.
Yes, in the United States, even if you don't come back, you have to file income taxes on that foreign income. There is no differentiation between foreign and domestic income (although you can get tax credits for foreign taxes paid).
That's true if the "you" we are talking about is an individual. If the "you" is a corporation, they are taxed by the US when they bring that money back to the US, not when they earn it abroad. They can defer the tax arbitrarily by not bringing back the money.
> Does anyone still believe this 'trickle-down' hogwash?
Absolutely not. Corporation will choke employees and consumers alike if they are allowed to have their way. This quarter my company decided to cut the quarterly bonuses to zero because Y-oY growth targets were not met. Although profits were higher then last year. Now it looks ridiculous to me to expect an fixed pefcentshe growth forever and then punishment employees who didn't even knew that increasing Y-oY growth is part of their responsibility. If at all anybody should have been punished, it should have been the top management. But since they make the rules, there is no downside.
When you say the majority of goods people purchase are fixed in demand, and there is only one bidder (supplier?), can you give a few examples of what you had in mind?
Dodge v. Ford is garbage and has been understood to be garbage for a long time. If you need convincing, please provide a link to the shareholder lawsuit filed against Costco management for not paying Sam's Club wages.
Google turns up nothing on that case, which is making it hard to become convinced. Why not provide the link yourself? :)
From what I can find, Dodge v. Ford isn't considered "garbage", but it is often misrepresented.
Directors have a primary responsibility to work for the benefit of the shareholders, but they also have virtually total discretion in how to achieve that. In the absence of clear evidence of the intention to shirk the responsibility - such as, in Dodge v. Ford, telling the shareholders you're putting public interests ahead of their profits - the onus is on the shareholders to prove that the directors aren't fulfilling their fiduciary duty.
America (as a whole) needs to shed its sense of superiority and its traditionalism.
For the record: I'm Dutch. I have free healthcare, good infrastructure, fast and cheap internet, sensible employment law, no police abuse, etc. All for ~40% tax (http://www.expatax.nl/tax-rates-2016.php).
Why? Because our government actually works. Why? I don't really know. It's a compound of hundreds of little effects.
The solution isn't 'less government', it's 'a working government'. Every time I learn something new about how the U.S. government is structured I shake my head a little. First-past-the-post voting of a single president that holds way too much power. A congress with life time based assignment that interpret a 200 year old document to their wishes to structure law. Case based law with uninformed juries, where the selection of the jury is optimized for maximum disinformation. It goes on.
On top of that there are financial taboos with origins that as a 199x er I do not understand: 'socialism', 'communism', 'higher taxes'. These ideologies (just like a free market) do not work on their own. Both ideologies have good ideas, and you need to take the best of both to make it work. But the American public is brainwashed.
I'm rambling a bit. There is no easy solution from what I can see. The U.S. government is structurally flawed and only massive changes can fix that. On top of that the public is misinformed and does not have its own best interests in mind.
One reason Europeans tend to misunderstand America is that they come from comparatively more homogeneous and therefore higher trust societies. America is overall better at integrating immigrants, but a solidarity deficit remains. Result: we don't get the nice socialized benefits. It's not the government as much as the polity.
Europe is anything but homogeneous. There are places in Germany, France, etc that have been under rule by numerous nations. My grandparents considered themselves German and spoke German despite living in Russia.
Regardless I've been screwed over by plenty of folks that look just like me, so what you say comes across as an excuse for the state of affairs rather than owning the issues and seeking to improve it.
The agony of WWII and its collaborators is still within living memory, as is life under the Soviet bloc with its secret police and disappearing people, likewise wars of ethnic cleansing in the Balkans. There are also several large secessionist movements where people actually want to secede, unlike in the US, where that kind of talk is rhetorical[1]. I don't think that kind of blanket statement of 'higher trust societies' can be made; the situation is a lot more nuanced.
For that matter, I think that Americans had a lot more trust in their government before the last couple of decades.
Speaking as an American, I'm terrified of the "massive changes" that would be required to "fix" (replace, really) the Constitution. It could mean civil war or the disintegration of the nation into a bunch of probably-warring nation-states.
Moreover, I'm not convinced our current problems are purely local. Trump followed on the heels of Brexit, and right-wing nationalist/populist movements are on the rise across Europe. The world is going through some weird changes right now, an angry reaction to future shock, and recent US politics are just a symptom.
I call it "the state rewrite problem", which consists of two assumptions: one, that the quality of any constitutional framework degrades over time as political actors adapt to it over generations (except maybe if the constitutional framework was particularly bad from the start) and two, that any rewrite/reboot intended to counteract that degradation would be even worse than that if the established set of political actors is involved. This traditionally is only ever avoided in the aftermath of some particularly violent crisis. Now the art would be to avoid that crisis.
Drafting random collaborators for a rewrite could be one approach, but they would still be prone to getting influenced by the establishment. Maybe dozens of randomized committees working in parallel, with all but one draft discarded at random, to make sure that writing happens out of the spotlight, and with little incentive for self-serving elements?
If you mean for citizens living abroad, then you are correct (although I do not know about Etriea).
If you mean for companies... I don't exactly know. But I do know that we aren't exactly clean in the global playing field for tax havens, and I wish we would change that.
Small economies often tend to be leechers off of the global system. This applies to the Netherlands, Luxembourg, Belgium, various tropical islands, etc.
The Netherlands is one of the countries significantly facilitating tax avoidance, and this is (obviously) by design. Hundreds of billions in royalty payments flow through the country every year to tax havens.
>Every time I learn something new about how the U.S. government is structured I shake my head a little. First-past-the-post voting of a single president that holds way too much power. A congress with life time based assignment that interpret a 200 year old document to their wishes to structure law. Case based law with uninformed juries, where the selection of the jury is optimized for maximum disinformation. It goes on.
There are problems with American government, but these are really not them. The only thing here that might hold water is the President having too much authority, and that's been a relatively recent trend.
I dunno. As an American, the case-based law thing really pisses me off because it means you can't know what law applies to you in a given situation without knowing the entire history of legal cases that touch that area. And I'd prefer something more like preference voting for the president. I'm obviously not holding my breath on any of these points.
That's just an excuse. Germany and UK have much higher populations and manage to achieve similar results. The "more homogeneous" argument is weird to me. Most immigrants that I've dealt with are more inline with the European mentality (regardless of their country of origin) than US natives. Are you saying the problem is with the locals?
A valid question and one that is getting much less attention than it deserves (probably because some of the answers are rather uncomfortable).
Locally, welfare can be egoistically motivated. Just about everybody would be willing to pay serious taxes to raise that one beggar off his doorstep - if only to keep him out of sight. We like to think of that as altruism, but it hardly is. Now ask those same people to pay serious taxes for the benefit of poor people thousands of miles away and you get a completely different picture.
Enter mobility: If you raise "your" beggar, someone else might just hope that theirs will go to a place where they will be raised (your doorstep). Clearly, egoism won't work as a motivator anymore because you don't want to be the new charity central. Therefore, welfare has to happen on the same organizational level as freedom of movement and that's where the relative unwillingness to help those thousands of miles away comes in again. Even basic income suggestions quickly lose their pie in the sky utopia feel when it comes to the question of access/citizenship/migration.
The US was literally built on mobility as a substitute of welfare, but once the original anti-welfare "stay poor or go west" was exhausted, the inherent antagonism between mobility and welfare continued to stay obscured behind other ideological concepts, "temporarily embarrassed millionaires" and all that. The EU is learning the hard way, but it is impossible to separate valid concerns and solution-finding from all the noise of and about stupid racism.
As technologists, we also know that getting popular is one of the worst things that can happen to a community. Scaling community and relationships is super hard.
> If I were to stash trillions of income overseas to evade taxes, I'd go to jail, not have the law changed.
Yes. But you see, if the state did that to you there would be no unpleasant consequences, whereas doing that to a big corporation will bring on a wold of pain.
