I do wonder if we wouldn't be better off eliminating corporation tax entirely.
The revenue of a corporation can, roughly, be:
1. Spent on goods or services from another company (including freelancers, contractors, etc.)
2. Spent on rent
3. Spent on capital purchases
4. Spent on wages
5. Spent on debt repayment or other forms of financing
6. Paid out in dividends
7. Spent on share buybacks
8. Invested in something else
Items 1-5 are all good things that we want companies to do, and corporation tax is normally applied after this spending is accounted for. Items 6 and 7 ought to be taxed, and frequently are (dividends and buybacks create income for individuals who will pay tax on that income). Item 8 is a bit vaguer, but probably shouldn't be taxed in most cases (if we're worried about companies parking cash in very low-risk assets, then super-low yields are effectively a tax on that anyway).
All that the corporation tax adds to this picture is the creation of work in tax avoidance services, and an unjust inequality between those firms that can afford those services and are structured to take advantage of the rules, and those that can not and are not.
It's not obvious to me that corporation tax /can/ be fixed, and so it may be better simply to scrap it and replace it with something more difficult to dodge.
If you’re going down this route, many will argue that all forms of income tax are equally “wrong”.
Henry George - a 19th century political economist - proposed exactly this, and suggested the only thing that should be taxed should be land: impossible to hide from a tax inspector, potentially a waste to the public commons if useful land that could be exploited isn’t and you can even protect land you wish to keep pristine more easily (tax it very, very highly).
His ideas are now considered eccentric, but I do wonder if the World would be a great deal simpler if globally we moved to a Henry George system and stopped trying to tax sales, income and everything else going we do.
> Henry George - a 19th century political economist - proposed exactly this, and suggested the only thing that should be taxed should be land
That may have made sense in the 19th century when agriculture dominated the economy, but it’s irrelevant today.
At scale it becomes a tax on how space-inefficient your business is. Bad news for farmers, great news for the business running a 1000-person operation out of a skyscraper. You could of course start trying to change taxation rates based on various factors to compensate, but those factors reduce to proxies for revenue, which puts us back to square one.
19th venture taxation theories don’t translate to modern multinational trade with digital commerce.
Land taxes are based on the value of the land, not the size of the land. The property tax system already performs land value assessments.
Land taxes are highly progressive.
Note that land taxes are only assessed on the value of the land, not the value of any buildings on the land. This incentivizes land owners to put the land to its highest and best use.
> Note that land taxes are only assessed on the value of the land, not the value of any buildings on the land. This incentivizes land owners to put the land to its highest and best use.
Doesn't it incentivize them to put land to the use that generates the most revenue? I don't see how that is necessarily the "best" use.
There will almost always be a way that a yard or garden could make more revenue, for example, such as by letting a bunch of advertisers put up billboards on it or letting someone use it for storage.
Is it really best to make it so that only the wealthy can afford to use land in a way that they enjoy rather than as an asset to be exploited for maximal revenue?
Do you think that's a problem with existing property taxes?
The main difference between property and land tax is that with a land tax, the structure isn't taxed. So you can build up "for free" wrt taxes, which encourages more density on the most valuable land.
E.g. land in the middle of downtown San Francisco that's currently rented out as a flat parking lot, could instead be built up into multi level parking or housing instead. Whereas the current tax structure would punish such developments by increasing the tax (which is why it's still a flat parking lot).
San Francisco is an interesting case cause they used to have a land tax and economists argued that's what cause San Fran to be quickly rebuilt after it was burned to the ground in 1906. Land owners were still taxed the same, even though their building was gone. They'd have to either sell or rebuild.
Contrast that with New Orleans after Hurricane Katrina. Property owners had their buildings destroyed, so taxes went to zero (taxes based on the property value, not the land value). This incentivized property owners to wait and see if their neighbors would rebuild rather than take immediate action.
> San Francisco is an interesting case cause they used to have a land tax
Property taxes on land aren't unique to San Francisco. It's basically standard practice in most cities to have one tax for property and one tax for improvements.
> Contrast that with New Orleans after Hurricane Katrina. Property owners had their buildings destroyed, so taxes went to zero (taxes based on the property value, not the land value)
New Orleans has separate property taxes on land and structures, so property taxes did not go to $0 after Katrina.
Overall property tax rates went up because income from taxes on structures went down, but unimproved lots still get a tax bill.
Most serious study on this suggests it would have the opposite effect: make it harder for the wealthy to horde land in the form of low density residences in prime locations where townhomes and apartments would be a much better economic outcome enabling many more people to live affordably in close proximity to their jobs.
I don't buy that. If there's one party benefitting from such tax, it's big players who can afford tighter margins. It's a play that mostly favours monopolists, who can also afford to have "serious studies" made.
Maybe in the 19th century, where this idea originated. Economics of business have changed too significantly to use it as a one size fits all taxation scheme.
It may have made sense when revenue was somewhat proportional to the amount of land a business occupied, but that no longer holds true in the age of skyscrapers and digital revenue generation.
An internet company in a 10-story building would love this scheme, though, because they could generate billions in revenue but be taxed at the same rate as a local neighborhood of people who owned their homes for a few decades.
Land-only taxes may have been an interesting idea in the 19th century, but they aren’t relevant to a modern economy.
>>An internet company in a 10-story building would love this scheme, though, because they could generate billions in revenue but be taxed at the same rate as a local neighborhood of people who owned their homes for a few decades.
That's irrelevant, because the ultimate owners of the corporation - the shareholders - will always be in demand of land. Real estate explains most of the growth in wealth inequality in the US over the last 60 years:
yes but the majority of wealthy people would be satisfied with few million of real estate for personal use. RE investing would drastically change if incentives change
Fair point. I'd be satisfied nonetheless, because the land-ownership component of real estate investment is rent-seeking, that gains the holder value without generating value for society at large. If investment was redirected from land buying to purchasing other types of assets, it would lead to the production of more value in the economy, as unlike land, most asset classes involve man-made resources in which rising demand leads to rising production.
For example, if fewer wealthy individuals bought sprawling estates, and more bought high-rise apartments, we'd see more production of the latter, which would increase housing concentrations in high-productivity urban areas, and in doing so, apply downward pressure on rental rates in areas which offer the most economic opportunities.
The presence of skyscrapers indicates a strong economic region, which makes the value of the underlying land orders of magnitude more valuable - the taxes would increase under LVT. Not sure if enough to account for the discrepancy in productivity, however.
> Land-only taxes may have been an interesting idea in the 19th century, but they aren’t relevant to a modern economy.
This is basically saying real estate isn't relevant to a modern economy for tax policy. Broadly true in 19th century United Kingdom in the midst of the Industrial Revolution [1]. Disputed by many millionaires today in the US [2]. Another way to track the relative weighting of land in wealthy portfolios is by aggregate measures.
The wealth of the US 1% grew 2.22X from 2005-2020 [3]. During the same period, the value of land held by the US 1% grew from $3,176,274 million to $4,607,729 million, 1.45X [4]. Not a proportional tracking of wealth increase, but I wouldn't call it "not relevant"; this is hardly rounding error territory where I would dismiss it for tax policy purposes. The sample period is also during an ahistorical secular trend when held across decades when securities were and are quite strong compared to real estate assets, so I don't know what a broader and more granular analysis would reveal, but my cursory glance across a one-generation span would make me hesitate to strongly take the "aren't relevant to a modern economy" position with our current set of policies.
The global urban real estate market so severely punishing younger generations for so long with such high prices relative to income and income precarity indicates some severe secular rent-seeking / gatekeeping taking place at an ahistorically wide scale, scope and duration. I have no dog in that hunt; I was purely lucky by timing to not live in that cohort, but I share their hostility to the status quo. If you favor the "modern economy making real estate not relevant" position, then tax, monetary, finance, social and industrial policies like LVT (though LVT is not without its challenges [5] [6]) that disincentivize such rent-seeking and favor a more efficient allocation of limited capital away from real estate towards such modern industries would be welcome, to the point that aggregate measures show little to no correlation between wealth concentration and real estate instead of our current situation.
I'm personally in favor of more metropolitan transit authorities consciously and deliberately using public transportation corridors as part and parcel of an explicit industrial policy that drives down residential costs over time. Residential development is planned more along Singaporean public housing lines with a goal of ever-decreasing DTI ratios (possible with more modern construction techniques like Lstiburek'ean Perfect Walls and Passive Net Zero in structures that last centuries, and co-operative financial organizational structures), than open market operations in the US. This doesn't have to come at the expense of open market operations; they're free to syndicate their own transit networks and monetize those networks. I'm advocating the free market advocates in US real estate becoming even stronger in the global market by practicing true free markets instead of relying upon the crutches of publicly-funded infrastructure to break the capital ground in front of them.
I say the land value tax (LVT) is best grouped with Pigouvian taxes; as PP says, normal property tax relatively incentivizes holding undeveloped land, which is like charging a higher carbon tax if your car has a better MPG.
One one hand, we can also do a VAT in developed countries --- perhaps more feasible than in the 19th century and making more sense if we are no longer rapidly developing and reliant on private investment to foster those changes --- on the other hand in big closed economies we can also just print money quite safely, so Henry George is quite right to focus Pigouvian taxes when "taxation for the revenue" is far less important than curbing bad material outcomes.
(I only suggest VAT with a UBI to make it no longer regressive.)
It's the proximity to Google's economic activity that makes the land valuable. A plot of land right next to the Googleplex that has nothing on it is immensely more valuable than an equally sized plot of land in the middle of the Nevada desert.
Sure this is true, but this also one of things Georgism seeks fix (land speculation.) A georgist LVT appraises land based on the intrinsic value of the resources it contains and not what is build on it. In fact it seeks to fix “land hoarding” to incentivize productive land. Under a proper LVT it would be really expensive for e.g. one person to own 100 acres of land they aren’t utilizing to it’s true economic potential.
It’s bad news for farmers that are farming in the middle of a city, yes. But farms in rural areas will hardly get taxed at all, because the land couldn’t be used for much else, so has very little intrinsic value.
Land value taxes adjust based on how desirable a plot is: basically, you get to keep any value you generate above and beyond the value the society surrounding the land gave it. If you leave a plot of land empty in downtown, you’re preventing someone else from using that plot productively, and adding a net negative cost to the surrounding properties. So you should be taxed accordingly.
I’m wondering how this is supposed to interact with zoning? There is a lot of agriculturally-zoned land in California that would turn into housing developments pretty quick if it weren’t illegal. It’s typically in a nice-looking area near some water or a park, not in the middle of a city.
If you keep the zoning then maybe the land isn’t worth that much, but if property taxes were based on the “true” land value then it would mean farmers sell out faster to create sprawl.
There is no actual tradeoff between availability of food and availability of skyscrapers. Even if we actively tried, we couldn’t run out of agricultural land in the US by building on it.
