I still don’t understand corporate income taxes. These are just pass through entities. All the money goes to actual people which are a lot easier to tax than a corporation. I think it’s such a waste of human capital having corporations incentivized to spend on armies of lawyers and accountants trying to come up with some baroque legal construction to avoid taxes. Maybe I am ignorant about tax law but people seem a lot harder to “invert” to cheaper tax jurisdictions no matter how rich they are.
I would even go as far as saying that payroll taxes are the same. Taxes hidden from the general public with weird incentives that break stuff in unexpected ways. We would be better served with more income, property or sales/vat taxes.
Corporations are certainly not pass through entities. They own assets, they exert influence on society. They benefit from government institutions. They amass wealth so that they can spend it to their benefit.
Maybe, like people, it makes more sense to tax them on revenue then on profit so they cannot invert to a cheaper jurisdiction?
Or am I a pass through entity? Arguably, most actual people are more pass through entities with respect to money then corporations. Corporations are far more likely than most individuals to amass wealth.
But when corporations spend wealth to their benefit it comes out of their profit. So they end up paying less tax. I.e. corporate tax is an incentive for corporations to spend more, not less?
Profits are owned by shareholders. So why not just tax them normally when they receive these profits?
I might be in the minority but I think there should be a 0% corporate tax rate. For the amount of revenue received by corporations doesn't match how much affect they can have on the tax code. They lobby quite a bit to affect their tax status and situation because they have the means. Yet its the individuals that contribute the most taxes but have the least amount of lobbying power. The tax code should be decided by policy of the democratically elected. Reduce the corporate rate to 0% and lobbying will decline I believe.
Why would a corporation with lots of regulations they'd like changing suddenly stop lobbying for them just because they didn't pay any tax? And if lobbying for lower taxes is undesirable, surely actually giving the lowest possible tax to the lobbyists to make them go away is worse still?
That's a really interesting perspective, and yes I think you are most definitely in the minority. Your point is well taken, though
I wonder, however, if corporations stop lobbying over taxes, will they just move that budget over to other things? Like lobbying against EPA regulations, etc.? Corporations are going to spend what corporations spend on lobbying, regardless the issue at hand.
I do really like your point that John Q. Public pays more in overall tax but gets significantly less in representation. This needs to be fixed.
But, IMO, among the income-based taxes, gross is still the most fair. Net/value-added is too easy to manipulate and too difficult to prove manipulation of. c.f. Hollywood Accounting[1]
I also think that a progressive gross-based scheme would help prevent runaway growth in the case that r > g. At some point, the incremental cost of storing income becomes greater than the cost of passing the money through.
It also benefits large players as a chain of companies producing a product would have a larger combined revenue than a single company with teams doing the same work.
If I'm understanding what you mean right, no I don't think so.
If we have two companies, one makes a widget and the other buys it and adds a clock to then sell:
Cost of making the widget $5, sale price $10
Cost of adding a clock $10, sale price $40
As two companies, the first has a gross margin of $5 and the second $20. If the companies were to combine, they'd have costs of $15 and a sale price of $40 = gross margin of $25.
Yeah, it might be interesting to put together a list of most impacted products. Depending upon the rate, the impact of a revenue based system on car manufacturing could be huge.
And, in practice, I'm not sure that the result would actually be better than a simpler consumption tax.
You can deduct expenses from income, every freelancer does. So we don’t actually tax people on revenue either. We tax them on profits. (General cost of living is not an expense). Most tax systems also have progressive income tax rates, taxing lower incomes substantially less or even not at all. Certainly, a tax system that does the same for corporations would be possible. That would then benefit smaller companies.
General cost-of-living is an expense—just see how long you can keep earning that "profit" without paying it. This is partly accounted for by the standard deduction, which is approximately equal to the official federal poverty level.
To put them on even terms with corporations, individual employees and freelancers should be able to deduct any personal expenses which are reasonably related to allowing them to perform their jobs, including but not limited to food, shelter, child care, and basic utilities. Depending on the demands of the job and local conditions this may well exceed the official poverty level.
At the cost of complexity and acting as a honey pot for criminals. I have to deal with VAT for a business I help to run and it's very complex. The bigger problem in the EU are the large amounts of carousel/VAT fraud.
Most of the complexity comes from a backward compatibility and the fact that politicians creates exceptions for certain products to gain votes. If the tax was the same for everything it would be much simpler.
Fraud is a solved problem, especially if you can start from a blank slate like in US.
Governments are trying to reduce the fraud, but they are super slow.
https://en.wikipedia.org/wiki/SAF-T
If Corporations are truly "people" then they are slaves to their owners. The assets they own are actually collectively owned by their share-holders and the actions they take are carried out by their principal officers.[0]
The real difficulty is probably with foregn ownership because then you have the argument about taxing the citizens of other countries.
Taxing where business takes place is also a possibility, but turns into yet another source of obfuscation.
[0]Yes, I know about the idea of corporate "personhood". I just object to it on principle.
You are thinking about personhood the wrong way. In the law, personhood means being able to own things, sue and be sued, pay taxes, enter contracts, and a number of other things.
This is what puzzles me about the immigration debate. Most move here to work and better themselves and effectively pay a higher tax rate than corporations.
I don't know where "immigrants" came into this. I made NO mention of immigration, just foreign (overseas) ownership of shares in Corporations. What has that got to do with immigration?
Are you really suggesting that Corporate Officers aren't able to enter contracts, sue people, etc.? And what the Hell have immigrants got to do with any of this?
Corporate officers are able to enter contracts, sue people, etc, as themselves. Not as the company, which is a separate person from themselves. When you buy a product from Apple and they refuse to respect their warranty, you don't sue Tim Cook, you sue Apple. You can only do that because Apple is incorporated.
>you have the argument about taxing the citizens of other countries
You arrest the employees if what they did was criminal (which would be the case whether a company is involved or not) and fine the company, or in extreme cases, revoke the company's charter (aka corporate death penalty).
Being able to be imprisoned is not a defining feature of a legal person, this line of argument will get you nowhere.
The problem is that the money only goes to actual people eventually, not when it is earned. A beneficial owner can simply sit on their share of the company as it earns profits and becomes more valuable, and incur capital gains taxes if and when they sell. They can defer these taxes indefinitely - if they need cash, they can simply use the stock as collateral for a loan in lieu of realizing capital gains taxes. And when they die, the cost basis gets reset, wiping out whatever taxes have been deferred (and replacing them with estate taxes, if those haven't also been optimized away).
> A beneficial owner can simply sit on their share of the company as it earns profits and becomes more valuable, and incur capital gains taxes if and when they sell.
That's half the problem with income taxes. They provide an incentive for the rich to never sell their investments because if they sell they have to pay tax, meanwhile they give the working class less incentive to invest rather than consume because they do have to pay the tax on their earned income immediately even if they invest it rather than spending it.
So you get bigger corporations (the rich can't sell to invest in a startup without paying tax), more incentive for international tax avoidance/arbitrage to the detriment of smaller businesses who can't do that, and more wealth inequality.
> They can defer these taxes indefinitely - if they need cash, they can simply use the stock as collateral for a loan in lieu of realizing capital gains taxes.
Because we're not using consumption taxes. You can't avoid VAT by taking out a loan.
> And when they die, the cost basis gets reset, wiping out whatever taxes have been deferred (and replacing them with estate taxes, if those haven't also been optimized away).
Again solved by consumption taxes, because there is nothing to reset if the money is taxed when spent rather than earned.
If you itemize your taxes, investment interest expenses (such as margin loans) are deductible against your net taxable investment income, with carry forward of unused amounts. So it nets out to zero.
Margin loans don't give you cash to go buy a car or house, or pay for a fancy vacation. If somebody figured out how to do this they probably are breaking the law. There are also a lot of limitations to how much can be detected in this manner.
So back to the point, at some point, you are going to want to convert your wealth into actual cash to spend. When this happens taxes are levied. Yes at different rates.
Loans backed by your assets do come at lower interest rates, because of less risk, but the interest as profit on the bank is taxed as income -- for the bank.
Also, on the title "U.S. businesses contribute the smallest share of federal taxes" while may fair, looks interesting next to "U.S. businesses pay us nearly all of their paycheck".
I think it would be more simple of businesses had 100% the tax burden, but I don't think it would translate into any of us taking home more cash. All that would happen is wages would lower and businesses would pay the tax.
If the rate of growth of your assets exceeds your rate of spending by enough to handle volatility, then later on you have significantly more assets to borrow against. As long as the net value of the position grows fast enough, you can kick this can down the road indefinitely. The loan gets paid back after you die, when you no longer owe capital gains taxes on the proceeds.
I also forgot to mention the insane amount of resources wasted lobbying to complicate the tax code so every company and sector gets their loophole. This doesn’t just have the same human capital cost but it also gnaws at the trust people have in the democratic system. It’s a lot harder for Bezos or Cook to lobby for an individual tax cut than it is for Amazon and Apple.
If you really want to start from first principles, corporations may seem to be financial pass-through entities but serve as legal shields. Shareholders are not personally liable for externalities like environmental catastrophes or labor law violations. Elon Musk isn't subject to incarceration when someone is killed in an autopilot failure.
If you believe that corporations should also pass through legal liabilities, then sure it makes no sense to pay corporate taxes. But that's not the world we live in.
You are ignoring a secondary reasons for taxes. The primary reason is obviously to raise funds for public use. The secondary reason is to give the government more control over the economy. You are right, there are ways to drastically simplify tax law if we wanted to tax ever dollar at the exact same rate or had very clear marginal tax rate buckets. We don't do that because we want to incentivize certain actions. On a personal level, you get a tax break if you pay for your education, you get a tax break if you invest in your career, you get a tax break if you have children, you get a tax break if you earn your money through investments rather than through employment, etc. We don't necessarily do those things to be nice. We do those things because we believe they are good for the overall economy and it is beneficial for them to be incentivized.
Sorry, I thought it would be clear that I wasn't trying to cite a complete list. There are also countless corporate tax incentives too. Clean energy is one example. How do you incentivize companies to use clean energy by taxing individuals?
Property taxes are tough because many assets are hard to value/assess and often don’t pay enough cash flow to cover their taxes, which could lead to forcing a sale (at fire sale prices for illiquid assets).
Sales taxes tend to hit lower income people the hardest since they’re spending most of their income while the wealthy are not. You could adjust for this, but then it becomes complicated and administratively burdensome.
Tariffs distort trade and slow economic growth (though there are many people that find that trade-off worth it for other reasons).
I think a lot our system in the US is designed for ease for collection, rather than what is most efficient.
The good thing about corporate taxes is that corporations tend to be more meticulous about tracking their income and expenses, and probably also about paying their legal taxes on time than individuals. Tax revenue collected would probably plummet if we did away with the W-4 withholding system on individual income taxes and people had to file them once a quarter/year like corporations do.
maybe this is overly cynical, but I suspect it goes further than "ease of collection". the average person is unlikely to strongly oppose corporate income taxes because they believe it doesn't take any money out of their pocket. if they understood tax incidence, and how little consensus there is among economists regarding corporate tax incidence, they might feel differently.
the US tax system seems to be designed more towards political expedience than any other goal. sales tax, which voters feel every day, is relatively low compared to VAT implementations in Europe. the income tax hits high earners pretty hard, but there are innumerable loopholes and exceptions for very wealthy holders of capital to avoid paying significant capital gains.
it seems like the whole system is setup to look like it's fleecing rich people while it subtly sabotages itself in thousands of pages of tax law.
edit: also you are probably right that we would have trouble collecting tax if we eliminated withholding, but what does that have to do with corporate income tax?