NPR has a recent podcast called "The No-Brainer Economic Platform" which includes changes to the tax codes that have a unanimous approval of economists across the political spectrum (e.g. abolishing corporate tax), but which they show via focus groups would be impossible to present to the public:
Their other plans include things like abolishing housing and medical subsidies, which they claim just leads to price inflation in the longer term, but which are obvious political suicides to propose.
The point of these episodes was not to try to present some absolute truth about economic policies, but rather to demonstrate that while there are certain things experts universally or near-universally agree on, convincing voters of these policies can be a hard sell.
E.g. they argue that eliminating mortgage tax deduction would have the counter-intuitive long-term benefit of making houses more affordable. But when you try to explain that to people you've lost most of them once they realize that in the shorter term their existing mortgage would go up.
Can you summarize why economists support abolishing corporate tax?
AFAIK, corporate tax is optional anyhow. Any company could organize as unlimited partnership and not pay corporate taxes. But most companies chose not to, and I think that extra tax is a perfectly reasonable way of paying for extra protection (that of a limited company).
BLUMBERG: But fortunately, as you know, plank three I think is something that people can get around - a massive tax cut.
SMITH: OK.
BLUMBERG: Are you ready?
SMITH: Yeah.
BLUMBERG: A tax cut that's an insidious tax. It's felt everywhere in the American economy. It destroys jobs, stops innovation.
SMITH: I am all for it. OK. Who gets this tax cut?
BLUMBERG: Not who - what.
BAKER: If I'm being blue sky here, I would say the corporate tax is totally a waste.
FRANK: The corporate income tax makes no sense whatsoever.
SMITH: You are killing the voters here. So far we've got raised taxes on the middle class and eliminate taxes on corporations?
BLUMBERG: Yeah. And those were the two most liberal members of our panel, Dean Baker and Robert Frank. And here's the reason that they and pretty much all our panelists hate the corporate income tax, which by the way is one of the highest in the world here in the United States at 35 percent.
BAKER: It doesn't make sense really to tax the corporation as such. What we want to do is - I'm going to sound like a Mitt Romney here. What we care about is if the corporation is reinvesting the money. What's wrong with that? Why do we want them to prevent - why do we want to prevent the corporation from reinvesting the money?
What we might want to prevent is giving the money to wealthy shareholders or them buying a second, a third, fourth home, getting a new Mercedes every six months, whatever it might be. That's where we want to have the taxes. We don't want to prevent Microsoft or General Motors or whoever it might be from investing more in improving their product line. That's a good thing in my view.
BLUMBERG: So a lot of people, you know, when they think the corporate tax, they want to keep the corporate tax in place because they want rich people to pay more taxes.
SMITH: And rich people own corporations.
BLUMBERG: Right. But our panel agreed. If you want to tax rich people - and not all of our panelists agreed, by the way, that you should tax rich people more than others - but if you did, if that's what you wanted to do, just tax rich people - do that. Don't tax the corporation.
tldr: Taxing corporations prevents them from reinvesting the money and doing such things as advancing technology and hiring workers. It is a terribly destructive tax, discouraging exactly the sort of activity that drives the economy. It's the people who own the corporation that you're trying to tax, so tax them when they get the money.
So, eliminate corporate tax but at the same time increase capital gains tax, i.e. stop taxing it differently (less) than earned income? My concern with that is people shifting their wealth to be held by a private corporation instead of personally held; "it's not my yacht, it belongs to Extra88 Inc." I think additional changes would need to be made to the nature of corporations to avoid abuse.
Your example of the yacht is already handled by the tax code (at least in Canada, likely everywhere else too). That is, if you take the yacht for weekend excursions that is a personal benefit and you should be paying tax on that.
A tax accountant might try to hide that, but if you get caught that's lying on your taxes and not looked kindly on.
These areas are likely why the rich, like Trump, are often under audit. Because there are so many ways they can play the system to avoid taxes. Hmm, maybe I just made your point.
It is a risk yes, but that kind of argument wouldn't make it past an IRS auditor. There is a reason many C-level staff today aren't compensated with benefits like housing and transport.
This already exists, if you're buying an expensive item such as a yacht or an airplane, it actually makes accounting sense to structure it into a corporate ownership. When you need to resell a pricey item, you might not find a quick buyer for a $50 mln item, but you might find 10 fractional buyers willing to pay $5 mln each.
For all intents and purposes, there's no tax associated with owning a yacht, either at personal or corporate level, so it's not like there's a massive loss of federal revenue here either way.
Can you explain that? How does does the source of the money affect what I do with it (dividends & interest vs. pay from the sweat of my brow & intellectual output)?
If consumption today is more valuable than consumption in the future, why would you want to favor doing something else today, e.g. investment?
You'd always prefer $100 today vs $100 in a year. In order to convince someone to invest you need to offer them more than that in the future.
If the discount rate is 10% (not bank interest, just how much I personally value time) then unless you offer me more than $ 110, I'd rather spend the money now.
For people to invest, discounted_expected_return[1] - capital_gains should be higher than the money in their wallets.
You can play around in excel to understand this better, with a 5% return, a 20% tax on both income and capital gains and a 10% discount rate, $ 100 in income is either $ 80 today or $ 76 in a year.
I just want to emphasize something you hinted at: "expected return" usually involves an additional discounting factor which relates to risk and risk tolerance. An investment with a fixed return of 5% (a predictable $76 equivalent in a year) is very different from an investment with an expected return of 5% but a standard deviation of +-10% (anywhere from about $68 to $84). A lot of investors would treat that as worth a little bit less, because if it happens to go down, that is felt more keenly than if it goes up.
No, capital gains taxed less than wages incentivises investment over working. Which IMO is the wrong thing, because it's fundamentally regressive - young, poor but intelligent and educated people can only work, not invest, so we should encourage them by taxing them fairly.
And you think if you remove the incentive to invest, thus reducing the capital available to corporations, the same number of jobs will exist for those young poor people to work in?
I'm pretty confident that we do tax the poor fairly - in fact, thanks to credits, the poorest get a negative tax rate that nets them sizable "refunds".
but corporations can already reinvest in themselves tax free, and on top of that capitalizable expenses get to be spread across tax periods for tax sheltering purposes.
tax shields are so valuable to that they can actually be bought and sold as an asset separate to the corporation (in a not uncomplicated structure and set of circumstances iirc). typically this is done for shareholder benefit rather than for some coherent investment strategy (the benefit is not only capital but power and influence as well).
I've always wondered exactly this. Corporations aren't people. Why are we taxing them?
I think it gets a little trickier then the interview goes, though.
What's to prevent say, Bank of America, from buying its execs (and employees for that matter) second homes and cars and vacations with un-taxed money instead of paying them money directly in salary or in dividends?
> Corporations aren't people. Why are we taxing them?
IMO it is payment for special privileges. Limited-liability corporations are a way for owners (stockholders) to ask the government to give them a special exemption to avoid responsibility for certain mistakes or unprovable maliciousness.
Imagine a Deepwater-Horizon situation. If the corporation is bankrupt and the still-solvent investors are allowed to walk away and ignore the mess... Who fixes things, and whose money gets used?
> What we might want to prevent is giving the money to wealthy shareholders or them buying a second, a third, fourth home, getting a new Mercedes every six months, whatever it might be. That's where we want to have the taxes. We don't want to prevent Microsoft or General Motors or whoever it might be from investing more in improving their product line. That's a good thing in my view.
Sounds like a use tax would be more beneficial?
I have no formal economics training and would love to hear from the more educated.
S-Corps are the closest alternative to a company that faces double taxation, but they have many restrictions.
- Be a domestic corporation
- Have only allowable shareholders
- May be individuals, certain trusts, and estates and
- May not be partnerships, corporations or non-resident alien shareholders
- Have no more than 100 shareholders
- Have only one class of stock
- Not be an ineligible corporation (i.e. certain financial institutions,
insurance companies, and domestic international sales corporations).
I listened to that episode and if I recall correctly, economists agreed that corporation taxes should be abolished because they want corporations to reinvest profits and prefer to shift the taxes to shareholders/income.
Also mentioned on the podcast is abolishing all deductibles, including mortgage interest.