The only reasonable way to account for zoning would be to require the zoning board to actually buy the property and pay the associated taxes. Then they can lease out their own property with whatever restrictions they want. Without the benefit of subsidies or eminent domain, naturally—if they want to expand their reach they'll need to raise that money through the revenues from leases (less income tax and other overhead), with restrictive zoning rules limiting their revenues.
This would prevent me, an individual inventor of (I'll claim) non-ridiculous inventions, from monetizing my efforts. The monetary barriers to patent protection and enforcement are already significant to me. I can't be the only one in this circumstance.
Taxation of your intellectual property rights would cause you to seek out the best use of those rights.
If you have a good idea and patent it, then taxation of that patent right would force you to license it or lose your monopoly protection granted by the government.
If you have a good expression of an idea and copyright it, then taxation of that copyright would force you to license it or lose your monopoly protection granted by the government.
Either way, you are still granted the IPRs, on a "pay for it" basis that captures some of that value back.
The deadweight loss of taxation is much lower for a land tax than an income tax. The deadweight loss is the economic resources allocated to complying with the tax. The armies of tax lawyers would be able to perform other economically productive activities if they weren't pouring over the tax code.
Pigovian taxation is even better. Taxing gas is a great example. Gas consumers emit carbon which has a cost for society. We should make them pay for this negative externality via a gas tax, so their consumption is economically optimal. This is how to prevent the Tragedy of the Commons.
I'd argue that some taxes are objectively better than others and not all equally wrong.
As an Australian who moved to Sweden, I was amazed at how efficient the Swedish income tax process was. The government already knew everything they needed to calculate your return, and gave it pre-filled. There were not endless exemptions. Nobody at my work used an accountant, most approved their tax with a few clicks and were done. So much more efficient than in Australia!
In the UK if you're in full time employment and only have one job, then there's literally nothing to do. Not even clicking somewhere to approve your tax return - your employer does it all for you. I know people who are literally unaware when the tax year ends because they never in their entire adult lives had to do anything with the tax return - it's just completely irrelevant to a normal working person. And on the ocassion that you have to fill one out for whatever reason, most of it is already prefiled from the information HMRC holds about you already.
It's even better - they work out if you paid too much automaticallly and send you a check in the mail. Had 3 checks over the past decade or so from having time off between jobs but paying full rate for the remaining time. Nothing quite so satisfying as a £1000 check from HM Revenue and Customs!
I'd argue about the "very easily" point for IT workers in the UK, as 100k+ salaries are very rare, and if you get shares instead of cash it's still taxed as income and doesn't trigger a self assessment. Only if you hold onto them and only if you make more than the capital gains threshold, you have to fill out a self assessment.
But in either case - sure, but the system means absolutely no worries about your tax return for 90% of British employees.
I've received shares several times from the company where I work in the UK and every single time they have been taxed as income. If you are just given shares straight up then yes, they are subject to income tax on their worth at the time of acquisition.
I'm not sure what you mean? At the point of acquisition if you are given shares worth say £10k, it's the same as being given £10k cash, or £10k gift of some sort - you pay income tax based on the value of what you were given. It's different if you were given options - then the difference between your purchase price and sale price is taxed as capital gains with separate rules.
Because while I work for a British company the shares are awarded by our French HQ, so unfortunately none of those share planes are available in this case. The company employs 50k+ people globally and only HQ awards shares.
Also I'm not sure how much tax this would actually save - you can only get £3600 worth of shares tax free per year on the employee incentive plan(which seems closest to what I'm getting, flat number of shares after 4 years). That's a very....low amount.
The American tax system is similarly frustrating. I’m a senior engineer and I have a hard time navigating tax forms even with the help of Intuit, and it frustrates me that I have to pay Intuit (or someone else) to help me do taxes which are complicated in large part because Intuit et al lobby for complex tax codes and against the sort of Swedish model you describe.
Worse, when I moved to Chicago the state of Illinois wouldn’t even accept my taxes electronically because their form required one of a handful of authentication methods—the only one of which that ought to have worked for me was to use my Illinois driver’s license number—a 12 digit sequence; however, their form only permitted 8 digits. It was a significant hassle just to get them to take my money.
I’ve also had difficulties figuring out how much to withhold. In the US they give us a form that calculates “allotments” (or something—I forget the term) but it’s unclear whether more of those correspond to more or less withholdings and in any case the form computed incorrectly for me for several years (I’m sure it was user error somehow and senior engineers are just not reliably smart enough to figure it out, even with the help of HR) and I would end up owing thousands in taxes as well as a separate penalty for not withholding enough.
It’s maddening that our government makes it so difficult for earnest people to pay their taxes.
It's because they're trying to give people breaks on what they owe. The more money you make (and the more ways in which you make it), the more exemptions and breaks you tend to be eligible for, so the more complicated your taxes tend to be. A realistic simplified tax code would probably mean you, as a senior engineer, would pay much more in taxes, which would be fine with me! A properly-funded government can be a great boon to society. But you might not feel the same way, so be careful what you wish for.
Governments that can print money don’t need taxes to be funded, they can just print money. Taxation is more useful for redistribution, incentivizing behavior, and controlling the money supply/inflation - not funding the government.
> I’m a senior engineer and I have a hard time navigating tax forms even with the help of Intuit, and it frustrates me that I have to pay Intuit (or someone else) to help me do taxes which are complicated in large part because Intuit et al lobby for complex tax codes and against the sort of Swedish model you describe.
I don't think Intuit has anything to do with why the tax code is complex. Their lobbying is for making filling out the forms complicated, such as by stopping the IRS from pre-filling forms with the information they already have.
The tax code complexity almost all stems from people not wanting to pay tax. That complicated the code in two ways. First, it means that we get exceptions and special cases written into the code either because people that want to pay less tax convince Congress to make a special case for them or Congress takes advantage of the desire to pay less tax to provide exceptions to motivate people to change behavior.
Second, it means that if there is any ambiguity or wiggle room in interpreting something, someone will exploit that to pay less tax than Congress intended them to pay. The tax code gets patches to fix that, usually resulting in an increase in complexity.
A great example of the later was that a long time ago a big company was going to give shareholders a dividend. This would be taxes as ordinary income to the shareholders.
Someone came up with an idea to turn that into capital gains instead. Rather than give a divident, the company first did a stock split, say 100 for 99. So each 99 shares each stockholder held became 100 shares. This is not a taxable event.
Then the company did a stock buyback, 1 out of every 100 shares. That decreased each stockholders holding by 1%, so every 100 shares a stockholder held became 99, and the stockholder got some cash. That is a taxable event, but it is capital gains.
Net result: every stockholder ended up with the exact same percentage of the company that they started with, with some cash from the company, and got to pay the lower capital gains tax on that cash instead of the higher income tax.
The tax code was patched to fix that. Buybacks became ordinary income. But it didn't end there. Consider a family owned business owned by four members of the same family. One of them is moving away and will not be participating in the business. The company wants to buy him out. It was generally agreed that this was not a buyback to dodge taxes--it is a legitimate buyback and should get capital gains treatment.
And so the patch to fix the buyback tax dodge needs an exception to try to recognize "legitimate" buybacks. It ends up having a formula that involves looking at the distribution of ownership before and after the buyback and having several criteria for recognizing when the distribution change signifies a legit buyback that should get capital gains treatment.
This was a fairly simple instance, so it only added maybe a few paragraphs to the tax code, plus some more to the regulations.
But that sort of thing is all over the code, sometimes just adding a few sentences, and sometimes pages.
However, what are you missing is that there are exemptions available to you.
You could choose to use them (for example, the self education one) and get SEK5000-SEK10000 (~€500-€1000) BUT then you would have to fill out a tax return.
That is just one exemption. Another one relevant for our field is working from home. Similar amount.
In order to claim those, though, you will need to file a tax return. If you do not consider that money to be worth the time, then not filing one is a good choice.
The Australian system - which could definitely be improved by at least pre-filling things - forces you to actively choose to leave the money behind. The default in the UK, Europe and the Nordic countries is that the money is kept by the taxaxtion office.
Defaults are powerful. And they thank you for entrusting them with your extra SEK that you do not want to claim.
I’m pretty sure the system we have here in the US is designed to be complicated to encourage us to rely on tax filing companies. Also, a more complicated system is easier to game. Makes it easier for the rich to take advantage of loopholes.
I think a lot of it is the nudging that the US does with tax incentives. Taxes are often used as a way to economically nudge society toward desired outcomes.
Think tax breaks for solar panels or even just getting insulation added to your home. There are thousands of this type of tax break available to nudge people to move toward the gov's goals.
> Taxing gas is a great example. Gas consumers emit carbon which has a cost for society.
This isn't even why gas is tax heavily in developed economies. First, gas taxes pay for roads. Second, the negative externality that Europe, at least, is trying to reduce is dependency on Middle Eastern oil, since that opens a huge can of worms with respect to world stability. If they really cared about air pollution, they wouldn't have pushed diesel so much.
I remember my economics professor arguing that would be the most efficient tax after he explained how all taxes have the side effect of reducing the thing being taxed.
So taxing something bad like CO2, great idea. Taxing something good like income or creating jobs - bad idea.
Land tax would be simple, and very progressive, the tax rate of most young people renting world now be 0. It's more complex than that because the landlord pays the tax and hikes the rent appropriately. It enforces that land is used efficiently, which is so dysfunctional in many large cities.
It's a great idea in my opinion. You'd solve taxation, eliminate personal accountants as a class, and solve the housing crises with one stroke (there is still zoning, but this makes poorly zoned land undesirable to hold because it bleeds money - creating an incentive for the land owners to vote for zoning the land better). But politicians deal with popular ideas, not smart ideas. The odds of any country trying it seem slim.
I actually love this idea, although I would just do a wealth tax. Anyone who owns wealth gets taxed a bit. If you only taxed land, then lots of people would just move all their assets into stocks instead of land.
Someone still has to be owning the land though, and paying taxes on it in proportion to its value. In most cases that’s going to be corporations. If I own stock in a corporation that owns land and the tax burden shifts from corporate income taxes to land taxes, on the whole this isn’t much different except for rewarding corporations that make efficient use of land and punishing ones that make inefficient use. Similarly, if I sell my land to a corporation, everyone who collectively owns the corporation is now paying what used to be my land taxes.
Seems like the price of land would drop and the price of stocks would rise such that the yield on improved land (after taxes and mutatis mutandis) would match that of stocks.
Yes that sounds right: everyone should probably be given a ration for a guaranteed allotment food each month. In NYC during the pandemic they opened up free meals for everyone, regardless of income. A society where enough food is provided by default seems like a more humane society to me.
I mean, socialism for basic needs and capitalism for status symbols is a pretty nice system. No problem doling out status symbols for productivity improvements which benefit basic needs production.
George’s ideas are interesting to ponder now and then. I’d definitely want to be a billionaire in that system, though, you’d pay pennies on your penthouses split with everyone living below you. If only taxes were that easy to figure out.