It's much more difficult for a person to shard their lives such that they live over here for this purpose but over there for that purpose, whereas for a company of any significant size, that's fairly easy.
It requires more wealth, and it's a lot harder to do if you're a US national with their unique global income tax rule, but people absolutely do split their lives for tax purposes. It usually requires dividing your time among at least three different countries, but one of them is usually a nice warm island. e.g. http://expatandoffshore.com/blog/top-ten-tax-exiles
> In a highly interesting manoeuvre, Sir Philip [Green] manages his various businesses through a holding company - Taveta Investments. This is registered in the name of his wife Christina, a South African who resides in Monaco. The family and company thus manage to avoid tens of millions in tax.
Governments love sales tax! Its just so damn easy and simple. When I was a kid it was at 17.5%- now its at 21%.
I don't mind because the government here actually tries to provide for its citizens. Keeping the nation orderly and tidy takes a vast amount of money.
Taxing poor people will always be easy. That's why the most significant progress in economic history has come with the ideology that fights against doing that.
When you combine consumption taxes with basic income you get a net progressive system. You also get the benefit of discouraging consumption rather than discouraging earning income.
This is actually the ideal solution. It has the additional benefit of being the most privacy-preserving system, since individuals are no longer required to file tax returns or be means-tested for benefits. Everyone receives the same benefits, and the taxes are collected indirectly via the corporations whose goods and services are bought by (potentially anonymous) individuals. Meanwhile, the accounts of corporations are subject to greater scrutiny, as governments focus their efforts on auditing them.
True, however inflation works the same way, and is a much bigger and persistent threat to the poor than sales tax or VAT; inflation compounds over time whereas sales taxes do not.
Inflation is basically an unvoted regressive tax on the poor that increases every year.
Inflation is no threat to the poor at all. The poor have zero or worse net worth. Inflation benefits them by reducing the impact of their debts over time.
When all your money (and more) goes on just living, inflation is a complete irrelevance (so long as your wages keep up, of course).
> When all your money (and more) goes on just living, inflation is a complete irrelevance (so long as your wages keep up, of course).
Yes, but dismissing this caveats is waving away the entire point. High inflation of course includes wage growth (and when it doesn't, you've got a wage growth problem,not an inflation problem). But it does so _on average_: every worker doesn't get an automatic raise every time a price goes up. The poor are the least able to sustain situations that are good on average, because they have the smallest savings buffers to weather the downswings of an average trend.
If a poor person falls prey to the various life catastrophes that might make you miss some income, not get a raise, etc, a high inflation provides a much less forgiving environment, since the real value of whatever modest amount was in your bank account is rapidly eroded (and as pointed out above, this type of buffer is rarely if ever kept in inflation-correlated assets)
Getting knocked off of an unstable cycle is practically the central challenge of the working poor, and high inflation gives you a lot less wiggle room to avoid this.
35% of the UK have a negative net worth. Inflation helps there, assuming your salary increaese with inflation. Interest rates of course then have the opposite effect,
Year 1: debt of £100k and salary of £20k and 2% interest and 4% inflation. £18k left over, £100k owed (5x wage).
Year 2: debt of £100k, salary of £20,800. £18,800 left over, £100k owed (4.8* salary)
Year 10: debt of £100k, salary of £29600, £27,600 left over, £100k owed (3.4* salary)
In Year 1 pounds, salary stays at £20k, but debt drops to £67,566, and interest payments drop to £1351 a year.
It’s not a judgement against poor people. No one has their savings “wiped out” by inflation.
It is simply an annual cost for having assets, and an annual benefit for having debt. Since poor people necessarily have more debt on average than rich people, poor people on average benefit from higher inflation whereas to rich people it acts like a tax.
For people who want a weath tax, I say, why not just target a slightly higher inflation rate?
I would argue that rich people have on average far, far more debt than poor people. Rich people also have far more ability to protect their assets from inflation than poor people.
With regards to "no one has their savings wiped out by inflation", tell that to, say, Russians in the early 90s. Very real and very significant savings in Sberbank turned to virtually nothing, i.e. wiped out, by inflation.
I would still argue that a higher unexpected inflation rate would hurt the poor the most, but may benefit middle class holding mortgages (although the more likely effect is that the negative effect on the overall economy would end up hurting everyone, with the poor being hurt the most).
Inflation can hurts pretty badly pensions though, so it's not only a rich vs poor thing.
And also inflation is not uniform and depending on its composition can hurt poor people much worse than rich ones.
Historically I haven't found any clue that a higher inflation would help against inequalities. Actually the only literature I have found on the topic seems to indicate a positive correlation between inequalities and inflation but the relation between both seem very complex and not really understood/modeled correctly right now.
> It [inflation] is simply an annual cost for having assets
Not all assets, just cash or claims denominated in cash (like loans). Most investments don't lose purchasing power just because you devalue the dollar. The poor are most likely to have the majority of their savings in the form of cash, for various reasons; minimum investment limits, for one, and also investing in general is more efficient when you have more money to invest. Below a certain point, the brokerage fees alone would outweigh any likely annual return. Moreover, in an inflationary economy consumer prices tend to rise faster than wages, so the purchasing power of labor declines. Deflation is just the opposite: Sure, wages are falling as the dollar becomes more valuable, but prices tend to fall even faster, so purchasing power increases.
If you're looking to tax wealth then inflation is not the answer.
Wages are not set by inflation, they are set by supply/demand for labor. In the face of lower historical inflation, wages would just be lower today as a result.
Only the delta between wage and price inflation matters there. And that can really blow up an economy: the main problem with 20% inflation is that people need a raise every month, and are far more likely to go on strike over it.
But the money doesn't always go to people. In the UK at least, Corporation tax is specifically calculated on what's left after you've paid the people, and after you've taken into account reinvestment.
I agree that the baroque structures, and the crazy accountancy games companies play, need to be addressed somehow.
Taxes aren't just a means of revenue for the government, they're a means of incentivizing for various goals.
- Want a higher population? Give a deduction for children.
- Want citizens to switch to alternative energies? Give a deduction for solar panel roofs and electric cars.
- Want to reduce dependency on foreign oil? Give a deduction for new drilling operations.
- Want to create more jobs? Give a deduction for each employee.
- Want to create more housing? Give a deduction for real estate depreciation.
- Want to encourage new technologies? Give a deduction for R&D expenses.
You could just hand out money instead of deducting it from taxes. E.g. it's common in many countries to get a child raising stipend which is basically cash in hand (well, in bank account)
There's been plenty of revolutions since the dawn of civilization. But also taxing as a way to ('subtly') modify behavior is a very new concept, it didn't exist centuries ago.
Yup. Corporate/business taxes to begin with are not so smart because because businesses can basically incorporate in any jurisdiction for reduced or 0% tax rates. Many countries have "free trade zones" with 0% business taxes. Those countries still benefit though because their citizens get jobs they might not otherwise have access to. With free trade agreements, it is easier than ever to have your headquarters in a tax haven and then manufacture and sell your products worldwide.
The problem is that corporations have value, assets, and money. And more importantly they can leverage it.
If we moved to a 0% Corporate tax and relied entirely on income tax then we'd start to see all manner of schemes for Executives to avoid taxes. They'd do things like taking little salary but instead being issued Corporate spending accounts with limits comparable to what they'd otherwise earn in salary.
Maybe I am ignorant about tax law but people seem a lot harder to “invert” to cheaper tax jurisdictions no matter how rich they are.
this is only because we allow corporations deductions for intellectual property, remove ip deductions and remaining corp income deductions will revolve around paying wages and investing capital (e.g. building a factory), things that cannot be "inverted" or made to pass through ireland.
the corp income tax is actually less harmful than personal income or sales taxes precisely because it only falls on corp profits and the aforementioned deductions (with exception of ip) are good ones - you want companies doing those things. arguably double taxation on dividends is a somewhat questionable feature of the corp income tax though (and if anything the last type of company you would want to exempt from this double taxation is REIT like ones)
I sort of agree, but in jurisdictions with low corporate taxes and high personal ones you’ll find a lot of small contracting companies that hold a lot of personal assets.
While I agree in principle, in practice you would have no guarantee that the money companies would save on taxes would directly go to increasing employees' wages, which would have to balance the increased individual taxes that you mention.
Market forces would compensate to an extent, but not for jobs with a low demand/supply ratio, I think.
Well your friends from downunder figured out how to solve this long ago. You allow the company to pass through a tax credit (franking) to the shareholders on any dividends paid. It is amazing how keen companies are to pay tax when this is in place.
> Taxes should not be used to discourage productive activity.
We should be taxing...use of undeveloped land.
Aren't many (most?) uses of undeveloped land productive? About 100 years ago, someone built the house I'm sitting in. That was a productive activity to transform the use of that land for housing, IMO.
According to the OECD, corporations paid 7.1% of the US tax burden. Note that in the France, that Randian paradise, that figure was 5.1%: https://taxfoundation.org/sources-government-revenue-oecd-20.... Denmark, Finland, Germany, Italy, and Spain also relied less heavily on corporate taxes than the US.
The remarkable thing about the political debate in the US is that folks on the left talk about all the public benefits the government offers in Europe, but are dead silent about how Europe pays for those benefits: consumption taxes. US consumption taxes account for 15% of revenues. That’s just half the OECD average.
The problem with corporate taxes is that it's a race to the bottom. International companies prefer to put their offices in countries where they have to pay little in taxes, so countries keep reducing their corporate taxes to remain attractive for companies. Meanwhile, consumers don't move around as much, so consumption taxes are fairly reliable.
Which is sad, because consumption taxes are also fairly regressive.
If we want to move more of the tax burden to corporate profits, rather than revenue (which is what consumption taxes basically are: corporate revenue taxes), you need either international agreements to increase those taxes, or tie profit taxes to local markets.
And now that I think of it, I think that might actually be possible: profit is revenue minus cost, right? With consumption taxes being the same thing as revenue taxes (which I think they are; it's a tax on the revenue corporations get from selling to consumers. Dutch VAT (BTW) is also called "omzetbelasting" (revenue tax).
So allow companies to deduct local costs from local revenue, and you've turned revenue tax into profit tax.
This seems way too simple, so I'm probably missing something here.
Taxation does not have to be a race for the bottom, unless the state wants to collect the money and give little in return.
Take New York State for example. It has some of the highest taxes in the country. What do the citizens get back? Roads? Well, New York roads are known to be some of the worst in the country. And you still have to pay tolls to use them. Schools? Just average. State University? Again, quite average.
Many international corporations specifically choose to put their EU HQ in Ireland because they have the lowest corporate taxes, yet it enables them to do business in all of the EU.
Many countries invest in their people, provide education, houses, jobs, services, etc, and as a result, they have a wealthy, educated population that is an attractive market to sell to. But if that country has high corporate taxes, and the company can sell to that market from another country, then they end up paying less taxes and not contributing to the country that invested in that market.
That's what I mean with a race to the bottom. Of course there are other reasons why a company might choose a certain place. New York, despite its bad roads and high property prices, is popular because it's close to Wall Street, for example. But companies that have no geographical ties to New York specifically, will probably put their main office somewhere else. Wasn't Delaware a popular state to register your company?
Ireland and delaware are backdoors. they are not sustainable in the long run. I like to think of both as passing through an equalization phase.
Though, I think Delaware is past it. Even if they had higher corp taxes than ny, they would still win because of the "service" the judges provide by siding heavily with companies (over workers, consumers and even gov).