But they can reinvest 'profits' today, for free, by running internal R&D programs, acquisitions, sponsoring a charity and investing in its staff, all of which are deducted from revenue as costs of running-a-company before calculation of taxable profit. Look at Amazon as a famous example which grew enormously year-on-year by reinvesting and thus generating zero profit.
'Profit' is primarily a signalling mechanism to indicate to the market as a whole, and potential investors in particular, that a company is 'successful'; it has so much revenue and such low costs that it can't find a way to spend the money . But it's basically a waste as that money could be achieving something for the company or its staff. Thus Governments punish companies by taking a slice of that profit as a way of saying 'if you don't use the money productively, we will'.
Which is a very generous form of taxation compared that to personal income taxation, which comes out of gross revenue before the costs of being-a-person have been met.
A use tax is basically sales tax, and the problem with them is they are regressive by nature (people with less income spend proportionally more of it on taxable goods).
This is basically Gary Johnson's "Fair Tax" proposal, and it ultimately hurts the poor and allows the millionaires to pay less.
>they want corporations to reinvest profits and prefer to shift the taxes to shareholders/income
Which is dumb because the tax incidence of corporate tax already lands on shareholders and corporations aren't reinvesting profits because of anemic demand.
* economists who were completely blindsided by the largest financial crisis of our time.
In the UK there was near unanimous 'expert' support for the idea that Brexit would immediately trigger a level of uncertainty pre-article 50 that would crater the economy and employment.
Growth and employment are now ever so slightly up.
>experts universally or near-universally agree on, convincing voters of these policies can be a hard sell.
Because voters are suspicious about the supposed expertise of elite economists and they have pretty good reason. They've been sold on a lot of policies over the last 30 years that have fucked them.
I don't think that growth and employment being "ever so slightly up" gives the full picture here. The value of Stirling hit a 31-year low after the vote, which obviously made the UK an attractive market for overseas buyers (such as Japan's SoftBank buying ARM) but wasn't so good for the people of Britain. This is before Article 50 has even been invoked, and any optimism in the market may reflect the belief that Britain might have second thoughts about leaving.
The policies of the "elite" economists have lead to economic growth that Britain as a whole has benefited from. What did hurt people, though, is that in the last 30 years, UK governments haven't shared this growth fairly, nor have they sufficiently invested in public services, policies which the EU had no control over and will only get worse if Britain leaves.
>The value of Stirling hit a 31-year low after the vote, which obviously made the UK an attractive market for overseas buyers
...and so why didn't the experts foresee this if it was so obvious? Why did they predict a cataclysmic decline in employment instead?
>wasn't so good for the people of Britain.
Depends whether you're concerned more about reviving jobs in depressed industrial areas or the value of your stock portfolio/holidaying in the riviera.
Anyway, whether or not you think Brexit was good or not (I think personally probably not), there's no doubt that "project fear" was an apt description of the remain side's "expert" arguments.
If we were to abolish corporate taxes, would this make it trivial to avoid paying taxes on any money above what you need for consumption by routing all your pay through a shell company where you keep it until you need it? Seems like it would be essentially the equivalent of removing contribution caps on 401ks.
Interested to hear if there is a reason people couldn't do this, or why it doesn't matter.
The moment the money is spent on something seen as personal benefit then tax is owed.
During an audit, if you did something funny like repeatedly pay for dinners between you and your wife claiming it was a business meeting between corp x & y then I suspect the auditor will come down hard on that as an obvious abuse
This isn't what I meant. I meant using the corporation as an uncapped 401k which essentially lets you defer tax until years where you have less income, therefore paying less income tax.
That's not what he's saying. He's saying you can just basically hoard your income there and pay yourself a smaller salary. You could invest tax-free until you take it out.
Wouldn't this be the same as simply not taking money out of the corporation in the first place? I'd be more concerned about losing tax income from personal consumption complexly disguised as corporate spending.
Thanks, that was very informative! They explained their reasoning very clearly, and it's sad that these policies will never see the light of day.
I would be interested to hear their thoughts on a universal healthcare system. It seems like the benefits outweigh the drawbacks in countries such as Canada and New Zealand. But maybe there is an economic reason why it wouldn't work in the US.
it was unanimous approval of a panel of just five people...
Needless to say, you'll find other economists all across the political spectrum that think it's a jaw-droppingly awful policy prescription, rivalled only by the idea of replacing all income taxes with a consumption tax, which was also favoured by the five economists on the panel.
Ironically this entire podcast series is about how it's impossible for politicians to have an educated conversation with the public about certain policies, due to the prevalence of knee-jerk comments like yours.
> It may look unfair to tax consumers to compensate for a major business tax holiday -- but then such a move would give businesses a strong incentive to keep prices lower to avoid a drop in demand. Besides, liberated from corporate taxes, they'd have more freedom to increase wages.
We tried this with Reagan and everyone is still waiting for their increased wages.
Indeed, I've heard the reverse argument, that with extremely high corporate taxes, companies find paying their employees more money a better use of their money than giving it away to the government, since at least they get something out of it, however marginal they think the gains might be.
What I don't get about the US is that when a US employee works overseas, the government taxes them -under US rules- anyway. Even if they don't work in the US at all. The same arrangement, as I understand it, goes for people who work part of the year in the US. You work 1 day in the US under a US work visa, you pay US taxes. On everything.
Why not do the same for companies ?
If you want to do business in the US, you pay US taxes. Not on what you sell in the US, but everything, all your earnings worldwide. You get to deduct local taxes as a cost, but other than that, there is no accomodation. If the rule is good enough for people, it is good enough for business.
And if your criticism is that businesses will go overseas, that's the exact same argument for people. People drop their US citizenship just to avoid US taxes for crying out loud.
If you are a non-resident you don't get taxed on worldwide income. If you are a foreign company with US income you don't get taxed in worldwide income. And why should SAP pay less taxes than IBM...could IBM compete with SAP if they weren't held to the same standards?
You do have to report worldwide income to figure out your rate. Also, many countries have different tax systems, so does a fee count as tax paid or as a deduction to operating income? If a country organizes its burden purely as fees, then are you getting screwed on income?
For countries with tax rates less than the US, an expat can still get screwed by higher fees and cost of living to go with that. So much so that the usa introduced an overseas housing deduction just for people who work in Singapore, Hong Kong, Switzerland. Complicated, because most tax systems are not very comparable.
Not entirely true (expat from 2011 to 2013, please seek qualified tax professional advice).
The US grants an exemption of something like $60K/year for income earned entirely outside the US. It has to be paid by a non US entity in local currency. And, IIRC, there were a few other requirements.
They will also credit you with any income tax you may have paid in your country of residence.
You are correct that you're pretty well screwed in a high cost-of-living country as the base exemption won't go far. But then, you're pretty well screwed by the IRS sticking its nose into the bank accounts of US citizens looking for transactions of $10,001.
The foreign earned income tax exclusion is much more than $60k, it is almost $100k now. I don't take it because the tax credit is much easier to work with once you make more than that. But that applies to high tax countries where the tax credit will negate USA taxes completely.
Because then the businesses would just stop doing business in the US. The govt will do anything it can to keep them there. The current situation is actually optimal for the current corporate oligarchy.
That's a political decision. You could simply enact laws that prevent or dis-incentivise that. But unfortunately, most politicians aren't paid to do that...
Denmark's corporate tax rates don't appear to be that high. Their nominal tax rate is lower than the US tax rate.
US corporate tax rates were once 52%, and it was in that context as well as very high income tax rates on top earners (i.e., the business elite) that this argument appeared to have generally been made.
A major source - maybe the major source - of massive unfairness in the US tax code is the capital gains tax. Tax on capital gains is about half the tax on wage income. This is justified by the "double taxation" of corporate income tax. So abolish the corporate income tax, with its myriad loopholes and ineffectiveness, but treat capital gains as ordinary income.
Wealthy individuals who make most of their income on capital gains rather than wages would then pay the same as the rest of us. I remember during the 2012 presidential election, when Mitt Romney finally released his tax returns, he paid less than 50% of my family's tax rate, on 100 times our income. How does that make any sense? If capital gains were taxed as ordinary income, his taxes would have been roughly the same as ours.