Middle class families in single family homes are hoarding a scarce and essential resource. Billionaires in high rises aren’t. The idea is to punish bad behavior and reward good behavior, not to cut down the tall poppies.
In urban area's sure, but I don't think it's fair to call it hoarding in suburban or rural areas. There's tons of land in the US, it's just that there are no homes _right_ next to jobs and restaurants and the culture people want to live in.
Now that I'm remote, I plan to move to a rural area and grow some of my own food in a single family home. I don't think that should be considered hoarding.
Where there’s tons of land, it’s not that valuable. LVT would be low. It would only be punitive to people with a lot of land (per person) in those spots that are valuable because of those restaurants, culture, jobs, etc. nearby.
I don't really disagree with the LVT tax idea, I just want people to be clear about hoarding and single family homes. In regards to pushing single family homes out of high value areas, then LVT does make sense.
That said, I'm a crazy pro individualism and no tax no government guy, so I have no real place in this thread. : p
If you move rural you're not hoarding. If your holding a small single family home in the core of a dense city where lots of jobs are, you are hoarding.
That land would probably serve society better if it had more than a single family dwelling on it, you could have 10 families in walking distance of their jobs rather than one, and 9 families commuting via car.
Well, the hope would be that you would have never become a billionaire in the first place because somewhere along the line that wealth was predicated on holding cheap real estate and collecting rents.
Now, that argument doesn't help with switching too an LVT, but there are other reasons to be optimistic. Taxing Jeff Bezos at any level is worthless in comparison to a) Paying enough UBI that the warehouses would unionize, b) directly expropriating the warehouses into the postal system. (post : IP :: warehouse sku system : content-address based networking).
Basically, trying to account for the power of billionaries and mega corps in monetary terms is a dangerous exercise where they can probably out-loophole you.
I’d also like to point out that for the longest time the Roman and Byzantine states taxed land and not commerce. It is not a new idea. In some ways it is an ancient idea. Land value and use is dependent on the climate and success of farming. It can be volatile, and while land may have an intrinsic value, the earnings to pay the tax can be highly variable (I.e. a drought).
I don’t think this is the best idea to solve tax issues in the modern world
This is more about corporate activities leading to other kind of taxes. E.g. they pay rent, the landlord pays property tax, they pay salaries, employees pay income taxes, dividends are taxed, capital gains on stock price rises are taxed, etc...
The problem with corporate taxation is that...we really want R&D and employment to be tax deductible for them, but a company like Amazon can just plow all their profits into R&D and focus on growth (even without R&D tax credits, they would still take a loss on earnings due to R&D outlays). Of course, all of that R&D money is still mostly taxed (via tech worker income taxes), so its not like the government isn't seeing any of it. Corporate income taxes really come down hard on a successful company that doesn't have any avenue to grow...maybe they should?
>World would be a great deal simpler if globally we moved to a Henry George system
Yes it would, but you see that will not be popular for many obvious reasons ( less jobs for tax collectors/consultants/auditors etc.) A more non-obvious reason is that the ordinary Joe on the street hates the rich so much that he wants the rich being taxed rather than see the simplicity of taxing no one.
>His ideas are now considered eccentric,
He actually seems a level headed guy to me :)
I would go even one step ahead and say that even land should not be taxed except for the cost of keeping land records.
This is very similar to Modern Monetary Theory, which views taxation as a means to control inflation rather than a source of funds for a sovereign government. Maybe only applies to a country whose currency is the reserve currency of the world tho…
This system sounds like would be gamed just like how property taxes are now: bogus assessments. At least income and sales have a clear, non-subjective value in dollars.
Gaming of tax systems by large capital players is a big challenge. I have wondered whether bogus assessments could be mitigated through some kind of open market price discovery with unlevered, unencumbered cash with full party disclosure.
Make residential, owner-occupied homes and special categories (like public transit-related or infrastructure-related improvements like healthcare/power/water/waste/telecomms/etc. property) exempt. All other property post their assessments at tax jurisdiction's office. Anyone, at any time, can post to that office cash that is 10% more than the assessment upon the property. If the owner does not challenge the cash assessment, they must accept the cash offer within 180 days or are evicted. The catch is, that cash must be absolutely unlevered and unencumbered, the property is carried on everyone's books as a cash asset of the prospective new owner, and the property cannot be pledged as collateral, for the next 21 years (with an upward adjustment for deep-pocketed backers of offers) or until the property is sold, whichever comes first. The offering party must provide full disclosure and auditability of the source of the cash and the "Source Of Truth" controlling interest, no shell games. The legal jurisdiction enforces this transactional structure by refusing all cases entangling the property.
The owner can respond to the price discovery cash offer by paying the tax jurisdiction the "back taxes" implied by the cash offer, back to the last time the property transacted on the open market. No penalty. If the owner can deliver proof that the offering party hid their ties to deeper (ultimate beneficial controlling interest) funding sources, then the entire offer is forfeit to the owner.
This creates an incentive to discover badly out-of-alignment prices, but the intention is to gate out anyone playing financialization games or asymmetrically deep pockets parking cash badly distorting a small player-dominated market's historic valuations.
If "bogus assessments" lead to an incentive to declare a low value for your land, then that will be caught if and when you try to sell it or rent it out for a higher price. So if people just stick with a low valuation to pay less land tax, this will have the effect of greatly decreasing land prices, which are the principal cause of housing unaffordability, which seems like a good thing to me.
If you're going to legally treat corporations the same as actual humans - then tax them the same.
We pay taxes for services we expect from governments, defence, policing, justice, water, sewers etc etc I don;t see why corporations that use all these things shouldn't pay their share
But then it's highly unfair to tax humans on revenue, but corporations on profit.
I think the right answer is VAT + externalities taxes (LVT, Cabon tax, etc.) + UBI, which is both very easy to enforce and perhaps net progressive enough. Re "progressive enough": I don't so much care if BWM owners are screwed over relative to private jet owners on paper, I think reducing work hours and propping up demand at the bottom with UBI will have a trickle-up effect.
There might be room for a wealth tax, but I think it might be less loophole-prone and better theoretically to attack that problem more directly and less monetarily in terms of socializing key natural monopolies, promoting coops, etc. Trying to financialize the big question of "who controls the means of production" I think might be just too difficult.
> But then it's highly unfair to tax humans on revenue, but corporations on profit.
Wow, it's a good thing we don't do that. Good news, the income you spend to further your business is deductible. We include a personal exemption for generic costs, child exemptions, mortgage exemptions, healthcare cost exemptions, retirement savings exemptions, and numerous others.
Additionally, the whole concept behind a progressive income tax is to tax people in a similar way to taxing them on profit. After all, percent of income spent on necessary goods goes down as income goes up.
But I don't think anyone wants a system where this is done by itemized receipts instead of with generalizations.
Huh?
How is it not unfair that, for example I can’t deduct rent from my income? A company would be able to do that.
What about amortizing the cost of my domicile over 30 years?
The personal exemptions are a sham and do not reflect the reality of high cost of living areas.
> How is it not unfair that, for example I can’t deduct rent from my income?
Tax policy isn't set by moral arguments, it's set by government need for revenue which is then tweaked by political pressure groups.
The reason why you can deduct mortgage interest but not rent has nothing to do with fairness, which is undefined and a massively ambiguous term, but because banks, which are the primary beneficiaries of mortgage subsidies, have a lot more political power in Washington than landlords, who would be the primary beneficiaries of national rent subsidies.
For states like the USA that print their own currency and enjoy tremendous global demand for their currency, taxes are less about revenue and more about controlling behavior and unemployment outcomes. Some argue that taxes are just a way to force demand for a currency the government has a monopoly on to ensure it always has _some_ value.
(Note: this is a rather polarizing theory and still somewhat young. The US Fed pulled off printing trillions last year and things haven't gone to hell yet do there's something there )
I get a tax rebate for rent. Maybe it depends where you live.
For a house, your net worth hasn't decreased by the cost of the house. A company wouldn't be able to deduct that. They can deduct for assets that depreciate.
A company cannot depreciate land, but they can depreciate the value of the buildings on top of it over a fixed period of time. So in addition to writing off the mortgage as an expense, you can also amortize it since the value of additions (not the land) decreases.
I'm not sure what you mean here. You can't write off a mortgage. You could write off interest, but not the value of the mortgage.
Real estate tends to appreciate in value, especially in cities. The company would have to get unlucky with their real estate to be able to write off a loss. Buildings don't usually depreciate.
They could allow their buildings to fall into a state of disrepair, hoping it would lower their value. But why would they? The can deduct the repairs. It's a legitimate expense.
As a business I can take out a mortgage and give you a rental for the exact same price. The income and “expenses” cancel out, so the profit of your business is zero. Since this rental is an income producing activity the IRS (and other tax bodies) allow you to depreciate (https://www.irs.gov/publications/p946) the value of additions on the land (I.e the building) on a straight line over a 28 year period. The basis of the depreciation is the value of the property, so you divide that over 28 years and can take that away from the income as well. Now I can transfer that cost to you in rent and the profit of my business is still zero. This is a benefit that is generally only available to corporations. Then there is prop 13 which is yet another mess.
I’m not an accountant, but I’ve studied enough of it in University to be dangerous.
It's fair that you don't pay tax when don't make a profit after taking depreciation into account.
Depreciation isn't a cheat code that lets you avoid tax on profit. If you depreciate the building more than its actual market value depreciation, you owe back what you deducted when you sell the building.
Yeah the whole US mortgage interest exemption is a special US thing, not a natural tax exemption available worldwide
Here in NZ there are NO tax exemptions for normal humans (well there is one single one for low income families with small children) - it means that our taxes are incredibly easy to file - if you have one employer you probably don't need to file at all, if you want to it's 2 pages on a web form, if you don't file and the IRD owes you money they'll probably pop it in your bank for you.
Oh, and our high marginal tax rates are ~10% lower than I was paying in California, and that includes free public healthcare
VAT + LVT + misc. pigeovian taxes probably wouldn't be enough to power society as is, let alone fund a UBI. You could maybe replace income tax with a progressive consumption tax or a wealth tax, but you'd need to replace it with something.
Yeah not sure what GP is saying. VAT can absolutely suck up a huge amount of money. The UBI makes it far less regressive, basically to the point I no longer care.
(VAT + UBI is great for everyone but those 90th percentile luxury-car-and-McMansion-owning inner ring suburb types that are the Democrat's favorite constituency :/)
Coupling a regressive tax with money transfer creates an inverse "V" shaped effective tax rate that will squeeze some part of the society (probably on the middle class).
If the taxes and transfers are diverse enough, one can reduce that problem by making them compensating each other, but if you make VAT + UBI make the lion share of the government's money flow, it will be a really large problem.