Curiously, Delaware also has no sales tax, in addition to attracting those corporate HQs, yet somehow manages to have excellent infrastructure, speaking for roads at least. Well planned, smooth, and bike lanes are widespread. If you cross over from Pennsylvania, the difference is immediately obvious: pothole city, narrow, and biking=death.
it is really expensive to live there, everything costs more, salaries of state workers, materials, designs, etc. it's more expensive for the state to have an office for those workers to live in.
Corporation taxes are arguably as/more regressive than those on consumption, depending on who you believe ultimately pays them (capital owners/workers).
It can be argued that they fall equally on the rich and poor. For example, if the corporation had two shareholders, one in the top tax bracket and one in the bottom, their returns would be equally hit despite difference in their underlying incomes.
On the other hand, if the burden does fall mainly on shareholders then it can be argued that from a macro perspective corporation taxes are progressive since they are ultimately paid by wealthy households (which make up majority of large investors).
It could be argued, if you completely ignore the poor generally dont hold shares in companies, and that this thought experiment only works if you think the workers could ever get a decent share of the company value, which rarely happens.
No, the concept is economic incidence, and it depends on the elasticity of the markets involved to decide who pays for it.
The real calculation is very complex and requires deep anaylsis, but let me try to give some concepts on what could happen.
A flat tax corporate tax to every company will have more effects on the consumers than anyone else: investors will invest less than they would have without the tax, as profits go down (and will consume more of their capital), and it will happen until the profits go back to the previous point of equilibrium. They have a 1 time loss, and then never lose profitability again.
If investors dont lose out in the long term, but the state gains through tax, you need to put that on workers or consumers. workers have one trick up their sleeve: they can go independent and avoid corporate tax: either as a small businesses, or being a contractor of some sort. So some workers will win and some will relatively lose.
But the one without much help is the consumer: he cant really buy things that don't go through a private business, which means everything they buy has the tax in it.
And thats a flat tax: its never flat. A local RE developer cannot avoid corporate taxes, but Google that opens offices somewhere else can. Or businesses that have huge potential (again tech) can avoid paying the tax by reinvesting in themselves for decades, which mom&pop shop cant, thus some companies pay more than others. In consequence, more investors go to the lower tax companies, workers will go to those companies and consumers will find their products cheaper.
Fair point. Especially when retirement funds are major investors. In that case, I suppose progressive income taxes are the only good way to have progressive taxation.
Still, the idea of ending the race to the bottom by replacing local revenue (sales/consumption) taxes by local profit (sales - local costs) taxes, appeals to me. It would make labour and other local costs cheaper, and discourage outsourcing every aspect of business to the cheapest possible country for it.
> In that case, I suppose progressive income taxes are the only good way to have progressive taxation.
The key is to do progressive on the other side. Collect revenue with a flat consumption tax, then pay a uniform benefit, ideally a UBI.
If everybody pays a flat 30% tax rate and then everybody receives $10,000 in cash money, the effective tax rate for someone at $20,000/year is -20%. At $40,000 it's 5%. At $80,000 it's 17.5% and goes up from there.
So it's progressive but there is no arbitrage opportunity, no declaring profits in some other place, no weird cliffs or crazy high marginal rates on the poor due to benefits phase outs, the tax rate is uniform and applies the same to everyone without exception.
> The problem with corporate taxes is that it's a race to the bottom. International companies prefer to put their offices in countries where they have to pay little in taxes, so countries keep reducing their corporate taxes to remain attractive for companies. Meanwhile, consumers don't move around as much, so consumption taxes are fairly reliable.
Most of this is just characterization. For example, what's the difference between corporate income tax and VAT? Almost nothing. Primarily what happens when goods cross a border -- then VAT requires tax to be paid based on where the customer is rather than which jurisdiction the corporation declares its profits in.
But VAT is a regressive "consumption tax" and corporate income tax is a progressive "income tax"? Which international corporation came up with that particular piece of corporate propaganda?
> So allow companies to deduct local costs from local revenue, and you've turned revenue tax into profit tax.
That's basically what VAT is. You are describing VAT.
That's not what VAT is. At least not in countries that I'm aware of. Here VAT is a flat percentage of the sales value, and from the result you get to subtract VAT that has been withheld by your suppliers, which means that in effect, it's just a tax on what consumers pay. It makes everything in that market more expensive by a certain percentage but otherwise has no impact on the company. It's a tax effectively paid by the consumer.
If you subtract all costs within that market, including labour, it suddenly becomes more attractive to hire labour in the same market where you're selling. Companies based in tax havens do not get to subtract their costs in the tax haven, which effectively means they have to pay tax on their profit in the market where they're selling rather than the country they move their profits to.
But you do have a good point that it's not really progressive in any way. It just serves our sense of justice to have companies pay their taxes in the same market they're profiting from. I guess the most elegant way to get progressive taxation, like someone else here pointed out, is UBI.
> Here VAT is a flat percentage of the sales value, and from the result you get to subtract VAT that has been withheld by your suppliers, which means that in effect, it's just a tax on what consumers pay. It makes everything in that market more expensive by a certain percentage but otherwise has no impact on the company. It's a tax effectively paid by the consumer.
Income tax is really the same thing. A retailer sells a widget for $100 which it bought for $90, so it pays tax on the $10 in profit. The wholesaler bought the widget for $80 and sold it for $90, so it pays tax on another $10. If you go all the way back to the mine that produced the raw materials that were manufactured into the goods, the entire $100 is profit to somebody. It's the same as VAT. Calling it "profit" rather than "value added" is a distinction without a difference.
An exception as you point out is the treatment for domestic labor, but even that's just an accounting anomaly rather than a real exception -- the worker doesn't collect VAT on their "profits" (wages) but then, no deposit no return, the employer can't deduct them. The real scam is when wages aren't deductible from VAT and yet are still subject to personal income tax, which means they're being double taxed. That is one of the few things the US corporate income tax gets right.
> If you subtract all costs within that market, including labour, it suddenly becomes more attractive to hire labour in the same market where you're selling.
It is different, because the amount the wholesaler bought it for is not the only cost he has. He also has rent, labour and who knows what else, and not all of those withhold VAT on their end. In fact, in business-to-business transactions, VAT is often ignored, because the only that matters is the value at the end point where it's sold to the consumer or another non-VAT-paying entity.
At the end point, VAT is a revenue tax, not a profit tax. And revenue is certainly not the same thing as profit.
Sales tax in the US generates a comparatively small amount of revenue. Some states don't even have one. The majority of tax revenues in the US are paid to the federal government rather than the states and through personal income tax and payroll tax rather than consumption taxes.
> So allow companies to deduct local costs from local revenue, and you've turned revenue tax into profit tax.
Maybe I'm misunderstanding you, but that's kind of how taxes work now. You report your revenue and expenses and pay taxes on the difference.
The challenge is that there are so many loopholes that some companies can reduce their profit to 0 (or less) or allocate their profits to lower tax regions (Delaware).
A revenue tax would be far simpler and eliminate a lot of these accounting loopholes.
For maximum ease, have the banks automatically deduct 5% of each deposit and don't worry about even having to file taxes unless you received cash.
It's how income/profit taxes work, but not how revenue/VAT taxes work. That's just a set percentage over the revenue you get from consumers (not business to business, or if that has been paid, the total taxes paid can be deducted, which can mean you get money back).
The problem with profit taxes is exactly as you say, but VAT is paid in the country where the consumers live (at least in the EU). This means VAT simple adds to the purchase price, which the company doesn't really feel and ends up basically being the consumer's problem, while the costs and profits are manipulated and moved around so that the company has to pay as little tax on them as possible.
If profit taxes were treated the way VAT is, so the company would have to pay them in the country where they made that profit, which means the revenue in that country minus the costs in that country, that would stop companies from moving their profits around, because they'd have to pay them in the country where they sold their products. And it would make it attractive to make their costs in that country too, rather than outsourcing them to tax havens and low-wage countries.
Consumption taxes, like the VAT,are regressive, but can be made progressive when implemented in conjunction with a universal refundable tax credit system or a universal basic income. For example, Andrew Yang proposes a 10% VAT and a $1,000 monthly UBI per adult. Napkin math suggests that unless you are spending $10,000 per month on VAT-taxed consumption, the $1,000 UBI provides a net gain. I think it is unfortunate that we focus on the disadvantages of the VAT (i.e. regressive), when there are advantages to it in terms of making it more difficult for companies to avoid paying taxes, if it is placed with policies that together become quite progressive.
If you look at figure 2 in the article I linked, the average share of taxes collected from corporations in the OECD went up somewhat from 1990 to 2019. So I don’t know if it’s correct to call it a race to the bottom.
I don't think you're missing anything at all. The idea of taxing revenue and deducting domestic factors of production was actually discussed as part of US corporate tax reform a couple years ago, and high-profile economists on both the left and right were both pretty positive on the idea. It's a more efficient way to tax profits that isn't easy to game like the current system.
Despite support among economists, it ended up being politically harder since some companies were against it, so they ended up going with a big deficit-funded tax cut instead.
> The problem with corporate taxes is that it's a race to the bottom.
That's not the problem. Thats the solution. How else would countries compete with each other to not nationalize any company at the whim of a politician.
> you need either international agreements to increase those taxes
You really don't. The US could ban any company with server outside the US and then will not have a problem of jurisdiction. An international agreement means monopolization of government, and thankfully, you only need a few countries to not sign it to keep everything.
I'm glad you're adding new info here, but I'm not sure why it has to be couched it divisive left-right rhetoric. I'm leftish and didn't know this. I am however, for certain kinds of consumption taxes.
I too didn't know this, not that I have any decent knowledge of economics/business in the first place :(
One thing that I wish more people (including me) realize is - these big problems (taxation, immigration, protectionism etc) have multiple angles and many nuances to them, and it is just dumb to reduce them to a simple yes/no type binary question. All this to say, many people including those shouting at each other on television, probably don't know enough to argue one way or the other
I’m not trying to be divisive—I myself align with the left on having a robust welfare state. But the right doesn’t want a welfare state at all, it’s not incumbent on them to figure out a realistic way of paying for one.
I don't think that's a fair statement. It's that I don't want it, but it's that I realize that once you begin the handouts they can never go away and seem to always increase. Now, thanks to perverse incentives here in the US, an illegal immigrant is a more 1st class "citizen" than actual tax-paying citizens are. That is all backwards and on its head. We have given away so many freebies that it has completely broken families, especially black families, where the majority of the time there is no father in the picture and women have children in order to receive payments and thus monetize a do-nothing lifestyle.
There has to be some kind of middle ground between the ugly Latin-American form of poverty where no safety nets exist, and the American "let's be Santa Claus and give away lots of freebies" swiped from the Middle Class.
We used to manage what is now called welfare at a very local level via churches and other private organizations. Now, we have an army of bureaucrats at all levels, themselves little more than work-for-welfare employees of city, county, state, and most definitely Federal governments. Then our taxes have to go up to pay all those people whose output is so very low. Then it becomes a self-perpetuating machine where those same people vote for more leftist policies because it protects their vested interests. Meanwhile, Main St. America is withering because of the high cost of shifting rewards from the productive class to the most unproductive people in history. Have you looked at starting a small business lately? Might want to check out how much a typical franchise or say, a tire shop, costs to actually start. It is ludicrous.
Who said I had to pay for anyone else? It's not your labor or your risk, it's mine. But this is America, where we privatize profits and socialize the losses onto the taxpayers. Were that only the case, that would be one thing. But no, you rub it in by also blaming productive people for everything, taxing us to the hilt, and making us suffer for our own ability to restrain ourselves and plan ahead for the future.