The original PR stunt that worked to lower capital gains was to present retirees as human shields in front of capital holders whose income came primarily or even exclusively from capital gains. The entreaty was: capital gains would force your grandparents into eating cat food by taxing them twice in their twilight years!
There is a grain of truth to that, but for various American-specific reasons, it is difficult to apply a ceiling income level beyond which all capital gains income is treated as plain income. I believe one pernicious issue that must be addressed is treating corporations as people: lots of legal and tax accounting maneuvers absolutely depend upon this treatment, and a lot of tax-shielded income falls apart without it. Another pernicious issue is actual versus legal control of organizations: again, lots of legal and tax accounting maneuvers depend upon legally on paper showing no or minority control (especially fiscal disbursement) over an organization, yet actual control resides with real-world fiscal beneficiaries. It is highly unlikely these will ever be addressed in the foreseeable future, as many retirement structures among many other kinds of organizations are built around these issues.
> Wealthy individuals who make most of their income on capital gains rather than wages would then pay the same as the rest of us. I remember during the 2012 presidential election, when Mitt Romney finally released his tax returns, he paid less than 50% of my family's tax rate, on 100 times our income. How does that make any sense?
It's not an entirely accurate/honest picture. Romney's tax rate is lower because the income from his capital gains has already been taxed as corporate profits (well, assuming no tax evasion). I.e. the double taxation you mentioned affects him too, but it's not contained in his tax rate.
"double taxation" is not an entirely accurate/honest term. corporations are "persons" and we tax money flowing to people. it's taxed just like everyone else. what's odd is that it has a different, and largely preferential, tax treatment relative to other persons.
It's perfectly accurate and honest from any normal practical point of view. If I run my freelancing business through a C corp I have to pay corp taxes and dividend taxes or capital gains. It's taxed twice, and at a higher level in aggregate (assuming I'm making more than 75k) than if I'm just a sole proprietor. That's exactly why LLCs and S Corps exist, of course, and there are other ways around it, but it's still the case that the exact same amount of underlying economic activity happens, but one case is taxed more than the other.
His rate was so low because, IIRC, he had a boatload of equities that he knew were going to be worth a lot more in the future and he parked them in a Roth IRA. Not exactly a strategy open to your everyman even if we can all open our own Roth IRAs.
Are you sure? What rate did those corporations pay? Remember, the article that triggered this is about how difficult it is to collect corporate taxes, how little revenue they really generate, and how they lead to tax-sheltering overseas. I think it's fair to say that Romney's effective tax rate, including the corporate taxes, do not rival the taxes my wife and I paid as middle class wage earners.
And even if they did, what's wrong with my solution? It would be fair, and visibly fair, without the whiff of "Oh, you're just ignorant" to the naysayers.
> what's wrong with my solution? It would be fair, and visibly fair, without the whiff of "Oh, you're just ignorant" to the naysayers.
Absolutely nothing is wrong with your solution, it's fair and probably increases tax income for the country. It would only work if corporate taxes were abolished, though.
A low rate on capital gains is justified because we want people to inject capital. Absent an extreme situation, your regular wage check isn't subject to being completely wiped out. Yet if I invest in a company that sells ice over the internet, my entire investment could vanish. So collectively we put our thumb on the scale that more investment is better than less investment. That's also why we have the (imperfect) short-term/long-term capital gains setup.
As I keep saying, we don't need to "inject capital". At this point, it's actually counterproductive. The problem isn't that there isn't enough capital to invest, but rather that there's too much capital. Supply-side economics only works when the system is starved for liquidity to start new business. Instead, we have companies and investors sitting on billions, trillions in liquidity, and no good place to put it. Adding more capital will not create growth or jobs. The cup runneth over already.
Moreover, you need to consider the risk/return/liquidity triangle. This is sort of Investing 101, but it's often lost on people making pronouncements about how we need to cut taxes - mostly people who don't have substantial real capital investment, who rely on wage-driven cash flow. There are three elements to any investment - risk, return, and liquidity. Risk is the likelihood that the investment might lose rather than gain. Return is the amount of growth over time. Liquidity - the forgotten factor - is how easily the investment can be divested and turned into something else. If you can give up substantial liquidity, you can get into much more lucrative investment.
Real estate is the classic low-liquidity example. Buying and selling real estate is slow and painful, and it ties up a lot of capital. But it should return well over time. But liquifying real estate against needs other than profit can be very, very costly.
Angel investing and venture capital are extreme examples. You wind up with capital completely locked, almost totally illiquid (hence "liquidity event"), at very high risk. But the rewards can be stupendous. And they should be.
At any rate, cutting taxes to pour more capital into a system that already has too much capital is dumb. It made sense 35 years, when the economy was cash-starved and at risk of runaway inflation. But decades later, all the growth concentrates at the top, the poor and middle class have stagnated for people's entire adult lives, and we're facing borderline revolutionary attitudes on both the right and the left. "Cutting taxes to stimulate investment" is putting us on the brink of both economic collapse and political radicalism, and given how it's worked, deservedly so.
>buying Real Estate... But it should return well over time...
Lol. You do realize that the avg real estate price is up ~6x since 1975, while the S&P is up ~21x, right...? And before you talk about capital gains tax advantages, look into the absurd subsidies we provide to mortgages. Interest is a write-off, and if you're at all smart about it the appreciation in the property is close to tax-free (except at the extreme high end, but that's not where the gains are).
Now, on to your main point. There's a ton of liquidity (aside: just because there's a lot, is that inherently too much?) in a very specific sector of the market: fintech esp, and the tech sector in general. There is remarkably tight control on other areas of the market (go look at biotech, for instance). The actual problem is that tech startups are the lottery of investment. The ability to hit on one unicorn and make the GDP of a third world country in one year is pretty enticing. Because of this fact, investment in less-sexy sectors of the market is being depressed in favor of lottery tickets. Your proposal addresses this not at all.
One reason it makes sense is we want to encourage investors to take risks. Would you take a job where you had to put up an amount equivalent to 5x your annual salary in advance, with a chance of losing it all?
There are literally two arguments in this waste of ink:
1. Enforcement is undermined by international competition and tax optimization
...which is like calling for the abolishment of the criminal code in the face of a rise in crime.
There have actually been major advances in corporate taxation in the last decade or so. Switzerland is basically gone, so are Panama, Luxembourg, possibly Ireland and the Caymans as well. If the EU and US managed to cooperate, they could easily make the rules watertight.
2. liberated from corporate taxes, they'd have more freedom to increase wages
...which is complete BS because (a) it's never happened, and (b) only earnings (after costs such as wages) are taxed. If anything, the money could be better spend to lower associated costs of employment, such as health insurance. Or, you know, basically anything else: education, infrastructure, a decent life even for the less fortunate.
His best argument is actually the counterargument he cites: you don't want corporations (...are people...) to sit on endless amounts of cash. It creates a power imbalance equal to that of billonaire dynasties.
The "author" reaches new hights of asininity with his proposal to increase VAT instead, fully knowing that it is the most regressive possible taxation. You'd need VAT increases to 30%, which means a 30% tax on the lower third to half of society that lives paycheck-to-paycheck, but results in a 5% tax rate for the guy earning so much he can invest 3/4th of his income – no VAT on financial transactions etc.
The top five tech companies Apple, Microsoft, Alphabet, Cisco and Oracle had a total of $504bn of cash by the end of 2015. They have more money than they know what to do with. Lowering their tax rates will create exactly zero jobs and have no effect on wages.
And returning that money to shareholders (dividends) would incur income tax to the recipient, thus the tax-man gets his due. A much better outcome than just holding cash overseas
If they realise capital gains and they live in the US. E.g. Belgian stockholders of Apple don't pay any taxes (not in Belgium, not in the US) on capital gains.
There's always more R&D. Google could always build a dozen more moonshots. Apple could spend more too. AI, batteries, chips, VR/AR, etc. The future is waiting for someone to invent it.