Yes the nadir of the V is the inner-ring BMW suburb class, I so disparaged. And I really meant it when I said I didn't care about them.
It might sound like I'm being a culture warrior chest-thumper about those "liberal elites", but I really do mean something more material / economic here. I think most of that classes struggles (and they do take on huge debts) would not be worsened by taking away their money.
- This is the class most thirstiest about getting their kinds into good schools without being able to donate their way in. But the scarcity of "good jobs" that motivates this credentialism relates to inadequate demand of the masses. Giving them more money won't help the fact that the Keynesian feedback loop has broken down, causing the job scarcity. (And really, consumption not work is the goal, we should fix the feedback loop by working less not consuming more, beyond guaranteeing basic needs.)
- This the class hitching lots of their wealth on real estate, but it's precisely because our cultural obsession with owning single family homes that good land (i.e. that with good access to the other good land where people need to go) is in perpetual short supply. Even if they are the "vacation home" winners of the current ponzie skin, the portion of winners will bleed away in successive generations if housing continues to be a "good investment" --- and thus unattainable to increasingly many people.
- Perhaps this class is less affected by expensive healthcare (other than the richer ones above), but would still benefit from it being cheaper. Not a majority of them is doctors or biotech researchers or whoever else benefits from our shitty healthcare system.
So yes, I think even if they are at the tax advantage nadir, they still are benefitting:
- Richer masses fix their job anxieties
- We should separately fix real estate and transit so they can be at peace in condos not mcmansions
- We should separately fix healthcare to their slight advantage.
Also, I sincerely hope and empowered working classes / lower classes will prevent the richest billionaires from emerging (at least more than transiently), so the 0.1% stuff should be far more of a theoretically problem as we get a "thinner vertical tail" power law.
I look forward to the day that we punish corporations by removing their freedom (ability to operate) instead of fining them laughably small percentages of their yearly revenue for serious violations of laws and regulations.
In reality I understand that this would harm the employees and the public to an unacceptable degree so maybe some form of “jail time” whereby all profits go directly to non-executive employees and price discounts would be more effective. Depriving shareholders of dividends may lead investors to “vote with their wallets” and we’d see more of an actual free market instead of what we have today where economy-destroying decisions go effectively unpunished and in some cases are rewarded by bail outs.
Confiscating profits wouldn't work, many companies are reinvesting their profits. Probably the best way would be to just make the fines hurt more, by using a fixed and non-negligible percentage of the monthly/yearly revenue, much like Finland does for traffic fines.
I can’t believe we as a society don’t adopt this idea more. Punishment should be a percentage of taxable income of that year. The impact should equally felt regardless of your current financial status. Extending this to a corporation would simply put them in back foot in a market.. which is indeed the punishment.
In the US, income based fines have questionable constitutional allowability. I fall on the "the seem constitutional" side, but some people apparently think it violates the 8th amendment.
> I look forward to the day that we punish corporations by removing their freedom (ability to operate) instead of fining them laughably small percentages of their yearly revenue for serious violations of laws and regulations.
I agree, but like you mentioned, the externalities on innocent parties would be too great. Also a lot of companies do not issue dividends, so focusing on them would do no good in a lot of cases. I think a threefold strategy would need to be implemented:
1. Direct action against executives in the board (e.g. heavy fines amounting to a large fraction of their total compensation and/or jail).
2. Confiscation of dividends for a period of time.
3. Forced issuance of new shares to dilute existing shareholders, with sale proceeds going to the government.
One issue is that shares can be traded, so it's possible for a shareholder to benefit from some bad action, then avoid any punishment by selling the shares before the punishment is implemented. Maybe such people could be shared a per-share fine based on shares held at a particular date?
>Maybe such people could be shared a per-share fine based on shares held at a particular date?
I think it’s nearly impossible to expect most shareholders to understand the business underpinnings to this degree within the existing system. Think of pensioners with mutual funds, do you think most even understand all the businesses in those funds let alone the operations of those businesses?
To me, this is akin at employees being punished as well. Both benefit from the business operations but it’s hard to expect employees to have knowledge and be responsible for the decisions of the C-suite.
> I think it’s nearly impossible to expect most shareholders to understand the business underpinnings to this degree within the existing system. Think of pensioners with mutual funds, do you think most even understand all the businesses in those funds let alone the operations of those businesses?
That's true, but I don't think that matters. Those same shareholders both profit and lose based on all kinds of other factors they don't understand. Adding new ways to lose tied to illegal activity doesn't really fundamentally change anything.
Also, there's something important to note: pensioners with mutual funds have savvy proxies (fund managers) who should very will understand the business underpinnings to this degree, and vote their shares to avoid losses due to these kinds of fines.
>Adding new ways to lose tied to illegal activity doesn't really fundamentally change anything.
I think it does because it creates a adds a dimension to the loss that will disproportionately affect the assessment that of risk. For one, this added dimension has only a downside. Think of an auto insurance company who operates in no-fault States. Their behavior (and by extension, the policies they offer) is changed because the risk they incur is higher despite their customer being a good driver. (The analogy being a “good” company still gets punished in the form of less investment under the proposed rules because the risk to the investor is increased).
Second, while people are well attuned to think about risk, they are very bad at judging it. That’s why the fund managers are not generally capable of out performing the market for extended periods. They are either not as savvy as you assume or work under such constraints that they can’t use it to their advantage. Behavioral psychology/economics shows that people are disproportionately risk-adverse so if you think increased risk without an even higher commensurate increase in reward, they tend to avoid taking on any extra risk.
You are responsible for your property. If you own stock, you own part of a company so you are responsible for its actions. In the case of mutual funds, it's the funds' job to understand the businesses it invests in for you. There could be an exception for non-voting stock though.
Well this is just false. You are not at all responsible for a company’s actions just because you are a shareholder. HN is evidently quite out of its depth with these kinds of threads.
Just to underscore what was previously stated, I think this philosophy would drastically change the paradigm. I’m guessing it would severely restrict the money flowing into stocks which would have repercussions in other areas like pensions etc. Point being, I don’t think it can just be layered onto the existing system without serious blowback.
As I wrote, there could be an exception for non-voting stock. At least temporarily.
But ultimately, it's supposed to change the paradigm. Because currently the economy is run by paperclip maximizers that no human is held responsible for. Which is not ideal.
Non voting shares are a minority already. Combine that with the fact that literally trillions of dollars would be aligned against such a idea, i fear it unfortunately relegates it to a thought experiment rather than a pragmatic policy proposal.
The difference here is that you would be uniting all business interests. Normally they are a fractured group with competing interests. It would take a truly revolutionary movement to enact that kind of change. Not impossible, but also not no particularly likely.
One of my more radical political views is I'm 100% behind a corporate death penalty, as well as direct personal criminal consequences for company principals that engage in fraud or similar.
The sad reality of the world is that once a business is past a threshold of power, it's nearly impossible to hold them accountable. Craven sociopaths know they can do what they do, and worst case, suffer some bad press while they move on to the next thing, banking 100's of millions the whole way.
Make those people truly terrified of the consequences of their actions and politics will be utterly transformed.
Humans are taxed on their income. Corporations are taxed on their profits (they deduct their expenses).
Corporations can be taxed on the money coming in, that would look like a sales tax or VAT. The problem with that tax is it falls on the consumer (since what really matters is which transaction you tax, not which side pays the tax).
But this brings me to a solution to the corporate tax avoidance issue that has already been figured out by economists, but rarely gets discussed.
This is a simplification, but basically corporations have one place money goes in, and two places it goes out, like this:
sales = expenses + profits
If you tax the sales, but deduct the expenses, this leaves the incidence of the tax on the profits. Unlike profits, it's usually much clearer where the sale takes place so it's much harder to avoid than the existing corporate tax. It's called a border adjustment tax. [1]
Where this gets complicated is international trade - how this works is only domestic expenses are deductible. At first glance that seems protectionist, but apparently the currency exchange rates adjust which balances is it out and although it's not obvious it ends up trade-neutral.
It was actually seriously proposed as part of US tax reform in 2017, but some big companies were against it so it got killed.
Sure, I believe Ohio has something similar. More significantly I think (in percentage terms), there are already sales taxes and VATs.
But when people are discussing the corporate tax and corporate tax avoidance, usually they're talking about the corporate income tax, which is also what the article is about.
With a VAT, the total taxed amount is $10, which is divided up among the companies based on how much value they added (so if they move from $8->$9, they pay tax on $1).
With a gross receipts tax, the total taxed amount is $7+$8+$9+$10=$34. Goods that are produced by many small companies working together will pay a lot more taxes than those produced by huge vertically-integrated ones.
There's some good reasons to use a VAT if you want to tax revenue, and one of them is to avoid problems like this.
With a VAT each layer deducts the tax they pay. The net tax is only on the the value added. The company in the middle pays tax on $7 and collects tax on $8, and forwards the difference.
It's very elegant and fair, but imposes a lot of accounting. Sales tax is easier in that it only collects at the end, but it's actually hard to define "end". (Buy a screw and you pay tax, buy a manufacturer buying the same screw usually does not.)
There are still problems about regressive taxation (are stock profits value add? Services? Plain old labor? What's the difference? Usually poor people end up paying the taxes on everything while rich people buy things that aren't subject to the system). Still, if you want to tax profits on consumables, it's remarkably straightforward.
It does add more accounting, but one advantage of involving the companies in the middle is it makes cheating harder and less lucrative, since a bunch of companies have to coordinate to avoid paying the VAT instead of just one company at the end.
Agree that VAT/sales taxes are regressive and shift more of the tax burden to lower-income people. Although the only US political candidate I can remember recently proposing a VAT was Yang in which case his UBI proposal would probably more than balance out the effects on after-tax income.
I don't know if Yang's math checks out, but I think his proposal was $1000/mo and a 10% VAT. So the breakeven point would be $120k spending on taxable items/yr for an individual, or $240k spending/yr for a couple, with people below that coming out ahead and above coming out behind.
Where you draw the line for "middle class" is somewhat arbitrary - I think you could be middle class and still earn over $120k, especially in a high cost of living area - but probably most people who consider themselves middle class would fall under that. Especially because people who earn $120k are probably not spending $120k/yr once you factor in retirement contributions, income taxes, etc.
A relatively high-profile economist wrote positively about the UBI idea last year. [1]
Not that you couldn't make it more progressive. I think I've seen proposals for a progressive individual consumption tax, which would look something like a progressive income tax but then removing the limits for IRA contributions. The theory being you would put money you want to save in the non-taxable account, then you would only withdraw what you want to spend in a given year, which could be taxed at a progressive rate.
>Where you draw the line for "middle class" is somewhat arbitrary
It’s a convention so, yes, it’s arbitrary (and people tend to change that definition to fit their points, and of course it’s relative to COL) but the most widely used definition is the middle quintiles. I believe this puts the upper bound around $120k for a household (not individual) in the US.