But here's the thing: I'm not your cash cow, never was. So yes, let's keep doing it because sooner or later your kind is going to run out of other people's money and then the slaughter begins. I'm going to laugh when Marx's "useful idiots" themselves end up dead because of their galactic stupidity. And hey, if I also end up dead, that's okay, as long as I get to witness the comeuppance. Because living this god damned American taxpayer lie every day is about the most irritating kind of living there is and one day I'm just not going to do it anymore.
> ...I'm not sure why it has to be couched it divisive left-right rhetoric
The right has been floating flat and simplified tax schemes for decades, including consumption taxes. For example, Hermain Cain made a 9-9-9 Plan a central policy of his campaign.
for "regressive" and "progressive" to mean something useful, you need to take into account what the tax proceeds are used for. if a mildly regressive tax is used exclusively to fund healthcare for the poor, it's probably not regressive in the end. if a highly progressive tax is used exclusively to finance wars for the elite, it is probably not progressive in whole.
If imposed at a blanket level, then yes. But zero-rating some items (e.g. food, housing) and higher-rating others (yachts, private jets, ...) can address that to a certain extent.
The are usually offset by either multiple consumption tax rates (luxury vs necessary goods like food, toilet paper, etc) or income tax deductions in the lower brackets. Either by excluding taxes at lower income or by subsidies for those groups.
I think this is misleading to focus on corporate tax without comparing total system tax loads, as well as major differences in that the taxes pay for: like healthcare.
I think there are two meaningful bits of data here: the tax burden on corporations, and what share of the overall tax burden is paid by corporations. The article's phraseology ("business contributes smallest share") invites the latter comparison. But the former tells an interesting story as well: https://data.oecd.org/tax/tax-on-corporate-profits.htm#indic....
In Germany, France, Italy, and Spain, corporate taxes amount to 2-2.4% of GDP. The U.K. is at 2.8%, while the U.S. is at 1.9%.[1] Although the U.S. raises more of its taxes from corporations than Germany, France, Italy, or Spain, it has a much lower tax burden overall. However, the absolute tax burden on corporations is not that far off. Germany was at 1.7% in 2012, while the U.S. was at 2.3% in 2104.
Almost all of our overall much lower tax burden is explained by the fact that our "middle class taxes" are far lower than in Europe. Socials security taxes are 6.3% of GDP, versus 11.5-16.8% in France, Germany, Italy, and Spain. (The U.K. is at 6.4%.) https://data.oecd.org/tax/social-security-contributions.htm#....
What is the policy takeaway? Those on the left point to Europe and say "we should be more like that; those countries have already figured out how to have a fairer, more humane society." What would our taxes look like if we raised the U.S. tax burden to European levels, but also adopted a similar distribution of taxes? Corporate taxes would go up slightly. Income taxes would not go up at all. Middle class taxes would double or triple.
Put it another way. What if we raised income taxes to Swedish levels? We would add about $500 billion in revenue, assuming that did not reduce GDP. Nice, but not even enough to balance the budget. What if we raised consumption taxes to Swedish levels? We'd raise $1.55 trillion, enough to balance the budget, pay for free college, and make a serious dent in universal healthcare.
What if we tried to raise that same money through income taxes? Our income tax burden would shoot to 18.5% of GDP, higher than all but Denmark (which is a huge outlier in the OECD). And what if we tried to raise that money from just the top 1%, like the left wants to do, instead of from everybody, as in Sweden (where the top tax bracket kicks in at $70,000)? You'd have to raise taxes on that group to 100% of income.
[1] I use these countries as reference points because they are the largest in the EU28--accounting for over 70% of the population.
At the very least, you need to add healthcare costs from the US in to compare vs personal tax costs in European nations. Otherwise what the taxes buy is vastly different. The US pays more than double per capita for healthcare what the Europeans pay, and when you look at the subset of working citizens in America, it's even higher because they're the ones loaded with the US health system costs. Healthcare is just one major difference in what taxes pay vs other costs which can be offloaded to private budgets, or fees, or other non-tax categories.
Edit: Just back of the envelope: if median income is 50k and US health costs are 10k/year vs 5k/year in the average EU nation, then healthcare alone could account for a 10% higher "tax" load from the US side. Warren Buffet often laments that for all our obsession about tax rates, the healthcare inefficiency costs in the US are GDP percentage wise, much higher.
I'm not getting into a calculation of what you get in return for your money. I'm just talking about where the dollars come from to pay for whatever the government wants. I think it's important to compare the existing tax revenue mix because the proposals for expanding the U.S. welfare state focus on paying for those benefits through corporate taxes or progressive income or payroll taxes. E.g. Sanders' proposals: https://www.vox.com/2019/4/10/18304448/bernie-sanders-medica.... Nobody is proposing what e.g. Germany does, a 15% payroll tax essentially capped at incomes of $70,000.
Sure you can! The corporate and income tax burdens in the U.S. are already at similar levels to Germany, France, the U.K., Spain, and Italy, but they're paying for just apples, versus apples + oranges. If we want to also buy everyone oranges, we should probably pay for those oranges by looking at the tax-revenue sources where the U.S. burden is much lower than in Europe.
The political question is: how do we go from taxes being 27% of GDP to taxes being 37.5% of GDP. (That's the level in Germany, and there is no way we do a welfare state more efficiently than Germany.) That's like $2 trillion. If we raise that money through higher income and corporate taxes, we'd be departing substantially from the norms established by the big EU countries. If we raise that money instead through higher middle class taxes, we'd be keeping within those norms. Not only that, the actual tax increase would be offset to a large degree by the savings to the middle class from not having to pay health insurance premiums and tuition fees.
That calculation double counts US public healthcare spending, which makes up about half of that 17%: https://www.healthsystemtracker.org/chart-collection/health-.... It also leaves out Germany private health care spending, which is about 2% of GDP. So it’s more like 37% versus 40%.
The calculation is also irrelevant to the question of what taxes should pay for the 9-10% of GDP you want to transition from the private sector to the public sector. Right now, healthcare premiums are effectively a social insurance tax capped at a certain income level. Paying for universal healthcare with an explicit social insurance tax, like in Germany, would keep things within the norms established by Europe. Paying for it with income taxes or corporate taxes, like the left wants to do, would obliterate those norms, catapulting the US to the top of the charts in terms of income or corporate tax burden.
I feel like you’re arguing against a point I’m not raising. I think we should have universal healthcare. I think your calculation shows why the effective tax increase wouldn’t be as big as you might think if you account for the cost of healthcare premiums. My point here is completely different. It’s that we should follow European norms in choosing what taxes we use to fund that transition. Doubling the SS payroll tax would raise about a trillion in revenue, about 5% of GDP. A 10% federal VAT would raise another 5% of GDP in revenue. That tax increase would fall on the middle class, but would largely be offset by savings from not having to pay for health insurance. And the overall ratios of different types of taxes would stay within OECD norms.
Agreed. I was going to say that this is a good trend. Business tax is consumption which is regressive which if you're on the left you should want to minimize or do away with. But there seems to be a popular narrative that to tax business is to somehow penalize the "man" or the "wealthy" and is thus a good thing. Has always seemed to me like punching yourself in the face.
I think that the problem is actually the term "Europe's system". A lot of people in the US seem to think that the system of government among European countries are nearly homogenous. It is obvious that is far from the case, of course.
The Nordic countries do quite well, but it's on the back of a largely homogeneous population and a significant amount of national wealth from natural resource extraction, and just using the same policies somewhere that isn't the case wouldn't necessarily work. France has generous benefits but such a high youth unemployment rate that people are literally rioting in the streets. Italy is overrun with corruption and people don't pay tax there regardless of what the law says they're supposed to do, so looking at what laws they have doesn't paint an accurate picture of what actually happens.
> Italy is overrun with corruption and people don't pay tax there regardless of what the law says they're supposed to do
Actually, as a whole, Americans are much less likely to cheat on taxes than Europeans, by a significant margin. This means a lower tax rate in America, when combined with the likelihood of Americans to actually cough up cash, may be on par with a higher tax rate in Europe, considering that Europeans are more likely to be cheaters.
It would be interesting to see an analysis of how this empirical truth affects the percent tax actually paid.
> Corporations only paid 7.6% of the tax take -- the lowest share since at least 1960, according to the IRS data
That sounds low but it's not far out of line of the rest of the OECD. The mean is around 9%. Sweden is about 6%. The two members above 20% (or anywhere near it) are Chile and Mexico.
Corporate income tax is kind of a mess to implement and enforce.
Why is it desirable to tax the business rather than the wealthy owners and stockholders? If the business money flows to those making millions of year, tax the millionaires some high rate at a new tax bracket.
The business money need not flow through to their owners. It can instead show up as unrealized capital gains, which A) gets taxed at a lower rate than ordinary income, B) can be deferred indefinitely, C) can be cheaply borrowed against for tax-free spending money, and D) gets wiped out when the shares are transferred via inheritance or in-kind charitable contribution.
If you have $10M of non-dividend paying stock, you could conceivably spend $200k per year while having a taxable income of zero and remaining eligible for income-based health insurance subsidies.
I often hear about C), but I have never heard an explanation of how it works.
I understand that if you have tons of valuable assets, you can get a loan against them for a very favorable rate. but then you have to pay back the loan or at least pay the interest on it. how do you do that without having at least some income or realizing some capital gains?
Your assets tend to become more valuable over time, which allows you to borrow more money to pay the interest and give yourself spending money.
Eg, suppose you have $10M in assets and borrow $200k against it. Next year it's worth something like $10.7M on average, you get charged something like $8k in interest, and you borrow another $200k to spend. So long as you leave enough of a buffer against volatility and the rate of growth of your assets is high enough, you can just borrow money indefinitely against appreciating assets.
People did this in the run-up to the 2008 housing crisis with homes, too. Take out a loan, cash-out refinance later when it's worth more, end up with a house you've taken more cash out of than put in.
Taxing corporations allows you to impose taxes on the pensions of the middle class, without being seen to do so. Most wealth is in the hands of the middle class either immediately pre- or post- retirement, so you need to tax this; but baby boomers vote so you have to pretend otherwise.
Ok, it's not a good reason... but face it, taxes are determined by politics, not policy.
For a dissenting opinion, one of the major points in Picketty's nobel-winning dataset is that market returns are, over the long term, pretty fixed. Short term fluctuations aside, they're not really impacted by GDP growth
It's an empirical measurment rather than a theoretical point.
I don't know if he's right. But, I do think that it's dicey taking conclusions like "corporate tax is a tax on pensions" as fact. Economics is not science. Economic theories that yield these conclusions are not testable. The reason macroeconomics exists as a field is that core theories which seem to work well at the micro level don't seem to make the right predictions at the macro-level.
False, for corporations, share buybacks are not deductible as a cost and thus come from post tax profits. The main reason for share buybacks is it allows you to defer taxes until you want to sell [0].
We can't generalise to blanket statements like that, or the perfect company would never reinvest and would end up owning all it's shares. Not every company can reinvest and get the same benefits, or buy back it's shares and yield the same returns to investors. All taxes do is landscape the playing field a bit.
How is this at all the case? The second sentence is true in some circumstances, but you buyback for other reasons than interest rates, and corporate taxes don't affect how good or bad buybacks are.
Suppose the business is located in the USA, taking advantage of US infrastructure, public services, legal protections, etc, but the owners live in the UK. You'd be ok with them only paying UK income tax?
It's desirable when the alternative is those businesses reinvesting in the business and payroll. Which is easy to do by allowing them to deduct salary up to a certain amount.
I'm ok with reduced taxes in general. An extraordinarily small percentage of our tax money goes to essential services: police, fire, EMS, etc. The efficiency of the US government (deliverable per dollar) is very poor. It may not be like this in every country, but for now, it's likely best to keep those dollars in the hands of individuals and businesses rather than a forced transfer elsewhere.