This would have the unintended/intended consequence of increasing the value of the dollar vs currencies around the world. I think to an extent US administrations see the corporate tax rate and specifically the ability to apply lower rates for repatriated foreign profits as a policy tool for manipulating the strength of the dollar should they need too.
More to the point, this should set supply-side economics on a bonfire. The idea of cutting taxes to stimulate job creation is ludicrous when corporations are already swimming in cash. The problem isn't insufficient capital - it's risk aversion and a lack of good places to put the cash already in the system.
Supply-side made a lot of sense in the Reagan era, when we had near-runaway inflation and a massive cash crunch, so there was no capital to invest. Now we need things to invest the excess capital in. We need demand. That comes from wages, and no individual company is motivated to raise wages. Tragedy of the commons, in a sense.
That money is parked overseas. Apple can't use the money for designers in California to create the next version of the iPad. Maybe that's good news for Irish designers. If we're lucky, the next iPad ought to have little stickers all over it proudly proclaiming "Designed by Apple in Ireland, Assembled in China".
They could borrow in the US (and they do to finance share buybacks and dividends), while they wait for the next tax holiday [1] to repatriate that overseas money at a low tax rate. The next tax holiday will probably next year.
I'm not contesting your main point, but sure why you're including Cisco and Oracle in the "top five tech companies". Facebook, Amazon, and Intel have bigger market caps.
Edit: Looks like you're referring to 2015 rather than present.
Given that the companies you mention only employ a tiny fraction of the work force, and that in developed countries small businesses employ over half of the workforce, I can only see the abolishment of any corporate income taxes as an excellent trigger for job creation.
Sure, some businesses will employ more people if their income isn't taxed. But many others (especially in the tech sector, like you pointed out) won't. Apple alone accounted for 4.4% of all US corporate income ($72.67 billion vs $1.637 trillion according to Wolfram Alpha). I think more jobs could be created by using those taxes to fund e.g. infrastructure projects.
I think the main argument for abolishing corporate taxes is that they're inherently regressive, if we assume that the taxes get passed on to either consumers (who may be poor) in the form of higher prices, or investors (like grandma holding retirement shares) in the form of lower stock prices.
There's certainly an argument to made that corporate taxes should be abolished, and personal taxes increased instead (income and capital gains), where we can ensure that the equivalent amount of taxation is applied progressively, through higher tax rates on the rich.
Because the key thing to remember is, corporations don't exist on their own -- they have human owners. So if you tax the rich owners directly, instead of taxing the corporation, you can get the same money but with finer-grained control -- you can progressively tax the rich owners more, and grandma's pension less.
(Of course, if you don't believe in progressive taxation, then corporate tax, sales tax, property tax, etc. are all just fine.)
Not all corporations are domestically owned and the owners that you propose to tax may reside outside US tax jurisdiction. Lowering corporate tax rates and raising domestic taxes would effectively mean that foreign owners of US corporations would effectively have a profit advantage over domestic owners.
Also corporations have a lot of discretion in when they distribute profits. A zero tax rate would effectively create the equivalent of an unlimited 401K/IRA. The corporate tax rates the US has today are in many ways the result of the high personal tax rates in the 70's that resulted in a lot of people creating what the IRS called "personal holding corporations" to defer taxes.
Does it make sense that a guy working for a $150K wage would be limited to deferring $16K in income while a consultant working for the same amount could defer taxes on any amount over what he chose to spend?
I wonder if the international issues could be overcome with the concept of "franked dividends" that exist in Australia where the corporation pays taxes on the dividends, but these provide a tax credit for Australian taxes, which foreign investors can't really make use of. I'm not sure if they are, but theoretically there could be tax treaties where these credits are respected internationally.
There’s nothing to prevent taxing foreign owners of domestic corporations separately to make up for that -- taxation across borders is a separate issue.
As for deferrals, it's the same as with capital gains -- if you have a $1 stock that grows to $1,000, your taxes are deferred until you sell it. A greater harmonization of tax deferral period is a good idea. Either everybody should get to do it, or nobody. But this is a separate issue, that should be totally divorced from corporate tax.
The ability to defer income through capital gains is an extremely limited vehicle to defer income when compared to being able to accumulate profits in a corporation tax free.
Assume that you have a business that generates $500,000 dollars in profits and you'd like to defer taxes. In the US under section 179 you can defer those taxes by investing in depreciating capital equipment such as computers, trucks or medical equipment. Obviously investing in depreciating capital equipment only allows you to defer taxes if it in the future allows you to expand your business and generate at least the same amount of income. In addition to being capped, and phasing out, the rules are very specific to prevent the system from being gamed. For example, you can't use those deductions to invest in real-estate.
To effectively defer taxes for 10-20 years would require that over that time you were able to find profitable ways to invest those profits to expand your business.
Trust me that finding profitable investments over a 10-20 year horizon is an extremely difficult thing to do and requires significant talent that is in limited supply. Allowing those people to defer taxes and re-invest profits is a win-win-win for the owner, the government and citizens.
Compare that to corporations that could accumulate profits tax free. Essentially unlimited amounts of funds could be accumulated in the corporation tax free with no personal obligation to find effective ways to deploy those funds. Those funds can be held and grow tax free until needed in retirement where they can be meted out at favorable tax rates or left for heirs.
They would even more favorable than traditional IRA and 401Ks because they wouldn't have required distributions.
While its true that corporate taxes in the US are out-of-line with other developed economies which has distorted the economy in some ways dramatically lowering corporate tax rates without implementing rules requiring distribution of corporate profits and implementing taxes on a foreign holders creates a tax loophole so large that you could drive a truck through it.
Of course you'll hear the Wall Street Journal talk about how this is 'good' for the US economy because it will allow corporation to 'reinvest' which will lead to all sorts of good things for everybody but the corporate owners. Oddly enough there is never talk about expanding limits on 401K's and IRAs and allowing the middle class to defer taxes.
Also, most people aren't employed by the type of giganto corporations people are mentioning in this thread, like Google or Apple. Most people are employed by the very long tail of small businesses, whose owners are decidedly not ultrarich demigods. From your small consultancies to the sort of cafe I'm sitting in right now, lowering the corporate income tax will have a huge impact on how many people they can employ and what sort of prices they can charge. All of the small business owners I know don't want to make themselves absurdly rich. They just want to have a comfortable, middle-class life and help other people do the same.
>I think the main argument for abolishing corporate taxes is that they're inherently regressive, if we assume that the taxes get passed on to either consumers (who may be poor) in the form of higher prices, or investors (like grandma holding retirement shares) in the form of lower stock prices.
You can assume anything you like but in reality, grandma doesn't own the majority of US stocks, the 1% does and the tax incidence doesn't land on consumers it lands almost entirely on shareholders.
Sales tax is an example of a tax incidence that lands mostly just on consumers.
What do you think grandma's savings are tied up in? A significant share of it is in equities.
And it's completely irrelevant what percentage of corporations are owned by savers in the 99% vs the 1% -- corporate taxes lower the value of those shares for all of them equally. They hit grandma just as hard.
All taxes are regressive in that sense of the word. Taxes on income have the exact same problem. The net result is "higher prices" (in terms of % of your monthly paycheck).
Every single tax. Every last one.
The problem is that rich people cheat "legally". They control the companies as well. What companies did in the years of those very high company and personal taxes is to have "executive perks". Now those exist today (and to some extent are defensible, e.g. I understand why the CEO of IBM needs some security). The costs for those were then costs of the company.
So companies would lure shareholders in those days by making sure a 1% stake in the company would guarantee a director-level position in the company, which came with free use of a company yacht, plane, very low rent on company-owned housing, ...
Why would taxes be passed onto customers? The goal of the company is to optimize pre-tax profit, regardless of what kind of tax is slapped on top of it (as long as that tax isn't 100%).
Why do you think the planet's largest companies are still the planet's largest companies? Because they've gotten in bed with government. That's why there's no income tax, because of regulatory capture. Of course Bloomberg wants to just give up the fight. Sure, corporate tax right now doesn't contribute much, but there's no reason why it can't. Yes, it's hard to enforce laws on entities with ginormous amounts of resources, but that doesn't mean we shouldn't at least try.