And you’re right, most people do consider themselves middle class. Some studies show as much as 90% of people think they are middle class which, unless we use a very loose statistical definition, is obviously false. The problem is people subjectively compare their life to their own peer group rather than society as a whole, so they are misled about defining the societal norm.
I only meant to say the majority of the middle class would fall under $120k no matter how you (reasonably) draw it (so with respect to that specific VAT/UBI proposal, most of the middle class would see a gain).
For how higher incomes could end up middle class I wasn't thinking of a different threshold, but ways of defining social class that are more qualitative than quantitative.
For example you could define middle class as people who live a modest lifestyle financed by selling their labor to a company, and upper class as people who can live off wealth. So someone from a wealthy family living off a trust fund and going to an elite graduate school might count as upper class despite being low or middle income, and an engineer making $120k in the bay area might still count as middle class that way.
Defining it like that would probably produce a small upper class relative to the size of the middle class, but in historical societies where social class was a bigger issue what's considered upper class is usually a pretty small percent of the population, so it wouldn't seem too crazy to me to define it like that.
Exactly this. Imagine a company that has makes X dollars and spends X dollars. So the company pays no tax. What that means is that all the other tax payers pay for all the infrastructure.
And that's fine, but if such a company ever needs to call the police and go to court, etc., they then would have to pay all of that out of their pockets (i.e. the work of the police, the lawyers and judges, and so on).
the fact that streets are illuminate at night and pollice patrols them is using services provided by taxpayer's money.
Uber benefits from streets more than the average citizen.
if corporations had to pay per use, they would prefer to build their private infrastructures and police forces, while public infrastructure would lag behind chronically underfunded.
I don't think building "private infrastructure" in the sense of streets on public ground would make any sense or ever be allowed.
The company could just pay for the usage of the road (in some way) and the government makes sure the roads exist. Besides the bureaucratic overhead, I don't see why that couldn't work.
Well they have a right to petition the government in the US at least. Would you say the same about what citizens prefer does not matter in a representative democracy?
Citizens tend to be all over the place when it comes to taxation. Traditional corporations are pure profit seeking entities. What they would -prefer- is to pay no taxes at all, while benefiting from all tax paid services they can. So I'm not really sure, given we're talking hypotheticals here anyway, that designing a system to tax corporations based on what they -prefer- is really going to get us anywhere. The current system, whereby many major corporations pay nothing in taxes, while benefiting from major government subsidies, directly and indirectly, is already pretty close to what they'd -prefer-.
>would -prefer- is to pay no taxes at all, while benefiting from all tax paid services they can.
I think you could probably preface the above with the word “citizens” and it would still be true. But both citizens and corporations have the right to lobby their representatives in their own interest. It’s the politicians job to try and create policy that balances the interests of all their constituents.
I, personally, would happily pay -more- in taxes, if it meant that, for instance, we stopped all fundraising for elections (and instead candidates had a set amount to spend per race), and also if we provided healthcare to everyone.
Ah, ok I didn’t realize context of “all over the place” meant in terms of reasons for taxation. I do think there is a growing movement in business to have a multi-dimensional focus. B-Corps are one example.
I agree. Just charge everyone a monthly fee for essential gov services. And do I mean essential. If you want extra programs from the gov, you need to pay voluntarily.
But they aren't always treated the same as humans. In some cases they are, but it is not a blanket "corporations are people". In order for me to buy an argument like this, you'd need to dig into the specifics of how the ways in which corporations are treated the same as people justifies the argument. And also consider the ways in which corporations aren't treated the same, why they are treated differently, and how that also impacts the argument.
We don't treat them the same, and we shouldn't treat them the same.
Having a multi layered tax policy is complicated and has proved difficult to enforce. Multinational corporations have shown time after time that they are able to get around the first layer of taxation (corporate tax), so why not just eliminate it and put more of the burden on the second layer (income, capital gains, sales tax, etc).
The general idea is not to raise or lower net taxes, in this particular instance we could keep net taxes the same while allowing for less corporate avoidance and more targeted tax collection.
Companies like Amazon historically have minimized their profit to grow revenue, assets and shareholder value. They barely pay corporate tax while profitable small businesses will pay corporate tax plus the second layer.
1 through 6 already lead to taxes being paid - sales/VAT taxes in most places, individual income taxes, employee social security/retirement contributions and so on.
Share buybacks lead to greater stock value and therefore income when sold for the owners, who in term are taxed as individuals.
You theoretically could have a hold Corp that never paid out anything and instead funded the lifestyle of the owners/employees, but I’m sure there are ways to close that and the current 15% min is a far cry from what most people pay.
> If you're going to legally treat corporations the same as actual humans ...
We don't do that, though, not by a long shot. There are some cases where the rules are the same but many, many cases where they are different. So I don't think that can serve as an argument that they should be taxed the same.
This is brought up again and again. You can make similar arguments for every tax. In fact let's look at income tax. The money people spend on income tax they could spend on.
1. Spent on goods or services
2. Spent on rent
3. Spent on capital purchases
4. Spent on debt repayment or other forms of financing
In fact income tax does not have the last two points that you admit are bad, so maybe we should eliminate income tax and use corporate tax only?
The thing is low corporate taxes create an inequality between labor and capital gains. It's already the case that wealth inequality is quite unrelated to income inequality, the highest wealth individuals often don't register in the high income brackets.
Capital gains taxes (paid by shareholders) are completely separate from corporate income taxes (paid by corporations). You're also forgetting (or ignoring) that the legal incidence of a tax and the economic incidence are completely separate. For example, employers and employees are both legally responsible for paying a portion of payroll taxes, but economically speaking that tends to lead to lower wages, making the employer's portion fall at least partially on the employee.
I'm a bit confused by your post, it seems you are agreeing with me, but you say you disagree?
I am aware of the difference between capital gains tax and corporate tax (also note that not every country has a capital gains tax). My argument applies to both, i.e. one of the reasons for raising inequality is the inbalance of labour and capital and the low corporate and capital gains taxes definitely contribute.
About the effect of income tax on salar, I'm not quite sure what that has to do with my points. I was not arguing that we should eliminate corporate tax and just let income tax handle it. Unless your argument is we should use income tax instead of corporate tax because it lowers salary?
Yes - corporate income tax should be eliminated entirely - the revenue can be made up in other, less terrible ways. Corporate incomes taxes are a poor way to address inequality because they tend to fall, at least in part, on workers, and not on wealthy people themselves, who largely accrue wealth through investment, not work. If the goal is to reduce inequality then we should simply tax rich people more, not corporations, whose money will eventually be passed to shareholders anyway.
What I generally hear is a wealth inequality frame: raise taxes on the rich so that they won’t accumulate savings so fast. Income inequality is much steeper than consumption inequality, and taxes are proposed at the top end of income, not consumption. So it is already sensitive to this concern, and steering clear of reducing personal spending.
Now it’s true that invested savings become goods and services, capital purchases, etc. for the companies you invest in. But the idea is that government will take over some of that role and invest the taxes collected in more socially beneficial activities, with returns accruing to the public.
Corporate profits are easily reduced to zero by say... Paying fat bonuses to ceos. All high corporate taxes do is encourage companies to dispose of the profits before the end of the tax period.
Those bonuses are then taxed too, which should give you a hint why corporate tax is a bit daft to begin with.
Corporate tax is, by and large, a fiction to placate voters. It could (should?) be replaced with a more flexible system that isn't as susceptible to the usual deduction and profit shifting.
You’re ignoring that the companies can just keep lots of cash without distributing it to individuals in order to avoid taxation under your system. So for example the company can rent houses, cars, and airplanes for every employee to ensure there is not much money left to be taxed as income. On paper they look like corporate expenses but it’s really just a way to distribute money without it being taxable.
> You’re ignoring that the companies can just keep lots of cash without distributing it to individuals
Nobody benefits from a company growing indefinite wealth without distributing it to actual people.
> So for example the company can rent houses, cars, and airplanes for every employee
If they could do this, all companies would do this already to avoid taxes. In reality, this is dealt with by (in the UK) considering those things "benefits in kind" aka equivalent to cash.
> Nobody benefits from a company growing indefinite wealth without distributing it to actual people.
No, many would benefit in very obvious ways, if you just think about it a little bit: if you want to accumulate wealth you prefer to be taxed on what you spend rather than what you earn. That allows you to save more quickly, it allows you to create a dynasty where wealth is passed to your offspring, who in turn would prefer to pay taxes on their consumption rather than their income.
So if a company served as a type of money making engine but didn't distribute anything, you can save by purchasing shares and letting compound interest work to your benefit and then spend some of that in your retirement by selling some of your shares and give the rest to your kids. You would have a lower overall tax burden as you could earn like a king but live just a middle class lifestyle, allowing your kids to live like kings even if they earned just a middle class lifestyle, and with some left over due to the magic of interest.
This is why if your income >> your consumption, you really want only consumption taxes.
There is also the issue of precautionary saving. Most people prefer to have money in the bank to insure themselves against future loss of income, and this type of precautionary savings benefits people even if there is no consumption, just as having insurance provides a benefit even if you never get into an accident. So if you don't need to pay taxes on savings, then you can shield yourself more easily from future income losses and smooth consumption so you always prefer taxes on consumption, which do not make consumption smoothing more difficult, than taxes on income, which do. Think of it in this way -- a tax on insurance makes insurance more costly and thus more difficult. But financial savings are a form of insurance for when you lose your job or face some other financial setback.
So in summary, one can argue that the purpose of money is consumption so "nobody benefits" by acquiring money that they don't spend on consumption. But this is a naive view that ignores the role of risk, time and inter-generational concerns.
Your explanation requires paying out money to real people, so I don't see how it relates to the idea of a company that does not pay out money to real people.
> So in summary, one can argue that the purpose of money is consumption so "nobody benefits" by acquiring money that they don't spend on consumption. But this is a naive view that ignores the role of risk, time and inter-generational concerns.
> Nobody benefits from a company growing indefinite wealth without distributing it to actual people.
Isn't this exactly what companies like Apple etc. are doing? As it accumulates wealth, the stock price (which is supposed to reflect the value of the company) goes up as well. And thus the shareholders benefit.
I believe actual cash hoards on hand is considered bad business. Apple having cash on hand is seen as okay, at present, because investors trust them to spend it well on expansion. Remember share price doesn’t indicate how well a company is doing today, it indicates how well people believe it will do In the future.
If you have piles of cash and don’t plan on spending it, somehow, on your business then you can’t expect your stock to rise and in fact if you’re so inept that you don’t know how to spend your billions your stock price may actually drop.
You can expect that the market cap will be at least the amount of cash they have, if it’s a profitable company. (This isn’t always the case, but it’s close.)
The more cash they gather, the higher the lower bound of the share price.