Over and over, government corruption is extremely valuable.
I see my "Defense" counterparts are significantly worse programmers and claim to work less/never, but get paid 20k more per year than me.
These people don't create value, they destroy value.
They don't contribute to our roads/schools/local services that are actually useful.
As much as everyone is afraid of Google and Amazon, I don't see them getting bigger. They have hit a beaurcratic celling that will cause them to act too slow or too expensive.
The only reason government keeps growing is because they are not affected by profit.
Government is all about stability. Being over worked and under paid is a recipe for burn out. Burnout leads to turn over which leads to instability. A reliable system needs to have knowledgeable, available, long time workers.
The efficiency of government is pretty high when it comes to IRS collection, to Medicare, to many systems. Defense spending I'd agree is extraordinarily inefficient.
This is most definitely not true. Doctors that take medicare know fully well the medicare reimbursement rates will not cover the patient's bills, and raise privately insured rates to cover the gap.
Once upon a time, most business income was taxed on the business side. For small businesses, the tax paperwork was a pain. So passthrough laws were made, allowing the owners to treat the business income as personal income, simplifying tax paperwork. The tax is still paid.
These changes over decades have moved the same tax from being called corporate tax to personal tax. There is nothing nefarious about it.
This last year, more such changes made to simplify taxes for small buisness moved more of the income in this manner.
I have been a small business owner for a long time, and do precisely this, because it simplifies my paperwork. The tax is still paid.
In aggregate this accounts for a lot more than most people realize.
Here's what happened this last year to move the needle
Look, if you raise the rates or establish a more concrete AMT (Alternative Minimum Tax - a base rate that can't be ducked under), then corporations will just move their headquarters to another country with more favorable tax conditions. IMHO establish AMTs on corporations not headquartered here to incentivize them to move here and bring jobs.
Only indirectly. Governments/Rulers taxed richer individuals and they used their wealth (and/or other privileges) to extract excess money from ordinary people in order to pay those taxes.
That's why I don't think records of earlier tax rates are really giving the full picture.
Wondering why no one has mentioned the fact that Entrepreneurship has been weakening for the last 25 years... Seems like one would expect corporate taxes to go down when there's fewer companies.
not surprised everyone has their panties in the bunch about LGBTQ or abortion on extreme side, while the corps take over more and more! Both parties are slaves to them and do not represent you!
Both parties can be slaves to them, but I have a choice between people who are going to pull the pin on the climate change grenade or the guys who are going to hold it tightly for a bit longer. I'll take the latter any day.
One party nakedly serves capital and allies with reactionary elements that are their natural allies, the other manages the disappointed expectations of the working class without ever intending to actually serve them. This is why Obama is a severe disappointment at best, deporter in chief, domestic spy in chief, and extrajudicial assassin nearing the side of worst while GWB was an abomination.
More and more I'm convinced that the "both sides are the same" argument is made less for its merits (deplorable influence of money on both sides of the aisle, which is, admittedly, a valid one) and more as another rightist attack on peoples' faith that a democratic system can be made to work well. It's right there in the Republican/Libertarian playbook next to "defund institutions until people believe they fail for social reasons and then dismantle them."
Try reading "The State and Revolution". It explains why democracy and capitalism are antagonistic forces. A 2014 landmark study showed that a basic assumption of the book, that the rich basically determine policy in a liberal democracy, is essentially correct in America. Unfortunately, the rich cannot be tamed under capitalism because they can perform a coordinated capital strike that brings the economy, and the regulatory system, to its knees. This is the private power that they have.
Not sure what your comment is in reference to; however, I'm perfectly capable of interpreting current events for myself without relying on meta-analyses that only serve to confirm what I already know. Namely, that money as a corrupting influence in our politics is a growing specter that undermines peoples' ability to react appropriately in an increasingly complex world. The 'capital strike' you refer to sounds highly theoretical, save for the fact that the world's elites have found greater boldness in their ability to irreversibly extract value from the economies that have made them wealthy and move it elsewhere. Indeed, this doesn't bode well for our society, but the US is still a pretty nice place to reside and do business, comparatively. I, for one, believe that the ideal of this place as a beacon of hope for the common man can be restored, but it could go a different way too.
The wealthy wield power for much more mundane reasons. They tend to be politicians, friends with politicians, for much more face time with politicians, and pay for lobbyists.
I don't think the US cares about fairness or wealth inequality. That's an ideological position- decided by the American people.
Berny Sanders wanted the US to become like the Netherlands or Norway. The American electorate said no. Case closed.
All the tricks and loopholes means that the corporate tax rate is almost a red herring to distract voters from what really matters, which is how easy it is to hide your money overseas. As we've seen with Ireland, tax havens are fully compliant with helping American corporations get around the law.
Most of those "double-irish" tax tricks are actually illegal tax evasion. The IRS has recently been auditing these companies and hitting them hard with back taxes. The transfer pricing rules clearly state that the transfer pricing must represent the nature of your business. You can't specifically use transfer pricing to reduce taxes on purpose.
If you want companies and individuals to pay taxes, you're defending a state that is unethical (as taxation forces people to give away their private property through coercion), and authoritarian ("democracy" is no justification for the use of force).
If you have any supposed justification for a centralized state that enforces taxation through the use of force on its citizens, you're only denying the fact you agree with crime.
Please stop talking about companies and individuals paying more taxes. We should all be paying no taxes through coercion.
I still don’t understand corporate income taxes. These are just pass through entities. All the money goes to actual people which are a lot easier to tax than a corporation. I think it’s such a waste of human capital having corporations incentivized to spend on armies of lawyers and accountants trying to come up with some baroque legal construction to avoid taxes. Maybe I am ignorant about tax law but people seem a lot harder to “invert” to cheaper tax jurisdictions no matter how rich they are.
I would even go as far as saying that payroll taxes are the same. Taxes hidden from the general public with weird incentives that break stuff in unexpected ways. We would be better served with more income, property or sales/vat taxes.
"Corporations are people, my friend!"
Corporations are certainly not pass through entities. They own assets, they exert influence on society. They benefit from government institutions. They amass wealth so that they can spend it to their benefit.
Maybe, like people, it makes more sense to tax them on revenue then on profit so they cannot invert to a cheaper jurisdiction?
Or am I a pass through entity? Arguably, most actual people are more pass through entities with respect to money then corporations. Corporations are far more likely than most individuals to amass wealth.
But when corporations spend wealth to their benefit it comes out of their profit. So they end up paying less tax. I.e. corporate tax is an incentive for corporations to spend more, not less?
Profits are owned by shareholders. So why not just tax them normally when they receive these profits?
I might be in the minority but I think there should be a 0% corporate tax rate. For the amount of revenue received by corporations doesn't match how much affect they can have on the tax code. They lobby quite a bit to affect their tax status and situation because they have the means. Yet its the individuals that contribute the most taxes but have the least amount of lobbying power. The tax code should be decided by policy of the democratically elected. Reduce the corporate rate to 0% and lobbying will decline I believe.
Why would a corporation with lots of regulations they'd like changing suddenly stop lobbying for them just because they didn't pay any tax? And if lobbying for lower taxes is undesirable, surely actually giving the lowest possible tax to the lobbyists to make them go away is worse still?
That's a really interesting perspective, and yes I think you are most definitely in the minority. Your point is well taken, though
I wonder, however, if corporations stop lobbying over taxes, will they just move that budget over to other things? Like lobbying against EPA regulations, etc.? Corporations are going to spend what corporations spend on lobbying, regardless the issue at hand.
I do really like your point that John Q. Public pays more in overall tax but gets significantly less in representation. This needs to be fixed.
Or we could try to legally limit how much corporations can lobby.
> Maybe, like people, it makes more sense to tax them on revenue then on profit so they cannot invert to a cheaper jurisdiction?
Taxing on revenue as opposed to profits harms corporations that have a low margin, high turnover business (for example retailers)
Sure.
But, IMO, among the income-based taxes, gross is still the most fair. Net/value-added is too easy to manipulate and too difficult to prove manipulation of. c.f. Hollywood Accounting[1]
I also think that a progressive gross-based scheme would help prevent runaway growth in the case that r > g. At some point, the incremental cost of storing income becomes greater than the cost of passing the money through.
[1] Not a tax, but dealing with a similar problem https://en.wikipedia.org/wiki/Hollywood_accounting
It also benefits large players as a chain of companies producing a product would have a larger combined revenue than a single company with teams doing the same work.
Isn’t this just another way of saying “higher gross margin”?
If I'm understanding what you mean right, no I don't think so.
If we have two companies, one makes a widget and the other buys it and adds a clock to then sell:
Cost of making the widget $5, sale price $10
Cost of adding a clock $10, sale price $40
As two companies, the first has a gross margin of $5 and the second $20. If the companies were to combine, they'd have costs of $15 and a sale price of $40 = gross margin of $25.
I might not understand the term properly though, I based it on this https://www.investopedia.com/terms/g/grossmargin.asp
Yeah, it might be interesting to put together a list of most impacted products. Depending upon the rate, the impact of a revenue based system on car manufacturing could be huge.
And, in practice, I'm not sure that the result would actually be better than a simpler consumption tax.
And it hurts people who have high expenses. We have found ways around that.
(I have no strong opinion on this subject.)
You can deduct expenses from income, every freelancer does. So we don’t actually tax people on revenue either. We tax them on profits. (General cost of living is not an expense). Most tax systems also have progressive income tax rates, taxing lower incomes substantially less or even not at all. Certainly, a tax system that does the same for corporations would be possible. That would then benefit smaller companies.
> (General cost of living is not an expense).
General cost-of-living is an expense—just see how long you can keep earning that "profit" without paying it. This is partly accounted for by the standard deduction, which is approximately equal to the official federal poverty level.
To put them on even terms with corporations, individual employees and freelancers should be able to deduct any personal expenses which are reasonably related to allowing them to perform their jobs, including but not limited to food, shelter, child care, and basic utilities. Depending on the demands of the job and local conditions this may well exceed the official poverty level.
VAT solves that
At the cost of complexity and acting as a honey pot for criminals. I have to deal with VAT for a business I help to run and it's very complex. The bigger problem in the EU are the large amounts of carousel/VAT fraud.
> I help to run and it's very complex.
Most of the complexity comes from a backward compatibility and the fact that politicians creates exceptions for certain products to gain votes. If the tax was the same for everything it would be much simpler.
Fraud is a solved problem, especially if you can start from a blank slate like in US. Governments are trying to reduce the fraud, but they are super slow. https://en.wikipedia.org/wiki/SAF-T
If Corporations are truly "people" then they are slaves to their owners. The assets they own are actually collectively owned by their share-holders and the actions they take are carried out by their principal officers.[0]
The real difficulty is probably with foregn ownership because then you have the argument about taxing the citizens of other countries.
Taxing where business takes place is also a possibility, but turns into yet another source of obfuscation.
[0]Yes, I know about the idea of corporate "personhood". I just object to it on principle.
You are thinking about personhood the wrong way. In the law, personhood means being able to own things, sue and be sued, pay taxes, enter contracts, and a number of other things.
Do you think that immigrants don't pay taxes?
>Do you think that immigrants don't pay taxes?
This is what puzzles me about the immigration debate. Most move here to work and better themselves and effectively pay a higher tax rate than corporations.
I don't know where "immigrants" came into this. I made NO mention of immigration, just foreign (overseas) ownership of shares in Corporations. What has that got to do with immigration?
It came from the post above.
Are you really suggesting that Corporate Officers aren't able to enter contracts, sue people, etc.? And what the Hell have immigrants got to do with any of this?