I disagree. I think there's a multi-pronged, not-necessarily-partisan critique of corporate income taxes.
These taxes are inefficient: They're difficult to collect. They disadvantage small companies that can't afford costly tax minimization strategies. They encourage big companies to spend money on non-productive activities (offshoring, shell games, etc.) The point of taxes is to raise money for the treasury, not stick it to the man. Moral indignation doesn't put bread on the table, so if we can collect by easier means, we should.
Corporate income taxes are a big part of the rationale for the tax treatment of capital gains. The money has been taxed once, so taxing it at standard rates amounts to double taxation. There's an argument to be made for abolishing corporate income taxes and treating capital gains as ordinary income. Since the returns on capital outpace the returns on labor, in the long run wealth accumulates with capital and reinforces inequality.
> Since the returns on capital outpace the returns on labor, in the long run wealth accumulates with capital and reinforces inequality.
Also, capital-derived income scales far more than labor-derived income, with far lower overhead. This isn't just in the physical domain, but also the time domain. This presents interesting tax and industrial policy questions on whether or not to treat large-scale capital-intensive organizations the same as labor-intensive organizations.
I wouldn’t. I’d gladly pay even more taxes, tbh. Because taxes are the best RoI I can get.
Every Eurocent of my taxes goes back to better education of society, better infrastructure, more investment in innovative technologies.
Sure, I don’t get more money directly from it, but a very educated, modern society, with perfectly maintained infrastructure can save a lot of costs in many places, and increase your income even more.
So why don't you pay more? Is there a law in your country that prevents you from paying more than your are forced to? Aren't you allowed to donate money to your government? Sounds like this is the best investment a person can make.
Its hard to feel that way for me when it takes days to get a government organization to respond to your queries (ie status of immigration or status of obamacare application)
I cant even fathom why someone convinces himself that taxes are moral and that paying more taxes is better for you.
You pay taxes because if you dont, the police deprives you of your freedom. Not because you want to, and the argument that taxes are the best ROI is financially insane, otherwise you would just donate all your money to government institutions and you would become wealthier.
In a perfect futuristing plentiful society, taxes would not exist: the goal is to make taxes as low as possible, not as high as possible!
Why stop at corporate taxes? Why not personal income taxes?
Maybe it's time to transform myself into a corporation. No more taxes, limited liabilities, easy bankruptcy (student loans), can't go to jail even if I make a real mess (financial crisis of 2007, Wells Fargo, BP), welcome at exotic tax havens, tax breaks to move to another region... The ultimate lifehack: forget cloning yourself, just corporize!
Lots of people do exactly this, as least for some portion of their finances. Buying houses through an llc and renting to oneself is not uncommon. You lose the tax benefits of interest deduction, but if you're paying cash that doesn't matter anyhow. Other large purchases like cars and boats are owned in similar arrangements. When you are financially independent (not working a W2 job), many of your financials are easily categorized as business-related, with all the tax benefits that incurs.
Ask Wesley Snipes how well this works out. He only spent 3 years in federal prison, a crap load of attorney's fees, and had to pay fines and back taxes.
There's a huge difference between using IRS-allowed expenses to reduce your tax bill and claiming (as Snipes' accountants did) that all domestic income is not taxable.
Folks might be downvoting because it isn't a valid point. If you incorporate you're required to pay yourself. The IRS will come down on your like a ton of bricks if they believe you're underpaying yourself. Unless you're a tax attorney, it's a very hazardous line of thinking to believe yourself smarter than the tax man.
How about abolishing income tax in general and just have a consumption and land taxes.
I live and run my company in a tax haven. I had to move here in order to be competitive internationally with other low tax jurisdictions. My only other option was to go out of business.
In addition to not having to pay any income taxes I also don't have to report anything to the government or worry about the government, bank, isp, phone company etc spying on me. No need to worry about going to jail over a misinterpretation of the tax code. I don't have to worry about immigration issues. Healthcare is completely private and very affordable.
Politics is a lot more boring when the parties are not fighting over who's in control over massive amounts of spending. Helps keep corruption down.
Leaving SF and moving to a tax haven was the best decision I've ever made in my life.
I'm culturally American, but I'm not a citizen. If the US were to adopt similar policies I'd love to move back. I'd bring money and jobs with me. But unless Texas succeeds I'm unlikely to see a western (anglosphere) country doing this in my lifetime.
> Besides, liberated from corporate taxes, they'd have more freedom to increase wages.
Are corporations desperately brainstorming to find ways to pay their employees more, only to be foiled by freedom-impinging corporate taxes?
> The populist governments...need to deliver economic growth and benefits to the disenchanted workers who have brought them to power. One way to do it in a way everyone would understand would be to abolish the corporate tax
The article posits replacing corporate tax with a 25% VAT. These disenchanted lower-income workers would see their cost of living increase substantially, but presumably they could dip into their newfound corporate tax savings to cover the difference.
Agreed. They would have the freedom to increase wages, but without any incentive to do so they won't. Instead they'll just increase dividends which are taxed at a lower rate than income. Hence the rich get richer. Simple.
Not on any significant scale no. And trying to make the 99% buy into something by making that exact claim ("not only rich people own stocks") has been thoroughly debunked as propaganda.
Yes, you are correct, but only academically. In practice the 99% benefit very little from the stock market while the 1% makes most of their money from it.
The key is to ask what portion of ones income is from investments. Or simply the ability to quit working and live on the investment income. For most of the middle class, their investments are hoped to fund their retirement, not any portion of their current lifestyle. That's why it doesn't matter that so much is in tax deferred retirement accounts.
No sarcasm; I gave an explanation how that occurs indirectly in some sense. Essentially, with better investment earnings, you need to save less for retirement; which allows better current lifestyle.
What would you do if investments doubled your money in a year?
> I do not see why rich people gaining disproportionately is a problem.
You are free to have that opinion, but I think that the majority of the people affected by these economic policies (who by definition cannot be rich) will disagree with you.
I think that the debate of policy would be greatly improved if proposals started with a statement of fundamental axioms like these, from which the supposed merits of policies are derived.
> You are free to have that opinion, but I think that the majority of the people affected by these economic policies (who by definition cannot be rich) will disagree with you.
Didn't you just say that rich people benefit? So the policy affects rich people positively.
Apple's cash pile includes a lot of overseas holdings. There simply aren't enough things for them to spend $60bn on. They don't want to repatriate the money because they'd get hit with (wait for it) taxes. If we eliminated corporate taxes while raising capital gains taxes, Apple would have an incentive to repatriate the cash and the piper would still get paid.
The article fails to point out that if corporate tax rates are reduced wages and/or shareholder revenues have to increase—the money must go somewhere.
Of course they fail to point that out, because there is a strong counterfactual in the way many rich companies let cash sit in bank accounts for an indefinite amount of time.
If corporate tax is abolished, Apple's cash pile would enlargen and thus Apple's investments would increase which would increase other company's stock prices or bond yields.
> and so should be replaced with taxes on private wealth or on consumption.
The article notably does not make the case for a wealth tax. It proposes making up revenue with income and consumption taxes. The result would be a transfer of wealth towards the ultrarich.
Their argument for abolishing the tax seems to be (a) it's not a big contibutor to GDP, (b) businesses might raise employee wages, and (c) we can control corps with other regulations.
Reasons a and b seem to conflict. If corps already aren't paying tax, they have the cash ready to raise wages.
Reason c ignores that there are similar loopholes to safety and environmental regulations too.
Taxing corps is an answer to the problem that companies cost the government money (i.e. trucking companies use roads) while benefitting the state (employing people who consume and pay income tax). Maybe it's a good idea for the government to directly recoup the benefit of a company using state resources.
I'd be on board with this if one thing resulted: corporations would be prohibited from making political donations, or any sort of political activity. Not being a tax paying entity, they should have no "voice" in politics as a corporation.