That is completely avoided if the person makes less than 12k/year though. So there is already a loophole, there just hasn’t been enough incentive to use it yet. Although I’d question if that’s why some executives take a $1 salary and the rest in stock. All of their benefits are now tax free*.
yes I realize it’s nuanced and depends on country.
That should be taxable in the hands of the employee, obviously. Estonia seems to be doing well with their tax system, and it's pretty much exactly what is described above.
That problem already exists, and I can't see it getting any worse than it already is. And you solve it the same way that you do now: by regulating which expenses are actually deductible. Basically any benefit that primarily benefits an individual is counted as income to that individual.
What goes away is the incentive to locate all of the company's IP in a subsidiary in the Cayman Islands, and then rent it all back to the subsidiary in New York at wildly inflated prices that ensure that all income is technically earned in the Cayman Islands. Because it would no longer matter where the income was earned, it would only matter to whom it is paid out to. Less protection for billionaires who are primarily interested in asset inflation.
I'm pretty sure this would actually increase total taxes collected because it shifts tax burden away from low and easily avoided corporate taxes, and towards individuals that pay higher income tax rates that are much harder to avoid. But even if it doesn't fully compensate, you can easily adjust top bracket rates to fill the gap, without any worry that it will hurt workers like the corporate income tax does.
Those would be taxable for the employees receiving those perks, giving away shareholders' money to employees to reduce a tax bill is absolutely nonsensical in financial, and if a publicly traded company were to do this for "every employee" (or even just management) there would be an immediate lawsuit.
Here’s a different lens: tax is a mechanism for determining who pays for shared infrastructure and social services.
Any entity that has to pay obviously has other ways they can more productively (as seen from the entity level) deploy the cash.
But ideally we are not optimizing for a single entity or class of entity, we’re trying to optimize at the societal level.
We know that corporations can bear some burden, because we are taxing profits. I couldn’t tell you whether this is an optimal place to tax, but it intuitively feels reasonable - corporations are large non-governmental concentrations of wealth and power. This seems like a valid pool to tap for funding the state, and better than many alternatives (e.g. taxing the poor and powerless).
All taxes are avoided (or illegally evaded) to some degree, and the most taxed (i.e. the wealthiest people and firms) will always have the largest incentive to avoid taxes. To reduce the incentive to avoid taxes, countries often tax capital (or labor) at multiple stages but with lower rates (e.g. a corporate tax, dividend tax, and sales tax). As you point out, the corporate tax is redundant to other forms of taxation, but the redundancy lowers overall taxation rates and hence tax avoidance. So it's a feature not a bug of modern taxation.
Some interesting alternatives to corporate taxation have been proposed[1][2], and I think they merit consideration for their potential to remove disincentives to invest or hire labor. I personally like Michael Pettis's argument that continued economic growth depends on increasing economic demand through redistributing wealth from capital (or more generally the wealthy) to labor [3], so I am skeptical of reforms that stop taxing capital.
> I personally like Michael Pettis's argument that continued economic growth depends on increasing economic demand through redistributing wealth from capital (or more generally the wealthy) to labor [3], so I am skeptical of reforms that stop taxing capital.
This is an important point, and is misunderstood in (US) politics and deabtes, IMHO. Supporting capitalism and taxation aren't mutually exclusive positions. Well thought out taxation is crucial to balance the inherent network effects of large corporations. There's huge network effects, especially in tech [1], that leads to less ability for smaller firms or new players to compete. If anything, I'd wager that appropriate taxation of network effects is crucial to a well functioning capitalist society, especially as so much of success is due to luck and network effects in addition to hard work and talent [2].
Just because you have capital doesn't mean you have capitalism, where most any individual(s) can access capital to bring about new companies and products. The trick is defining empirically and scientifically sound taxation measures rather than giving into simplistic models of Socialism or Reganism.
1, 2, 3, 5, 8 also apply to normal people so why not get rid of income tax? The point of tax is for the government to gain money to spend on public services and what not, what you’re suggesting keeps money private.
No. We would not be, just as we would not benefit from taxing corporations at 100% either.
There is a sweet spot, where the amount we tax generates more than it costs, this is known as the "fiscal multiplier." Tax breaks are among the worst incentives ever to exist and have the lowest net-return to society. A corporation paying no taxes, is then completely freeloading off of the countries they operate within. Tax breaks are handouts, full-stop. Tax breaks ONLY increase deficits by necessarily decreasing input (tax revenues) without a corresponding decrease in costs or increase in output. It's literally saying "you don't have to pay your share of taxes because you already make so much money." This is the precise reason Republicans run up the deficit. No one realizes tax breaks are a fucking hand out, we have a budget. "Tax breaks" are just the same kind of spending as food stamps, except they provide a negative return where as food stamps provides a positive one with something like a 1.73 multiplier (which is fucking awesome[1]). If we were taxing multinational corporations at a 70% tax rate, sure, then maybe a tax break might actually help stimulate some growth... but we sure as shit ain't even close yet.
The corporate tax rate should be something like 35% in the USA, but if you do the math it's closer to 17.5% on average that's paid (or was when I checked a couple years ago, I can't imagine it has improved). I can promise all of you, that the overwhelming majority of corporations aren't able deploy international tax avoidance strategies (and are paying really close to that 35%). So... then, 'cuz like averages, 'n' shit, that means (did I get a pun?) a handful of extremely large players are likely paying literally nothing in taxes to get the USA's average rate down to 17.5%.
It's pretty easy to go calculate these numbers for yourself, and to look into what things actually cost. I'd recommend anyone and everyone go take a gander at https://www.bea.gov/ and actually go do it.
Frankly, if OP doesn’t want me to anthropomorphize corporations for tax purposes, they’ll need to go back in time and stop the courts from anthropomorphizing them for various rights.
If a company gets 1A rights under citizens united, then it can have tax obligations as well.
I’m pretty over this double standard where companies are handed various rights, but not commensurate obligations.
I’m 100% fine with that perspective. However, I think it means taking away other “anthropomorphic” rights from the entity.
If you say: we’ll only collect taxes from the individuals that are paid by Microsoft, instead of taxing Microsoft, that’s fine by me. But, I would then say that Microsoft also doesn’t have free speech rights as a corporation, after all each individual in the corporation has free speech rights.
If we decide that a corporation *is* entitled to some rights granted to people (such as a right to free speech), then the corporation should also be subject to taxation, separately from all the individuals that compromise it.
I’m unwilling to give one without the other. If a company want rights, it should have obligations. If it has obligations, then the company should have rights.
> Linking taxation and free speech, among all possible rights and obligations, does seem completely arbitrary though.
Well, it was completely arbitrary as it's serving as an example. I'm not saying my policy would literally be X Taxes and Citizens United, just using each as an example of the general class of things that I think should be linked.
I've seen corporate personhood used aggressively to argue that corporations should have more rights, but then when we're in a tax policy discussion, suddenly we are squeamish about anthropomorphizing corporations. My argument is that the amount that we anthropomorphize corporations should be equal whether our discussion is about rights (with free speech as one example) or about obligations (with taxation as one such example)
Instead of writing separate but very similar laws for personal and corporate property, you say that the law is the same for both cases, aside for a few exceptions.
Salaries come out of pre-tax revenue, any corporation can reduce their tax liability to about zero by handing out cash to their employees, yet that (almost) never happens.
Same goes for financing, while dividends can only be paid out from post tax profits loan payments and even stock buybacks can be structured in a very tax efficient manner. Yet that doesn’t happen that often either.
This is the case with any form of government financing - taxes, deficits, and inflation all introduce market distortions where they reduce productive activity. This is inherent to economics, because a basic principle is that there is no free lunch: if you are going to spend resources on spending, those resources have to come from somewhere else, and the private sector by definition is the "not public sector".
But if you don't accept these deadweight losses, which means that there is no way of funding a government, which means that the essential services a government provides - notably a monopoly on violence and a peaceful way of adjudicating disputes - no longer exist. This is more damaging to businesses - when business every business needs to hire a protection racket to avoid being ripped off and killed, productive activity tends to come to a halt.
This is really a case of 8. I doubt that Apple has an account full of US dollars, and I mentioned that low yields on safe investments is already a way of “taxing” this money in order to encourage spending or riskier investment.
> ...dividends and buybacks create income for individuals who will pay tax on that income)
This is an important point people miss. The owners of those companies eventually pay taxes on the profits, so a corporate tax is a double tax.
There are a lot of things that get taxed: property, income, sales, corporate profits. You can vary these rates and still come up with a viable government revenue model. Oregon doesn't have a sales tax; Washington state doesn't have income tax. The only problem, and it's what this deal is about, is when these varying policies interact, or one jurisdiction does something very different from others.
What you end up taxing is a social policy lever, but it's otherwise not all that important. The important part is getting some degree of alignment so you don't encourage people to live in Vancouver, WA, but buy everything in Portland.
> The owners of those companies eventually pay taxes on the profits, so a corporate tax is a double tax.
Will they? Countries have a wide set of positions from "tax only corporate income" to "tax only dividends", with a lot of them sizing both taxes taking the other one into account.
I agree about the "corporate tax creates work in tax avoidance", but if corporate taxes are abolished, wouldn't it drive more individuals to incorporate their own businesses?
The tax avoidance industry now shifts to servicing individuals, and again we find ourselves with inequality between individuals who can afford those services and those who cannot.
An alternative way to tax would be to simply raise interest rates, and discourage capital from not being deployed productively.
that is an idea that I've been floating for a while, unfortunately people who don't understand economics and rely mostly on their feelings don't approve, and those are the majority of votes hence the politicians don't want to commit political suicide by promoting something like that.
Think about it, a no tax corporate tax, yet taxing the recipients of dividends and distributions would:
* eliminate tax heavens
* foreign companies would come to the US
* stimulate the economy
* benefit the shareholders at large
Of course the shareholders would pay taxes, and distributions to foreign entities could be taxed at the source.
This is how corporate taxes work in Estonia. There is no income tax, but dividends/distribution is taxed. I think it's great overall.
However there are some loopholes that companies still figure out. In Estonia's case we have big international banks that found a juicy loophole. The local Estonian branches pay no corporate tax, but they also never pay dividends. Instead they give out a no interest loan to their foreign mothership and have no intention of ever getting it back. This loophole has since been patched, but it shows that companies will still hire teams of lawyers to find new loopholes to not pay a single cent.
Corporations pass the tax expenses on to consumers as higher prices of produced goods, lower wages to employees, and lower returns to owners that supply capital. These taxes are all paid by us but they are largely invisible and justified to the voters as making corporations “pay their fair share”.
These taxes are paid by various stakeholders and entities around the business. The public gets the tax income and uses it for services to allow the business to operate.
Do you feel the cost/value of having the ability to a call a number and have a well trained team put out a fire in minutes that could ruin your business is 0 or free? What about rules/services that allows your business to have an advantage over another in a different region?
Taxes need to be paided by everyone. Corporations use more services than you would think and rely on a stable government that they need to contribute to.