Corporate officers are able to enter contracts, sue people, etc, as themselves. Not as the company, which is a separate person from themselves. When you buy a product from Apple and they refuse to respect their warranty, you don't sue Tim Cook, you sue Apple. You can only do that because Apple is incorporated.
>you have the argument about taxing the citizens of other countries
If a company poisons baby-milk, who do you arrest? The company? It's a "person" after all.
(I presume you know this, but this was an actual case in China).
You arrest the employees if what they did was criminal (which would be the case whether a company is involved or not) and fine the company, or in extreme cases, revoke the company's charter (aka corporate death penalty).
Being able to be imprisoned is not a defining feature of a legal person, this line of argument will get you nowhere.
You brought up immigrants, not me. What are you talking about?
The problem is that the money only goes to actual people eventually, not when it is earned. A beneficial owner can simply sit on their share of the company as it earns profits and becomes more valuable, and incur capital gains taxes if and when they sell. They can defer these taxes indefinitely - if they need cash, they can simply use the stock as collateral for a loan in lieu of realizing capital gains taxes. And when they die, the cost basis gets reset, wiping out whatever taxes have been deferred (and replacing them with estate taxes, if those haven't also been optimized away).
> A beneficial owner can simply sit on their share of the company as it earns profits and becomes more valuable, and incur capital gains taxes if and when they sell.
That's half the problem with income taxes. They provide an incentive for the rich to never sell their investments because if they sell they have to pay tax, meanwhile they give the working class less incentive to invest rather than consume because they do have to pay the tax on their earned income immediately even if they invest it rather than spending it.
So you get bigger corporations (the rich can't sell to invest in a startup without paying tax), more incentive for international tax avoidance/arbitrage to the detriment of smaller businesses who can't do that, and more wealth inequality.
> They can defer these taxes indefinitely - if they need cash, they can simply use the stock as collateral for a loan in lieu of realizing capital gains taxes.
Because we're not using consumption taxes. You can't avoid VAT by taking out a loan.
> And when they die, the cost basis gets reset, wiping out whatever taxes have been deferred (and replacing them with estate taxes, if those haven't also been optimized away).
Again solved by consumption taxes, because there is nothing to reset if the money is taxed when spent rather than earned.
But the corporation's income is taxed so they cannot just sit on their share of the company. Then they will pay capital gains taxes
But the gains made by the lender are taxed, so in a way even taking a lone out you are still being taxed. Loans are not free.
If you itemize your taxes, investment interest expenses (such as margin loans) are deductible against your net taxable investment income, with carry forward of unused amounts. So it nets out to zero.
Margin loans don't give you cash to go buy a car or house, or pay for a fancy vacation. If somebody figured out how to do this they probably are breaking the law. There are also a lot of limitations to how much can be detected in this manner.
So back to the point, at some point, you are going to want to convert your wealth into actual cash to spend. When this happens taxes are levied. Yes at different rates.
Loans backed by your assets do come at lower interest rates, because of less risk, but the interest as profit on the bank is taxed as income -- for the bank.
Also, on the title "U.S. businesses contribute the smallest share of federal taxes" while may fair, looks interesting next to "U.S. businesses pay us nearly all of their paycheck".
I think it would be more simple of businesses had 100% the tax burden, but I don't think it would translate into any of us taking home more cash. All that would happen is wages would lower and businesses would pay the tax.
unless you have income (which is taxed as such) how do you pay back the loan without eventually selling assets and paying capital gains?
If the rate of growth of your assets exceeds your rate of spending by enough to handle volatility, then later on you have significantly more assets to borrow against. As long as the net value of the position grows fast enough, you can kick this can down the road indefinitely. The loan gets paid back after you die, when you no longer owe capital gains taxes on the proceeds.
I also forgot to mention the insane amount of resources wasted lobbying to complicate the tax code so every company and sector gets their loophole. This doesn’t just have the same human capital cost but it also gnaws at the trust people have in the democratic system. It’s a lot harder for Bezos or Cook to lobby for an individual tax cut than it is for Amazon and Apple.
If you really want to start from first principles, corporations may seem to be financial pass-through entities but serve as legal shields. Shareholders are not personally liable for externalities like environmental catastrophes or labor law violations. Elon Musk isn't subject to incarceration when someone is killed in an autopilot failure.
If you believe that corporations should also pass through legal liabilities, then sure it makes no sense to pay corporate taxes. But that's not the world we live in.
LLCs are pass through entities but are limited liability
You are ignoring a secondary reasons for taxes. The primary reason is obviously to raise funds for public use. The secondary reason is to give the government more control over the economy. You are right, there are ways to drastically simplify tax law if we wanted to tax ever dollar at the exact same rate or had very clear marginal tax rate buckets. We don't do that because we want to incentivize certain actions. On a personal level, you get a tax break if you pay for your education, you get a tax break if you invest in your career, you get a tax break if you have children, you get a tax break if you earn your money through investments rather than through employment, etc. We don't necessarily do those things to be nice. We do those things because we believe they are good for the overall economy and it is beneficial for them to be incentivized.
You can still do all of that with no corporate taxes. As every incentives you cited are on the individual taxes.
Sorry, I thought it would be clear that I wasn't trying to cite a complete list. There are also countless corporate tax incentives too. Clean energy is one example. How do you incentivize companies to use clean energy by taxing individuals?
There are problems with every type of tax.
Property taxes are tough because many assets are hard to value/assess and often don’t pay enough cash flow to cover their taxes, which could lead to forcing a sale (at fire sale prices for illiquid assets).
Sales taxes tend to hit lower income people the hardest since they’re spending most of their income while the wealthy are not. You could adjust for this, but then it becomes complicated and administratively burdensome.
Tariffs distort trade and slow economic growth (though there are many people that find that trade-off worth it for other reasons).
I think a lot our system in the US is designed for ease for collection, rather than what is most efficient.
The good thing about corporate taxes is that corporations tend to be more meticulous about tracking their income and expenses, and probably also about paying their legal taxes on time than individuals. Tax revenue collected would probably plummet if we did away with the W-4 withholding system on individual income taxes and people had to file them once a quarter/year like corporations do.
maybe this is overly cynical, but I suspect it goes further than "ease of collection". the average person is unlikely to strongly oppose corporate income taxes because they believe it doesn't take any money out of their pocket. if they understood tax incidence, and how little consensus there is among economists regarding corporate tax incidence, they might feel differently.
the US tax system seems to be designed more towards political expedience than any other goal. sales tax, which voters feel every day, is relatively low compared to VAT implementations in Europe. the income tax hits high earners pretty hard, but there are innumerable loopholes and exceptions for very wealthy holders of capital to avoid paying significant capital gains.
it seems like the whole system is setup to look like it's fleecing rich people while it subtly sabotages itself in thousands of pages of tax law.
edit: also you are probably right that we would have trouble collecting tax if we eliminated withholding, but what does that have to do with corporate income tax?
Indeed, if we eliminated withholding, a large swath of people would simply have no money to pay their taxes.
> You could adjust for this, but then it becomes complicated and administratively burdensome.
Minimum income is fairly simple. As are earned income tax credits.
It's no more complicated than free need-based bus passes to offset flat bus fares.
> All the money goes to actual people which are a lot easier to tax than a corporation.
Are you sure about that? Businesses are highly visible, tracked entities that have to file accounts.
It's also not unusual for the very rich to route all their activities through a business, especially political donations.
It's much more difficult for a person to shard their lives such that they live over here for this purpose but over there for that purpose, whereas for a company of any significant size, that's fairly easy.
It requires more wealth, and it's a lot harder to do if you're a US national with their unique global income tax rule, but people absolutely do split their lives for tax purposes. It usually requires dividing your time among at least three different countries, but one of them is usually a nice warm island. e.g. http://expatandoffshore.com/blog/top-ten-tax-exiles
> In a highly interesting manoeuvre, Sir Philip [Green] manages his various businesses through a holding company - Taveta Investments. This is registered in the name of his wife Christina, a South African who resides in Monaco. The family and company thus manage to avoid tens of millions in tax.
Taxing people has the same problem; trust founds, tax heavens...
Sales / VAT tax is not progressive and is unfair to poor people.
Governments love sales tax! Its just so damn easy and simple. When I was a kid it was at 17.5%- now its at 21%. I don't mind because the government here actually tries to provide for its citizens. Keeping the nation orderly and tidy takes a vast amount of money.
Taxing poor people will always be easy. That's why the most significant progress in economic history has come with the ideology that fights against doing that.
When you combine consumption taxes with basic income you get a net progressive system. You also get the benefit of discouraging consumption rather than discouraging earning income.
This is actually the ideal solution. It has the additional benefit of being the most privacy-preserving system, since individuals are no longer required to file tax returns or be means-tested for benefits. Everyone receives the same benefits, and the taxes are collected indirectly via the corporations whose goods and services are bought by (potentially anonymous) individuals. Meanwhile, the accounts of corporations are subject to greater scrutiny, as governments focus their efforts on auditing them.
True, however inflation works the same way, and is a much bigger and persistent threat to the poor than sales tax or VAT; inflation compounds over time whereas sales taxes do not.
Inflation is basically an unvoted regressive tax on the poor that increases every year.
Inflation is no threat to the poor at all. The poor have zero or worse net worth. Inflation benefits them by reducing the impact of their debts over time.
When all your money (and more) goes on just living, inflation is a complete irrelevance (so long as your wages keep up, of course).
> When all your money (and more) goes on just living, inflation is a complete irrelevance (so long as your wages keep up, of course).
Yes, but dismissing this caveats is waving away the entire point. High inflation of course includes wage growth (and when it doesn't, you've got a wage growth problem,not an inflation problem). But it does so _on average_: every worker doesn't get an automatic raise every time a price goes up. The poor are the least able to sustain situations that are good on average, because they have the smallest savings buffers to weather the downswings of an average trend.
If a poor person falls prey to the various life catastrophes that might make you miss some income, not get a raise, etc, a high inflation provides a much less forgiving environment, since the real value of whatever modest amount was in your bank account is rapidly eroded (and as pointed out above, this type of buffer is rarely if ever kept in inflation-correlated assets)
Getting knocked off of an unstable cycle is practically the central challenge of the working poor, and high inflation gives you a lot less wiggle room to avoid this.
Poor people try to save money too, and are more likely to have their savings in cash and bonds and therefore wiped out by unexpected inflation.
35% of the UK have a negative net worth. Inflation helps there, assuming your salary increaese with inflation. Interest rates of course then have the opposite effect,
Year 1: debt of £100k and salary of £20k and 2% interest and 4% inflation. £18k left over, £100k owed (5x wage).
Year 2: debt of £100k, salary of £20,800. £18,800 left over, £100k owed (4.8* salary)
Year 10: debt of £100k, salary of £29600, £27,600 left over, £100k owed (3.4* salary)
In Year 1 pounds, salary stays at £20k, but debt drops to £67,566, and interest payments drop to £1351 a year.
It’s not a judgement against poor people. No one has their savings “wiped out” by inflation.
It is simply an annual cost for having assets, and an annual benefit for having debt. Since poor people necessarily have more debt on average than rich people, poor people on average benefit from higher inflation whereas to rich people it acts like a tax.
For people who want a weath tax, I say, why not just target a slightly higher inflation rate?
I would argue that rich people have on average far, far more debt than poor people. Rich people also have far more ability to protect their assets from inflation than poor people.
With regards to "no one has their savings wiped out by inflation", tell that to, say, Russians in the early 90s. Very real and very significant savings in Sberbank turned to virtually nothing, i.e. wiped out, by inflation.