I've never understood the logic of silencing companies (banning political donations, participation, etc). Companies are groups of people. People are free to speak (legally enshrined in many locales). Restricting how a company speaks seems to be restricting the decisions of a group of people to speak, and thus an individual's right to speak.
With regards to the statement about being a "tax paying entity" or not to have a voice, that is an extremely dangerous road to go down. See "poll taxes".
Companies aren't just groups of people. They're groups of people that are specially organized and granted limited liability and other privileges. I don't mean to claim that companies should or shouldn't have political voice, but let's not pretend that there's something sacrosanct about incorporation.
> With regards to the statement about being a "tax paying entity" or not to have a voice, that is an extremely dangerous road to go down. See "poll taxes".
Not at all. Every person has the potential to pay taxes, whether they do or not. We have wisely decided that people who make below some vague amount don't have to pay taxes. But they'd be eligible to pay if they made more money. As opposed to a theoretically non tax paying corporation.
As for corporations "speaking", the people controlling the corporation are using the productivity of their workers to speak for those workers (if money is speech, that money came from the employees' productivity), whether their employees want the to or not. They're unjustly gaining extra speech, beyond their individual speech, which everyone already has a right to.
EDIT: taxes and speech, I probably wasn't clear. Any person can vote, whether they pay taxes or not. They have skin in the game, because they're people. Their population determines congressional districts at every census, and corporations do not. I'm not saying you can't vote until you make enough to pay.
Considering that in corporations only a few people have a real say giving corporations political speech gives those few disproportional representation. They still can speak as much as they want but as individuals.
'repulsively regressive' is an uninteresting cliched opinion. How about explaining why you take this view taking into account that the tax means that someone has less money to play with - could be employees, shareholders, consumers who pay higher prices for the goods produced or all three groups who might otherwise gain from business expansion. The money could go into a pot of course but it's used in the same ways ultimately.
> 'repulsively regressive' is an uninteresting cliched opinion.
Note that "regressive" is technically an accurate description of the suggested policy.
> The money could go into a pot of course but it's used in the same ways ultimately.
It is not necessarily used in the same way. One reason why progressive taxation is both socially and economically beneficial is that poor people spend a larger proportion of their income, and thus generate demand. The same money, given to the rich, will largely end up as savings.
Because it doesn't happen. Employees are not going to be paid more. Shareholders are going to get more money, except that's it's going to be negligible if you're a small shareholder. Consumers are still going to pay the same price because they are already paying that price.
Eliminating corporate taxes ranked fairly well when Planet Money asked economists for policy proposals.[0] (All the proposals were things that have fairly broad agreement by left and right wing economists but are deeply unpopular to most people, like eliminating the mortgage interest deduction.)
It wouldn't have been something I even considered before that episode, but one economist argued that people really find corporate taxes appealing because they're suspicious of concentrated wealth. But if we're trying to transfer wealth from the rich to the poor, we could just transfer wealth from the rich to the poor through more progressive income taxes.
While I think they made a good prima facie case, there's one counterargument that I haven't seen explored. Cheating is positively correlated with tax rates. So if you have a variety of kinds of taxes, you can have lower rates than if you just have one source of revenue. You can reduce the incentive to cheat while collecting the same revenue.
The "sweetheart deals" mentioned here are definitely aggravating though, they seem deeply unfair, and zero sum when states compete for the business.[2]
I'd like more countries and states to adopt a "most favored company" rule, where any company can claim the same terms as the most favored company in that territory. Similar to how the WTO ensures fairness. If a state wants to eliminate corporate taxes, fine, whatever, but you can't just do it for one company whose execs took you out to a few ball games.
Is the real question not about taxes but what to do about all this cash?
Taxes are necessary. But in the case of corporations I think the problem is not about what the right corporate tax rate should be but instead what does a company do when they effectively have so much cash they can not find good options to invest that money in.
If one of these companies suddenly reports a significant drop in cash due to aggressive investments in something that is failing (say, perhaps building an autonomous car) their stock will be punished, a very negative incentive.
The real question: is a company investing this cash the right thing to do? IMO it is, we want that money at work, building something. I don’t believe taxes can solve this. Instead can we need to find a way for companies to be able to invest this money in new ideas but not be so punitive via the markets when they try things that fail.
The problem will come when you collide a corporate tax rate of 0% with tax cuts for the wealthy. The end result will be higher taxes for the rest of the population and no more services of any kind. Or even higher national debt. I suppose you could always raise duties on foreign imports to insane levels which would no doubt be popular politically. No idea what type of country that would result in.
The tax change I would like to see is a better way to support bootstrapped small companies whose working capital requirements are increasing as they grow.
You start on Day 1 with $100 and sweat equity and grow your business. Year one you have $100k of revenue and $90k of expenses. You need that $10k in the bank as its now your monthly burn.
Year 2 you grow to $400k and have $40k of net income. You need that $40k in the bank because it's now your monthly burn.
Year 3 you grow to $1.2m and have $200k of net income. You need that $200k in the bank because... Ok, you get it.
If you're funded you can burn those funds in the beginning and carry forward the losses as your capital requirements are growing.
Otherwise you are stuck paying at least 40%, but can be much more depending on the states you do business in, not to mention the CPA cost is substantial just to make all the filings.
It's really hard to bootstrap from $0 when every dollar you need to keep in the bank just to have 3 months expenses on hand, actually costs you $2.
It's also really hard to get a line of credit that early in the business lifecycle, so it's quite a trap for bootstrapping companies.
It would be really great if there was a way to defer the taxes on that early profit that is staying as working capital.
Almost like the money shouldn't be taxed at the corporate level as long as the company is not holding more than X months of expenses.
I've read there are taxes for holding "too much" money at the corporate level and not paying dividends, but apparently it's not really applied in practice? Or, again, only targeting smaller businesses who can't afford to play the necessary games.
Okay I haven't spent very long thinking this through but if we think lower corporation taxes wouldn't lead to an increase in staff earnings (which I completely agree would be the case and for the article to suggest that is offensive) then why not change the corporation tax laws so that it'd be banded? The average salary across the whole organisation that people earn (with different bands for different sizes of businesses to prevent small groups of people making up shell businesses) are then factored into different corporation tax rates.
You could financially incentivise companies to reward their workers, a big business giving its staff generous salaries could then pay almost no tax.. Then you go after the individual's tax instead.
I'm sure there's flaws in this but I think the premise of financially incentivising companies to pay better wages could make the lower corporation tax idea more credible than just expecting it'll magically happen.
The USA has some of the highest corporate taxes in the developed world while simultaneously being the state that is arguably the most controlled and dominated by capitalist interests. It seems like a paradox until you put it under a different lens...
As a Marxist I'm actually for the abolition of corporate taxes. I think they're an ineffective and counter-producitve means of raising revenue and simply make the state more dependent on corporate profits and power.
But in return for the lowering of corporate taxes, I'm for socialization (which is not necessarily nationalization) of a whole bunch of key assets, legal and state support for worker-owned business and cooperatives, and broadly the transfer of power of much of what is now in corporate hands into the hands of the population as a whole.
> The USA has some of the highest corporate taxes in the developed world
The US has low (substantially below average within the OECD) actual corporate taxes, though it has a high nominal rate of corporate taxation. (Various tax deductions, credits, etc. make the actual ultimate tax rate low.)
My knee-jerk reaction was that this sounds like a terrible idea. It sounds like something that very wealthy people would lobby for, in order to make themselves even wealthier and increase inequality.
So now I'm not sure why the majority of these comments are so opposed. Do people here not trust experts in the field of economics, in the same way that many people don't trust the scientists who warn about climate change?
Increased wages (for the average worker) is the last thing companies will do with more cash - it's the gift that keeps taking if incentives are considered.
We Americans manufactured and believe in a host of fables to explain the prosperity of the last 70 years...
I'd like to propose a rule for politicos to follow when discussing fiscal policy. I don't expect them to follow it, but I suppose everyone can dream.
The rule is this: all proposals for changes to government spending must be revenue-neutral. That is, if you propose a tax cut somewhere, you must propose a tax hike somewhere else to explain how the cut would be paid for. Or if you don't want to propose another tax hike, you must specify what service will get cut as a consequence. Conversely, if you wish to propose a service, you must specify how you will raise the funds to pay for it.