Getting more money in the hands of governments is not going to do to us any good, they will just increase spending.
It will end up being: increase in price -> increase in government spending.
Everyone will pay the increased prices, governments will pocket a % to keep their employees busy or employ their friends for public work, some of it will be redistributed to a portion of the population.
I believe taxes shouldn't be paid by anyone and governments should disappear.
Corporate tax, as a share of total taxation in the US, has dropped from 30% to 10% since the 50's ... yet wages have been pretty stagnant since the 80's (in real terms).
The top corporate tax rate had been ~35% for roughly 25 years ; in 2018 it dropped to 21% and wage growth has indeed increased since 2018. Were wages positively affected by the lower corporate tax rate? I don’t know, so many factors affect the economy; corporations might choose to lower prices or do more research on better products or issue greater dividends to attract capital for expansion. I was just making the point that we humans end up paying somehow for the spending that the government chooses for us and that I would rather make these tax costs more visible to the people actually paying the taxes.
Average effective tax rate for corporations is considerably less than the top rate, so much so for companies like the FAANGs as to make a mockery of corporate tax as being anything more than a guarantee of full employment for tax attorneys. OTOH, brick and mortar which has to compete against Amazon has the privilege of paying for Amazon.
Corporate taxes are not expenses. An expense is the cost of operations that a company incurs to generate revenue, either on cost or accrual basis. Corporate taxes are based on declared profits, gross revenue net of these expenses.
Furthermore, these taxes are not paid by all of us. They are paid by the owners of the corporation who and which receive considerable benefit from the government services they are paying for.
Consider corporate taxes, if you will, as use taxes for using the economy.
Effectively they're paid by the customers though. Investors will want to get their return on the money they invested regardless what happens. If they can't get their return they will simply invest in something else and the business never gets off the ground.
For example, if a corporation has no profit, common for startups trying to get off the ground, they pay no corporate income tax. This is the case because corporations pay income tax on profit not revenue. Having no corporate income tax would only shift that burden from the economic use case to elsewhere which is what happens with the FAANGs and multinationals. That elsewhere ends up as brick and mortar and individuals. BTW, tax fairness means lower as well. Brick and mortar and individuals would pay less if the FAANGs and multinationals paid fairly.
One problem is that this would effectively distribute tax revenue from a company by the citizenship of the owners (6 and especially 7) but most countries think they are entitled to some tax revenue from companies operating in their nations even if the company is wholly owned by foreigners.
That’s usually the case of any kind of operation, no? If you use the infrastructure and services of a particular country its seems reasonable to pay taxes on your profits there.
It does seem like a reasonable principle, which makes abolishing the corporate tax unpersuasive. If there were only a single jurisdiction the argument would be more compelling.
It certainly isn't impossible for nations to tax foreign individuals operating companies locally without a corporate tax. A way would be:
a) similar to KYC laws, make knowing all persons who own part of a company mandatory, regardless of how many structures (corporations, trusts, whatever) you have to go through.
b) preemptively tax every individual on profits/salaries/perks/payments from the company at some established rate.
c) come tax season, ask for a global income statement from everyone taxed. Adjust their taxes based on whatever bracket they land in.
Even without a corporate income tax companies would still generate tax income in foreign countries where they sell goods and services, e.g. VAT/sales tax. They would also pay property tax on any physical presence they maintain and probably a myriad of other taxes depending on the country.
While the tax incidence (where the burden lands) of various taxes is a thorny question subject to much debate in the literature I don’t think it’s especially controversial to say that sales, property, and wage taxes are likely to have different incidences than a tax on profits.
> ... but most countries think they are entitled to some tax revenue from companies operating in their nations even if the company is wholly owned by foreigners.
Any individual in the EU buying anything from a foreign company operating in their EU nation pays the VAT on the good or service. That's usually 21% and up to 25%. And that's not on the profits.
9. Buying and controlling media for desired political outcomes.
10. Astroturfing
As different sectors of business have different structures
of material costs, labor costs, profit and investing. Maybe
having at least some kind of equal corporate tax can be seen
as being fair across different types of businesses.
Additionally many forms of business have externalities which
are negative for the rest of the humanity. Often it has been
the public sector which has to pick up the slack or clean up
the mess.
Also most people agree that there exist at least some forms
of infrastructure which are best managed publicly and are
difficult organize privately in a way that encourages
competition. Also corporations often directly benefit from
different forms of public infrastructure, so in this sense
it can be seen as fair to directly tax them.
The problem I don't see addressed is that no/low corporate tax leads to bad market incentives. It is more efficient for my company to buy me things than for me to buy me things. But my company will inevitably buy inoffensive/cheap things that appeal to all employees rather than what I really want. This is most often implemented as a food perk or car perk, but obviously extends to almost any consumable purchase.
Only if it's not a legitimate business expense. Which in practice means if you get a meal with coworkers and talk about work it counts. Even easier if you have clients
This does not address the issue this new tax agreement is supposed to tackle: that big companies produce income in country X but shift profit to country Y where it is taxed less, effectively extracting wealth from the first.
If you only taxed dividends the problem would not go away.
How would it not go away? If there's no corporate tax then the profit is going to be taxed at 0%. Moving that money around won't help you. But if an investor wants to personally use that money, then they'll have to pay personal income tax in the country he's in or is a citizen of.
Ending corporate tax would be an interesting proposition and it would be interesting to study the possible effects of that
However I think the main downside on the abolition of corporate tax is that companies are hiring even fewer people with time (automation, subcontracting, etc) so the taxation "opportunities" are reduced if you only have "payroll"/income taxes and sales taxes.
The current situation leads to things like Starbucks having an exaggerated advantage over local cafes for example, since they 1) pay much lower effective tax 2) can have more advantageous rental agreements which leads to some ridiculous situations where one Starbucks is visible from another.
(Though yes, governments do overtax people and companies IMHO)
I love the imaginary world where people debate this based on hand waving and I suppose emotional feelings and how it literally contradicts recent memory[0]. The debate is over, just like for trickle-down economics because the results have long been in, so at this point the only reason I can surmise is people who make this argument are either ignorant or selective of the facts they use, are disingenuous, or are just too high on their own supply to really interrogate it.
"All that the corporation tax adds to this picture is the creation of work in tax avoidance services, and an unjust inequality between those firms that can afford those services and are structured to take advantage of the rules, and those that can not and are not."
This already exists in the United States.
An "S-Corp" is a passthrough corporate entity wherein the corporation (or partnership) is not taxed at all and all profits flow to the owners of the entity who are then bound to pay the taxes on their personal returns.
Almost all small businesses incorporated in the US are such entities. It is not exotic in any way and is totally accepted and normal.
The trick is ...
With some minor exceptions, all of the profits need to flush out of these passthrough entities every year. You can't just keep piling up untaxed profits in the company bank account. The corporation is required to disburse the profits and create taxable income for the owners.
Big coporations which are not passthrough entities can keep the money and do not have to disburse it ... but they have to pay taxes on it.
So there are pros and cons to these structures.
I personally feel that passthrough corporate entities are much simpler, much more comprehensible and do not have the societal inefficiencies (pursuing tax avoidance strategies, for instance) that you mention. But at the same time I think we're asking for trouble if we let (big multinationals) just pile up bigger and bigger mountains of cash in their bank accounts, untaxed.
So, in absence of a better solution, taxing non-passthrough entities seems like the least worse solution ...
I don't think corporate taxation has always been this bad, so there's no reason why is should be impossible to return. To something reasonable.
And while 1-5 are good, they don't pay for the massive infrastructure and other investments that governments have made the enable corporations to do business in the first place. Those resources have to come from somewhere. I don't see it likely, for example, for dozens of corporations to come together and fund interstate highway and bridge maintenance.
I might agree with you more if corporate profits were plowed back into higher pay or better benefits for employees, significant voluntary investment back into society, etc. But benefiting from government investments in their ability to do business without paying taxes essentially means they are extracting their profits indirectly from all individual tax payers whether or not they are even customers.
I do #1, #3, #4, #5 and I'm still expected to pay taxes.
>they don't pay for the massive infrastructure and other investments that governments have made the enable corporations to do business in the first place
Firstly, that infrastructure is for everyone to use and I think it's semi-useful to view private business as infrastructure as well. They exist to provide goods and services to the people.
Second, it seems obvious to me that you'd simply increase other taxes to make up the deficit. The impulse to create special taxes is a bad one, imo. It only serves to complicate the tax code, obfuscate how much we're actually paying in taxes and makes it more difficult to actually provide incentives when they are needed.
Why should a corporation not pay taxes to support the infrastructure they use (which is paid for by taxpayers) to undertake their business. Amazon ship a lot of goods, that is a lot of road miles. I pay toward the upkeep of the roads and I get considerably less use out of them than Amazon do, in fact they are vital in order for Amazon to do business, so they should be willing to support it. The only reason they dont (support it) is because they are rich enough to argue with the government over it, and that argument is not due to ideological reasons, rather it is because arguing (in court) is cheaper than paying the taxes. So it is just because it is financially beneficial, even if the net effect is negative to society.
The main issue tackled here is that multinational corporations operate across borders, and thus create problems of capital flight out of a country. Thus, even if the economic activity is almost entirely happening within a country (e.g. a local shop uses locally targeted online ads, sold by a sales team working out of a local call center, to attract neighborhood customers), the profits could be captured somewhere else, like an Irish subsidiary handling profits from continental Europe. Even if those profits get reinvested or distributed to shareholders, they might not get reinvested or distributed in that country where the revenue was generated.
One thing to keep in mind is the non-monetary side of taxes: they are used to influence behavior. Offering employee benefits (healthcare, retirement, etc.) is incentivized by US tax code thus influencing more companies to do so.
I'm not saying that corporate behavior becomes uninfluencable when profit taxation is removed, but rather that it will require a different incentive mechanism. That is assuming that we still want to influence corporate behavior through government without legislating it.
if corporations paid less taxes that means more of the revenue could go into the profits section which would most likely end up in the pockets of greedy board members.
Here’s an idea, let’s charge tax on revenue and it can just be the cost of doing business. Small businesses get a tax holiday for the first few years. Problem solved.
Taxes on revenue create strong incentives for vertical integration and consolidation (because there are fewer links in the chain to be taxed).
If one entity owns the farm, the food distribution, and the grocery store, they have one revenue transaction to be taxed. A small farmer selling their eggs to a distributor who sells them to the grocer who sells them to you is taxed three times on what amounts to same activity.
Most countries on earth--US being a notable exception--have a better version of this: the VAT.
It's a very elegant tax on paper, but significantly complicated from an accounting POV. It's one of those areas where there are huge gains to be had from digitizing financial records, and countries that have succeeded in this (like Mexico) create a very powerful revenue source.