I would still argue that a higher unexpected inflation rate would hurt the poor the most, but may benefit middle class holding mortgages (although the more likely effect is that the negative effect on the overall economy would end up hurting everyone, with the poor being hurt the most).
Inflation can hurts pretty badly pensions though, so it's not only a rich vs poor thing.
And also inflation is not uniform and depending on its composition can hurt poor people much worse than rich ones.
Historically I haven't found any clue that a higher inflation would help against inequalities. Actually the only literature I have found on the topic seems to indicate a positive correlation between inequalities and inflation but the relation between both seem very complex and not really understood/modeled correctly right now.
> Inflation can hurts pretty badly pensions though, so it's not only a rich vs poor thing.
all the more reason to keep moving away from defined benefit plans.
> It [inflation] is simply an annual cost for having assets
Not all assets, just cash or claims denominated in cash (like loans). Most investments don't lose purchasing power just because you devalue the dollar. The poor are most likely to have the majority of their savings in the form of cash, for various reasons; minimum investment limits, for one, and also investing in general is more efficient when you have more money to invest. Below a certain point, the brokerage fees alone would outweigh any likely annual return. Moreover, in an inflationary economy consumer prices tend to rise faster than wages, so the purchasing power of labor declines. Deflation is just the opposite: Sure, wages are falling as the dollar becomes more valuable, but prices tend to fall even faster, so purchasing power increases.
If you're looking to tax wealth then inflation is not the answer.
Recent decades of history show your last condition is not true, wages do not keep up.
That looks true when inflation goes above about 6%
https://www.stlouisfed.org/~/media/blog/2015/november/graph_...
Wages are not set by inflation, they are set by supply/demand for labor. In the face of lower historical inflation, wages would just be lower today as a result.
Only the delta between wage and price inflation matters there. And that can really blow up an economy: the main problem with 20% inflation is that people need a raise every month, and are far more likely to go on strike over it.
But the money doesn't always go to people. In the UK at least, Corporation tax is specifically calculated on what's left after you've paid the people, and after you've taken into account reinvestment.
I agree that the baroque structures, and the crazy accountancy games companies play, need to be addressed somehow.
Taxes aren't just a means of revenue for the government, they're a means of incentivizing for various goals.
- Want a higher population? Give a deduction for children. - Want citizens to switch to alternative energies? Give a deduction for solar panel roofs and electric cars. - Want to reduce dependency on foreign oil? Give a deduction for new drilling operations. - Want to create more jobs? Give a deduction for each employee. - Want to create more housing? Give a deduction for real estate depreciation. - Want to encourage new technologies? Give a deduction for R&D expenses.
You could just hand out money instead of deducting it from taxes. E.g. it's common in many countries to get a child raising stipend which is basically cash in hand (well, in bank account)
Financially, these are the same, but politically they're not.
Taxes are also a way to disincentivize "behaviors", like taxing alcohol and tobacco, taxing pollution emitters.
You are making an excellent case for a revolt.
You want to revolt against how society has worked pretty much since the dawn of civilisation?
There's been plenty of revolutions since the dawn of civilization. But also taxing as a way to ('subtly') modify behavior is a very new concept, it didn't exist centuries ago.
Yup. Corporate/business taxes to begin with are not so smart because because businesses can basically incorporate in any jurisdiction for reduced or 0% tax rates. Many countries have "free trade zones" with 0% business taxes. Those countries still benefit though because their citizens get jobs they might not otherwise have access to. With free trade agreements, it is easier than ever to have your headquarters in a tax haven and then manufacture and sell your products worldwide.
The problem is that corporations have value, assets, and money. And more importantly they can leverage it.
If we moved to a 0% Corporate tax and relied entirely on income tax then we'd start to see all manner of schemes for Executives to avoid taxes. They'd do things like taking little salary but instead being issued Corporate spending accounts with limits comparable to what they'd otherwise earn in salary.
Maybe I am ignorant about tax law but people seem a lot harder to “invert” to cheaper tax jurisdictions no matter how rich they are.
this is only because we allow corporations deductions for intellectual property, remove ip deductions and remaining corp income deductions will revolve around paying wages and investing capital (e.g. building a factory), things that cannot be "inverted" or made to pass through ireland.
the corp income tax is actually less harmful than personal income or sales taxes precisely because it only falls on corp profits and the aforementioned deductions (with exception of ip) are good ones - you want companies doing those things. arguably double taxation on dividends is a somewhat questionable feature of the corp income tax though (and if anything the last type of company you would want to exempt from this double taxation is REIT like ones)
Wait, I thought corporations were people. When people earn money, they owe income tax on it.
All of the rights of people, but none of the obligations.
I sort of agree, but in jurisdictions with low corporate taxes and high personal ones you’ll find a lot of small contracting companies that hold a lot of personal assets.
The IRS already takes a dim view of this in the US.
While I agree in principle, in practice you would have no guarantee that the money companies would save on taxes would directly go to increasing employees' wages, which would have to balance the increased individual taxes that you mention.
Market forces would compensate to an extent, but not for jobs with a low demand/supply ratio, I think.
Well your friends from downunder figured out how to solve this long ago. You allow the company to pass through a tax credit (franking) to the shareholders on any dividends paid. It is amazing how keen companies are to pay tax when this is in place.
Why would it be the case? Not all the money ends up with humans. Google and Apple has the largest cash stock in recorded human history.
Ideally, taxes should be used to discourage undesirable things, like emitting pollution. Taxes should not be used to discourage productive activity.
We should be taxing pollution, consumption of raw materials, plastics, use of undeveloped land, etc.
> Taxes should not be used to discourage productive activity. We should be taxing...use of undeveloped land.
Aren't many (most?) uses of undeveloped land productive? About 100 years ago, someone built the house I'm sitting in. That was a productive activity to transform the use of that land for housing, IMO.
If it's productive enough, it's worthwhile paying the tax. There's only so much undeveloped land, developing it all means destroying our environment.
According to the OECD, corporations paid 7.1% of the US tax burden. Note that in the France, that Randian paradise, that figure was 5.1%: https://taxfoundation.org/sources-government-revenue-oecd-20.... Denmark, Finland, Germany, Italy, and Spain also relied less heavily on corporate taxes than the US.
The remarkable thing about the political debate in the US is that folks on the left talk about all the public benefits the government offers in Europe, but are dead silent about how Europe pays for those benefits: consumption taxes. US consumption taxes account for 15% of revenues. That’s just half the OECD average.
The problem with corporate taxes is that it's a race to the bottom. International companies prefer to put their offices in countries where they have to pay little in taxes, so countries keep reducing their corporate taxes to remain attractive for companies. Meanwhile, consumers don't move around as much, so consumption taxes are fairly reliable.
Which is sad, because consumption taxes are also fairly regressive.
If we want to move more of the tax burden to corporate profits, rather than revenue (which is what consumption taxes basically are: corporate revenue taxes), you need either international agreements to increase those taxes, or tie profit taxes to local markets.
And now that I think of it, I think that might actually be possible: profit is revenue minus cost, right? With consumption taxes being the same thing as revenue taxes (which I think they are; it's a tax on the revenue corporations get from selling to consumers. Dutch VAT (BTW) is also called "omzetbelasting" (revenue tax).
So allow companies to deduct local costs from local revenue, and you've turned revenue tax into profit tax.
This seems way too simple, so I'm probably missing something here.
Taxation does not have to be a race for the bottom, unless the state wants to collect the money and give little in return.
Take New York State for example. It has some of the highest taxes in the country. What do the citizens get back? Roads? Well, New York roads are known to be some of the worst in the country. And you still have to pay tolls to use them. Schools? Just average. State University? Again, quite average.
What the heck am I paying for?
Many international corporations specifically choose to put their EU HQ in Ireland because they have the lowest corporate taxes, yet it enables them to do business in all of the EU.
Many countries invest in their people, provide education, houses, jobs, services, etc, and as a result, they have a wealthy, educated population that is an attractive market to sell to. But if that country has high corporate taxes, and the company can sell to that market from another country, then they end up paying less taxes and not contributing to the country that invested in that market.
That's what I mean with a race to the bottom. Of course there are other reasons why a company might choose a certain place. New York, despite its bad roads and high property prices, is popular because it's close to Wall Street, for example. But companies that have no geographical ties to New York specifically, will probably put their main office somewhere else. Wasn't Delaware a popular state to register your company?
Ireland and delaware are backdoors. they are not sustainable in the long run. I like to think of both as passing through an equalization phase.
Though, I think Delaware is past it. Even if they had higher corp taxes than ny, they would still win because of the "service" the judges provide by siding heavily with companies (over workers, consumers and even gov).
Curiously, Delaware also has no sales tax, in addition to attracting those corporate HQs, yet somehow manages to have excellent infrastructure, speaking for roads at least. Well planned, smooth, and bike lanes are widespread. If you cross over from Pennsylvania, the difference is immediately obvious: pothole city, narrow, and biking=death.
As a non NYer, I feel people are getting taxed to live there. i.e: you are paying to live where you live.
Well, NYS population declines the fastest about the states.
https://www.democratandchronicle.com/story/news/politics/alb...
Never thought I would see a D&C article on Hacker News.
That’s a real recipe for dismal public services.
If the public services are dismal, eventually less people will be willing to pay to live there.
Right. But once the outmigration started it will be extremely hard to reverse the trend: well off taxpayers tend to leave first...
it is really expensive to live there, everything costs more, salaries of state workers, materials, designs, etc. it's more expensive for the state to have an office for those workers to live in.
Subjective claims and setting up goalposts that can be perpetually moved.
Corporation taxes are arguably as/more regressive than those on consumption, depending on who you believe ultimately pays them (capital owners/workers).
It can be argued that they fall equally on the rich and poor. For example, if the corporation had two shareholders, one in the top tax bracket and one in the bottom, their returns would be equally hit despite difference in their underlying incomes.
On the other hand, if the burden does fall mainly on shareholders then it can be argued that from a macro perspective corporation taxes are progressive since they are ultimately paid by wealthy households (which make up majority of large investors).
It could be argued, if you completely ignore the poor generally dont hold shares in companies, and that this thought experiment only works if you think the workers could ever get a decent share of the company value, which rarely happens.
No, the concept is economic incidence, and it depends on the elasticity of the markets involved to decide who pays for it.
The real calculation is very complex and requires deep anaylsis, but let me try to give some concepts on what could happen.
A flat tax corporate tax to every company will have more effects on the consumers than anyone else: investors will invest less than they would have without the tax, as profits go down (and will consume more of their capital), and it will happen until the profits go back to the previous point of equilibrium. They have a 1 time loss, and then never lose profitability again.
If investors dont lose out in the long term, but the state gains through tax, you need to put that on workers or consumers. workers have one trick up their sleeve: they can go independent and avoid corporate tax: either as a small businesses, or being a contractor of some sort. So some workers will win and some will relatively lose.
But the one without much help is the consumer: he cant really buy things that don't go through a private business, which means everything they buy has the tax in it.
And thats a flat tax: its never flat. A local RE developer cannot avoid corporate taxes, but Google that opens offices somewhere else can. Or businesses that have huge potential (again tech) can avoid paying the tax by reinvesting in themselves for decades, which mom&pop shop cant, thus some companies pay more than others. In consequence, more investors go to the lower tax companies, workers will go to those companies and consumers will find their products cheaper.
Fair point. Especially when retirement funds are major investors. In that case, I suppose progressive income taxes are the only good way to have progressive taxation.
Still, the idea of ending the race to the bottom by replacing local revenue (sales/consumption) taxes by local profit (sales - local costs) taxes, appeals to me. It would make labour and other local costs cheaper, and discourage outsourcing every aspect of business to the cheapest possible country for it.