Anything else is wishful thinking, and is storing up trouble for the future.
This presumes that deficit spending is necessarily bad. When your borrowing rate is sub-inflationary, you'd have to be a dope to spend today dollars.
The UK is still servicing debt on perpetual bonds from the 17th or 18th century. They carry a low interest rate, so it's cheaper to make payments rather than paying off the debt.
I agree that deficit spending can be useful in some circumstances, but I think it should be more like a last resort rather than a first port of call. Otherwise, how can you argue against the reductio-ad-absurdum that all spending should be deficit spending?
> [I]t should be more like a last resort rather than a first port of call.
The obvious retort is that if all spending were deficit spending, people would stop lending us money. Rather than attaching unnecessary ideological baggage to tax policy, we should do the math. When deficit spending is cheap, we should exercise it. When it's expensive, taxes are wiser.
Better yet, abolish for-profit corporations. Cap individual salaries at 1.5x median or something. Create a global or national direct crowdfunding platform. Have the population propose, vote on and fund causes with the excess money.
a few points made in original article, paraphrased:
1. lowering taxes will benefit consumers because corporations will lower prices (and definitely not maximize shareholder value)
2. taxes have loopholes and sweetheart deals, so we should level the playing field by rewarding their talents (or deep pockets) by eliminating everything
3. Only 10% of Federal tax revenue, despite the whales' best efforts at tax avoidance
I think #1 is the most offensive. The idea of companies putting excess profit from tax removal into hands of consumers is the most laughable argument for removing corporate taxes I've ever heard.
I used to think this was the right move. Tax everyone personally and let corporations do what they do best.
These days I have trouble reconciling the notion that in the near future we're going to need guaranteed minimum incomes for everyone as more and more jobs are automated. With fewer people working traditional jobs there will be even more incentive to shift the tax base toward the corporation and away from the individual.
tldr: how does abolishing corporate tax jive with universal basic income?
I actually do get the core premise. Tax the owners via dividends and capital gains. An added tax in the middle is inefficient. Of course let's see this done in a revenue neutral way!
Two problems: 1) someone has to pay for the common roads, OSHA, FCC, etc., the things that enforce common consumer-business fairness, and 2) virtually no company pays this rate. Exxon, Facebook and verizon have paid 0% or close for years, so this is mostly a fake problem to disguise the real problem of tax loopholes.
Corporate taxes will be abolished soon by smart governments and replaced by (higher) personal income/wealth taxes. It's the only realistic solution to global tax competition because corporate entities are much more mobile and flexible than individuals (including shareholders). It's either higher taxes on dividends and lower/none on corporate profits, or diminishing tax income overall.
Or have vote share = tax paid - service/goods provided. The democracy is weird corporation structure, the more share you have the less power you wield.
It is scary to what extent corporate taxes can be avoided. Something is there is seriously broken and radical ideas are worth contemplating when the there is such a discrepancy between plan and outcome.
Should profit be accruing unchecked in corporations? Certainly there should be some pay back to society as society bears some external costs. Not only that but there may be better places capital could be deployed. These can be different at different times - management doing reinvestment, shareholders moving capital elsewhere, employees spending and taxman spending. A robust scheme would employ a balanced approach. At any time one may be preferable and some will argue for extremes. But things are changing - always - until this time it will be different - only to return shortly later violently to mean.
Discussion of corporate profits requires to also be looking at income tax and the treatment of dividends and capital gains is always being simplistic. But the essay is not trying to propose a solution. It is simply pointing out that there is a systemic escalating credibility problem:
> It could be argued that the existence of a tax that countries cannot properly enforce is one of the factors undermining trust in governments and feeding populist movements.
Bloomberg is not known for its social attitude and one may argue that they are advancing here a very liberalist agenda by talking up a fake problem. I give some leeway this time due the next paragraph:
> There are other ways governments can keep corporations in check -- for example, through environmental, safety and labor regulations, which U.S. Republicans and Brexiters dislike but which ultimately benefit consumers in a way the corporate tax doesn't. There are also other ways governments can get the revenue -- for example, by paying more attention to private income from corporate dividends and pass-through entities, or the European way -- by placing an additional burden on consumption through a value-added tax. In the U.K., VAT contributes 10.7 percent of GDP to the budget. To compensate for the absence of a corporate tax, it would need to go up from 20 percent to 25 percent -- the level that currently exists in Sweden and Croatia, for example.
Finding ways to tax that can not be escaped is critical. Also important is to find ways to tax that don't burden labor too much. However this approach needs to take into account that shifting (or acknowledging the fiat-accompli) of collecting tax from less sophisticated and mobile citizens and workers is putting pressure on well paid full time employment. Tariff free zones may not be so compatible with that approach.
Last but not least - hoarding profits (most extreme in case of Apple) as it going on at the moment is a recent phenomena. There used to be a tax on that called inflation. Any balancing would need to look at where and with volume new money is entering the system and going nowhere.
The only problem I see with abolition of corporate taxes, is that it allow certain people to store their wealth "by proxy".
advantages of zero corporate taxes:
* lots of advantages for small business, too much to list.
* big business don't need to shuttle cash offshore.
* big business have more cash to worth with, if that is their intention...
* less government money wasted on trying to collect those taxes.
And probably several other advantages... but at least US have a major problem:
stock ownership is counted as part of someone assets, but the value of those are only taxes if the person sells it or get dividends, with zero corporate taxes, it would be an incentive for CEOs, founders, etc... to just accumulate stock, never pay dividends, don't pay high salaries to themselves, but still throw their weigth around using their total assets as a hammer, for example by having their corporation buy stuff they want, or by taking loans to use the cash with the stock as collateral.
This would effectively allow the richest to accumulate untold wealth while paying no taxes at all.
The only way I can see zero corporate taxes working, is if you patch up some other areas first.
Now, something I think is quite brilliant in US that already exists, is that US tends to tax only profits, for example lots of people upset with Trump not paying taxes when he had losses (at least when he said he had losses...)
In Brazil you pay tax over your income, doesn't matter if you had profits with it, this leads to extreme price inflation, specially when production chains get longer, as people will charge for their stuff more and more to get over the taxes.
For example, once I talked with a guy that made YoYos (the round toys on a string). The toys are simple, and cheap to make, but on the store where I met the guy, they wanted about 5 USD for a simple YoYo, and a better YoYo suitable for amateur competition was about 30 USD.
The factory owner, told me that the 5 USD YoYo manufacturing cost was about 80 cents, but all the taxes summed when the factory sold to the distributor were in total about 40% of the INCOME, not the PROFIT, thus the factory sold to the distributor the YoYo for 3 USD, with 1.2 USD being paid in taxes, 80 cents covering the manufacturing costs, and 40 cents being their raw profits (ie: before paying employees, transport, dividends, marketing, whatnot).
The storeowner, also aimed to have about 50 cents in profit, but his taxes were about 30% of the income (not profit). If it was in US, he could charge 3.5 USD, get 50 cents in profit, and tell the buyer he had to pay an extra 1 USD in taxes, but instead he had to charge 5 USD, he would pay 3 USD to the factory, earn 50 cents in profit, and pay 1.5 USD in taxes.
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> It may look unfair to tax consumers to compensate for a major business tax holiday -- but then such a move would give businesses a strong incentive to keep prices lower to avoid a drop in demand.
A drop in demand? People are going to eat less food because taxes are now lower? Need less healthcare? Will move to a cheaper home? Just not use internet? Drive the car less to work and sit more at home?
Supply/demand is crooked. It doesn't work for the majority of the goods the majority of the people purchase. Demand is fairly fixed and based on population, and supply is provided by the only bidder in your area.
> Besides, liberated from corporate taxes, they'd have more freedom to increase wages.
Does anyone still believe this 'trickle-down' hogwash?
I really wonder when America will have its wake up call during its third part-time job to pay the rent that maybe change is needed, and that your government has no intention of making it.