Well, the shareholders may live in a different area or country than the one in which the company operates. If a corporation is largely owned by American investors, but does its production largely in a developing nation (relying on their infrastructure to operate), then I think it's fair to say that both the developing country and the US should both get a slice of the pie: 1 for providing the infrastructure and labor market, and the other for providing the comforts of a developed country to shareholders.
Hmm, insightfully looking but profoundly ignorant.
Take a look at the history of tax. And make a judgement on the necessity of tax yourself. Stop wasting time coming up with some seemingly clever explanation of things.
People's attitude towards Amazon is the biggest counterexample of this. They have avoided a lot of taxes not through nefarious means, but by constant reinvestment (items 1-5). At some point, when a company is bringing in enough revenue, a lot of public attitude seems to be that it should be paying taxes regardless of whether it's investing that revenue in things that we generally see as positive.
I know people personally that are always complaing about Amazon being too big and a monopoly while also being prime members and basically addicted to getting packages everyday in the mail.
Sums things up pretty much.
The main reason Amazon is paying a $15 minimum wage is because of substantial pressure from progressives - there's an extensive record of this. The media reporting has largely been coverage of Bernie Sanders and the like, so it's pretty clear that there are non-media folks who have been driving it.
Artificially putting a floor under the price one's allowed to charge for one's services benefits only politicians proposing such populists ideas and the non-working.
Spoken like someone who's far away from minimum wage. One would think it also benefits the people who receive the wage increase, yeah?
My country has a $20 minimum wage, and yet the unemployment rates, small business survival rate, and inflation are all around the same levels at the USA, so all the talk of impending economic catastrophe if we give poor people a few more crumbs seems to be hot air from where I'm sitting.
That sounds like an argument about "if one's time is worth less than minimum wage, one cannot find a job". And sure that is true for some people, but saying it benefits _only_ ... sounds like it is never good for any worker, which is way too strong a conclusion, because other situations exist.
For example: hiring one of two candidates, Nick and Joe, would be profitable under 30$ per hour. Nick asks for 15$, its Joe's first job so he's willing to take 10$, I go to Nick and say, "look Joe will do it for 10, so I really can't justify paying more, but I'd prefer to pay you those 10, since you're experienced". If Nick has a better offer elsewhere, he has no problem. If not, Nick gets just 10.
If the state says 15 is the minimum wage, not only Nick but also Joe must get 15, so my best move is to take Nick at 15. Clearly, a higher minimum wage _can_ benefit the worker, and not only the very weakest one.
Capitalism allows each participant to seek only the best available deal that is agreeable to them, sure, but availability is subject to negotiating power, and that is distributed very unevenly.
Buybacks to a large degree end up not being taxed or only much later. Most people are holding on to stock for long periods now. Behavior can also often be easily be adjusted to capital gains tax. Extreme example is Larry Ellison buying in island with a loan backed by his stock rather than selling the stock and buying the island from that directly.
Why not just tax buybacks? When a company buys its own stock, it pays a tax on the value of that stock to the government.
Sure, this makes stock prices lower. But it encourages dividends by comparison, which is probably a good thing, or at least everyone seems to think it is, and then these are taxed as regular income (not usually subject to gains rate).
Not only is this massively regressive, it ignores how much of our public infrastructure is built to support the economy. This proposal would effectively allow shareholders to turn infrastructure tax dollars into shareholder money without having to kick a single dime into the bucket. That’s absolutely nuts.
The economy is part of the infrastructure. That's why governments go to extreme lengths during economic problems. If the only store in the village shuts down it sucks for the store owner, but it sucks even more for the villagers who now have no access to the goods.
Wouldn’t that exacerbate the tech giant problem? Currently their war chests only get opened to vulture up fledgling companies. I’m not saying it can be instantaneously transmuted into gold if the government tried to take more, but I can’t see your proposal alleviating that problem.
How is that functionally different than how tax works now?
Ownership gives you two things. It's a right to future profits, and the ability to resell that right to someone else. Company tax gives the government a percentage of the profit, and capital gains tax gives them a percentage when the shares are sold.
The only thing your proposal would do is delay when the government gets it's slice because the company doesn't have to pay a dividend right away.
This would make total sense if the entire world were under one tax system. Taxing corporations is a way of of taxing the dividends of shareholders outside your country, whose income you can't tax individually.
Are you kidding me? All of modern history points to the money being spent on only one thing: executive compensation. You really things the wealth of the world should prioritize Zuckerberg buying another island in Hawaii??
This is not about fairness nor liberty. It's about control; incentives and subsidies, made to keep the big bosses in check, and also about making sure they don't get undue competition, since taxation like that makes it harder to compete with the giants, by both outsiders and by smaller companies since margins are lowered. In short, it's about stability and keeping up the status quo of the too big to fail.
i really don’t get why people get upset over share buybacks but not dividends. they’re literally the same thing.
as a stock holder there’s no difference between the stock going up 10 cents from a buyback versus me getting a 10 cent dividend. other than the fact that i can have more control as a shareholder in the buy back
Dividends lower stock price by moving cash from company to owner, buybacks increase stock prices[1] by de-diluting, so only one of those is evidence of the CEO (whose compensation is often tied to stock price) acting on his own interests. Also taxation is different.
When companies generate more profit they very rarely do any of the things you mention, why would they start doing it if they didn't have to pay taxes at all? In reality when a company gets to generate more profit the result is an even bigger gap between C-levels and normal employees salaries.
Here is a better idea: companies should be the only entities paying taxes in a capitalist society. If you think about it it really makes perfect sense :) since they already do all the boring accounting stuff and with the power of their lobbies they could make tax law simpler and more efficient (something that normal citizen will never be able to push forward).
> when a company gets to generate more profit the result is an even bigger gap between C-levels and normal employees salaries.
This is #4 "spent on wages" no?
We already tax wages. A graduated income tax targets specifically the problem you are flagging here. Taxing corporations exclusively would do away with this.
If you're making an equity argument, why not argue for the opposite of what you're saying: reduce corporate taxes to zero, then make up for it by taxing only the highest earners' wages? Not advocating for a policy position here, just pointing out that the argument in the GP post is precisely that they lack of those granular policy levers is a drawback of taxing corporate income. Policy levers which could be used to nudge the income gap down by taxing the "excessive" executive comp at a higher rate, for example, don't work if you collect that tax revenue as a monolithic corporate profits tax.
Yeah but you gotta use the tax code's definition of wages when arguing about the tax code ;)
> It would be pretty awesome if companies increased salaries for everyone at the same proportion of their interment of profit.
It would be pretty awesome if corporations didn't pollute our air too. But corporations are sociopathic profit maximizers. Presumably you support regulating their emissions, rather than just wringing your hands at the bad people. Moral suasion arguments are not effective as tax policies.
I’m of the opinion that there should only be income tax (paid as a function of standard deviations from from the mean wage on the logistical curve). And all personal profits should be considered income, including sold shares, paid dividends, earned interest, etc.
However I can see how that system would be abused. E.g. instead of buying that yacht from your personal money (which you need to pay 70% tax on when you transfer it from the company) you simply have the company pay for it and say this is a company yacht. Then I can see how people would continue to hide their wealth in off shore shell companies that they never have to pay a tax on. So even with this scheme it is still ripe for tax havens.
This seems sensible to me, so long as I’m allowed to use corporate personhood to tax a company’s income under this scheme.
If your money counts as speech because you have first amendment rights, then your income counts as income because you have IRS obligations.
I’m 100% over letting corporations pick some of the benefits of citizens but skate away from all the obligations. If you want the rights, you get the obligations. If you don’t want the obligations, you don’t get the rights.
How about the self-sustaining farmer who doesn't need to work in society? Completely capable individual, has a certain way of life, and suddenly they don't need to contribute?
How about the person who has so much wealth that they will never need to work in their life?
Government is labor that benefits the people. The only way an individual can escape the duty is if they are incapable or if society deems that they deserve a break.
Indeed. Which is the reason why my conclusion was opposite to the opinion. The real world gets in the way of it being practical.
But in my ideal world inheritance is considered income and is taxed as such. And on a logistical curve a billionaire inheritance is taxed really close to 100%. Anybody that has earned so much money they no longer need to work has paid as much in taxes (and continue to do so as interest is taxed as income). Additionally on a logistical curve it is almost impossible anyway to earn this much since a huge earning is taxed close to 100%. For example, someone making 5 standard deviations above the mean pays 99.33% tax on it, so they will probably end up with less after taxes then someone earning 2 standard deviations below the mean (11.92% tax).
As for the farmer who is self sustaining. I guess they are not using up much of the shared infrastructure anyway, I see no need for them to be paying taxes.
This is incorrect, capital gains rates in the US are currently similar to or higher than many European countries. Federal (20%) + NIIT (3.8%) + State (up to 13.3%) puts you firmly in the middle of the pack for European countries. The proposed changes would make them the highest in the developed world, by a large margin.
The elephant in the room is that the main difference between US and European tax rates is that the middle-class tax rates in the US are much lower than their European counterparts. If you are in the top tax bracket in California, the income taxes aren’t that much different than in most of Europe and the capital gains taxes are typically lower.
The full amount of a short-term capital gain (property held for less than 1 year) is taxed as regular income. Long-term capital gains are taxed at a lower rate than regular income, but the amount depends on your tax bracket. Long-term capital gains in the 10% and 15% tax bracket aren’t taxed at all, those in the highest tax bracket are taxed at 20%, and everything in between is 15%.
In the US, capital losses can reduce capital gains and up to $3000 of regular income. If losses are $3000 more than gains, you can carry them forward to future years.
If you make 90,000 in Florida City, Florida. You purchase a home for 100,000 sold for 200,000 your capital gains is:
$15,000
15% federal
0% state
0% local
In VermountVille New York State
21409
15% federal
6.41% state
0 local
In Sf 24,500
21,000 if you are married.
In order to pay 36% you have to be earning over 500,000 to pay that rate and single.
The revenue of a corporation can, roughly, be:
1. Spent on goods or services from another company (including freelancers, contractors, etc.)
2. Spent on rent
3. Spent on capital purchases
4. Spent on wages
5. Spent on debt repayment or other forms of financing
6. Paid out in dividends
7. Spent on share buybacks
8. Invested in something else
Items 1-5 are all good things that we want companies to do, and corporation tax is normally applied after this spending is accounted for. Items 6 and 7 ought to be taxed, and frequently are (dividends and buybacks create income for individuals who will pay tax on that income). Item 8 is a bit vaguer, but probably shouldn't be taxed in most cases (if we're worried about companies parking cash in very low-risk assets, then super-low yields are effectively a tax on that anyway).
All that the corporation tax adds to this picture is the creation of work in tax avoidance services, and an unjust inequality between those firms that can afford those services and are structured to take advantage of the rules, and those that can not and are not.
It's not obvious to me that corporation tax /can/ be fixed, and so it may be better simply to scrap it and replace it with something more difficult to dodge.
EDIT: formatting