> In that case, I suppose progressive income taxes are the only good way to have progressive taxation.
The key is to do progressive on the other side. Collect revenue with a flat consumption tax, then pay a uniform benefit, ideally a UBI.
If everybody pays a flat 30% tax rate and then everybody receives $10,000 in cash money, the effective tax rate for someone at $20,000/year is -20%. At $40,000 it's 5%. At $80,000 it's 17.5% and goes up from there.
So it's progressive but there is no arbitrage opportunity, no declaring profits in some other place, no weird cliffs or crazy high marginal rates on the poor due to benefits phase outs, the tax rate is uniform and applies the same to everyone without exception.
> The problem with corporate taxes is that it's a race to the bottom. International companies prefer to put their offices in countries where they have to pay little in taxes, so countries keep reducing their corporate taxes to remain attractive for companies. Meanwhile, consumers don't move around as much, so consumption taxes are fairly reliable.
Most of this is just characterization. For example, what's the difference between corporate income tax and VAT? Almost nothing. Primarily what happens when goods cross a border -- then VAT requires tax to be paid based on where the customer is rather than which jurisdiction the corporation declares its profits in.
But VAT is a regressive "consumption tax" and corporate income tax is a progressive "income tax"? Which international corporation came up with that particular piece of corporate propaganda?
> So allow companies to deduct local costs from local revenue, and you've turned revenue tax into profit tax.
That's basically what VAT is. You are describing VAT.
That's not what VAT is. At least not in countries that I'm aware of. Here VAT is a flat percentage of the sales value, and from the result you get to subtract VAT that has been withheld by your suppliers, which means that in effect, it's just a tax on what consumers pay. It makes everything in that market more expensive by a certain percentage but otherwise has no impact on the company. It's a tax effectively paid by the consumer.
If you subtract all costs within that market, including labour, it suddenly becomes more attractive to hire labour in the same market where you're selling. Companies based in tax havens do not get to subtract their costs in the tax haven, which effectively means they have to pay tax on their profit in the market where they're selling rather than the country they move their profits to.
But you do have a good point that it's not really progressive in any way. It just serves our sense of justice to have companies pay their taxes in the same market they're profiting from. I guess the most elegant way to get progressive taxation, like someone else here pointed out, is UBI.
> Here VAT is a flat percentage of the sales value, and from the result you get to subtract VAT that has been withheld by your suppliers, which means that in effect, it's just a tax on what consumers pay. It makes everything in that market more expensive by a certain percentage but otherwise has no impact on the company. It's a tax effectively paid by the consumer.
Income tax is really the same thing. A retailer sells a widget for $100 which it bought for $90, so it pays tax on the $10 in profit. The wholesaler bought the widget for $80 and sold it for $90, so it pays tax on another $10. If you go all the way back to the mine that produced the raw materials that were manufactured into the goods, the entire $100 is profit to somebody. It's the same as VAT. Calling it "profit" rather than "value added" is a distinction without a difference.
An exception as you point out is the treatment for domestic labor, but even that's just an accounting anomaly rather than a real exception -- the worker doesn't collect VAT on their "profits" (wages) but then, no deposit no return, the employer can't deduct them. The real scam is when wages aren't deductible from VAT and yet are still subject to personal income tax, which means they're being double taxed. That is one of the few things the US corporate income tax gets right.
> If you subtract all costs within that market, including labour, it suddenly becomes more attractive to hire labour in the same market where you're selling.
If you like VAT you may enjoy DBCFT.
It is different, because the amount the wholesaler bought it for is not the only cost he has. He also has rent, labour and who knows what else, and not all of those withhold VAT on their end. In fact, in business-to-business transactions, VAT is often ignored, because the only that matters is the value at the end point where it's sold to the consumer or another non-VAT-paying entity.
At the end point, VAT is a revenue tax, not a profit tax. And revenue is certainly not the same thing as profit.
Here in the US, a sales tax is on the whole transaction and so is essentially a tax on sales revenue. It is very close to a pure consumption tax.
Sales tax in the US generates a comparatively small amount of revenue. Some states don't even have one. The majority of tax revenues in the US are paid to the federal government rather than the states and through personal income tax and payroll tax rather than consumption taxes.
> So allow companies to deduct local costs from local revenue, and you've turned revenue tax into profit tax.
Maybe I'm misunderstanding you, but that's kind of how taxes work now. You report your revenue and expenses and pay taxes on the difference.
The challenge is that there are so many loopholes that some companies can reduce their profit to 0 (or less) or allocate their profits to lower tax regions (Delaware).
A revenue tax would be far simpler and eliminate a lot of these accounting loopholes.
For maximum ease, have the banks automatically deduct 5% of each deposit and don't worry about even having to file taxes unless you received cash.
It's how income/profit taxes work, but not how revenue/VAT taxes work. That's just a set percentage over the revenue you get from consumers (not business to business, or if that has been paid, the total taxes paid can be deducted, which can mean you get money back).
The problem with profit taxes is exactly as you say, but VAT is paid in the country where the consumers live (at least in the EU). This means VAT simple adds to the purchase price, which the company doesn't really feel and ends up basically being the consumer's problem, while the costs and profits are manipulated and moved around so that the company has to pay as little tax on them as possible.
If profit taxes were treated the way VAT is, so the company would have to pay them in the country where they made that profit, which means the revenue in that country minus the costs in that country, that would stop companies from moving their profits around, because they'd have to pay them in the country where they sold their products. And it would make it attractive to make their costs in that country too, rather than outsourcing them to tax havens and low-wage countries.
Consumption taxes, like the VAT,are regressive, but can be made progressive when implemented in conjunction with a universal refundable tax credit system or a universal basic income. For example, Andrew Yang proposes a 10% VAT and a $1,000 monthly UBI per adult. Napkin math suggests that unless you are spending $10,000 per month on VAT-taxed consumption, the $1,000 UBI provides a net gain. I think it is unfortunate that we focus on the disadvantages of the VAT (i.e. regressive), when there are advantages to it in terms of making it more difficult for companies to avoid paying taxes, if it is placed with policies that together become quite progressive.
If you look at figure 2 in the article I linked, the average share of taxes collected from corporations in the OECD went up somewhat from 1990 to 2019. So I don’t know if it’s correct to call it a race to the bottom.
I don't think you're missing anything at all. The idea of taxing revenue and deducting domestic factors of production was actually discussed as part of US corporate tax reform a couple years ago, and high-profile economists on both the left and right were both pretty positive on the idea. It's a more efficient way to tax profits that isn't easy to game like the current system.
Despite support among economists, it ended up being politically harder since some companies were against it, so they ended up going with a big deficit-funded tax cut instead.
> The problem with corporate taxes is that it's a race to the bottom.
That's not the problem. Thats the solution. How else would countries compete with each other to not nationalize any company at the whim of a politician.
> you need either international agreements to increase those taxes
You really don't. The US could ban any company with server outside the US and then will not have a problem of jurisdiction. An international agreement means monopolization of government, and thankfully, you only need a few countries to not sign it to keep everything.
Competition is a beautiful thing indeed!
I'm glad you're adding new info here, but I'm not sure why it has to be couched it divisive left-right rhetoric. I'm leftish and didn't know this. I am however, for certain kinds of consumption taxes.
I too didn't know this, not that I have any decent knowledge of economics/business in the first place :(
One thing that I wish more people (including me) realize is - these big problems (taxation, immigration, protectionism etc) have multiple angles and many nuances to them, and it is just dumb to reduce them to a simple yes/no type binary question. All this to say, many people including those shouting at each other on television, probably don't know enough to argue one way or the other
I’m not trying to be divisive—I myself align with the left on having a robust welfare state. But the right doesn’t want a welfare state at all, it’s not incumbent on them to figure out a realistic way of paying for one.
MMT? With disinflation reigning over most of my adulthood I suspect the fear of deficit spending was and continues to be oversold.
I don't think that's a fair statement. It's that I don't want it, but it's that I realize that once you begin the handouts they can never go away and seem to always increase. Now, thanks to perverse incentives here in the US, an illegal immigrant is a more 1st class "citizen" than actual tax-paying citizens are. That is all backwards and on its head. We have given away so many freebies that it has completely broken families, especially black families, where the majority of the time there is no father in the picture and women have children in order to receive payments and thus monetize a do-nothing lifestyle.
There has to be some kind of middle ground between the ugly Latin-American form of poverty where no safety nets exist, and the American "let's be Santa Claus and give away lots of freebies" swiped from the Middle Class.
We used to manage what is now called welfare at a very local level via churches and other private organizations. Now, we have an army of bureaucrats at all levels, themselves little more than work-for-welfare employees of city, county, state, and most definitely Federal governments. Then our taxes have to go up to pay all those people whose output is so very low. Then it becomes a self-perpetuating machine where those same people vote for more leftist policies because it protects their vested interests. Meanwhile, Main St. America is withering because of the high cost of shifting rewards from the productive class to the most unproductive people in history. Have you looked at starting a small business lately? Might want to check out how much a typical franchise or say, a tire shop, costs to actually start. It is ludicrous.
Who said I had to pay for anyone else? It's not your labor or your risk, it's mine. But this is America, where we privatize profits and socialize the losses onto the taxpayers. Were that only the case, that would be one thing. But no, you rub it in by also blaming productive people for everything, taxing us to the hilt, and making us suffer for our own ability to restrain ourselves and plan ahead for the future.
But here's the thing: I'm not your cash cow, never was. So yes, let's keep doing it because sooner or later your kind is going to run out of other people's money and then the slaughter begins. I'm going to laugh when Marx's "useful idiots" themselves end up dead because of their galactic stupidity. And hey, if I also end up dead, that's okay, as long as I get to witness the comeuppance. Because living this god damned American taxpayer lie every day is about the most irritating kind of living there is and one day I'm just not going to do it anymore.
> ...I'm not sure why it has to be couched it divisive left-right rhetoric
The right has been floating flat and simplified tax schemes for decades, including consumption taxes. For example, Hermain Cain made a 9-9-9 Plan a central policy of his campaign.
https://en.m.wikipedia.org/wiki/9%E2%80%939%E2%80%939_Plan
Floating for decades, but they were controlling the senate, the congress, and the presidency, and I have yet to see it enacted.
Guess which President Trumps aren't particularly interested in substantial policy reform as much as picking fights on irrelevant cultural issues.
Aren’t consumption taxes generally regressive?
for "regressive" and "progressive" to mean something useful, you need to take into account what the tax proceeds are used for. if a mildly regressive tax is used exclusively to fund healthcare for the poor, it's probably not regressive in the end. if a highly progressive tax is used exclusively to finance wars for the elite, it is probably not progressive in whole.
If imposed at a blanket level, then yes. But zero-rating some items (e.g. food, housing) and higher-rating others (yachts, private jets, ...) can address that to a certain extent.
Or what Canada does, which is rebate over the year based on your income level and assumed consumption.
The are usually offset by either multiple consumption tax rates (luxury vs necessary goods like food, toilet paper, etc) or income tax deductions in the lower brackets. Either by excluding taxes at lower income or by subsidies for those groups.
I favor a minimum income and/or earned income tax credit to offset.
I think this is misleading to focus on corporate tax without comparing total system tax loads, as well as major differences in that the taxes pay for: like healthcare.
I think there are two meaningful bits of data here: the tax burden on corporations, and what share of the overall tax burden is paid by corporations. The article's phraseology ("business contributes smallest share") invites the latter comparison. But the former tells an interesting story as well: https://data.oecd.org/tax/tax-on-corporate-profits.htm#indic....
In Germany, France, Italy, and Spain, corporate taxes amount to 2-2.4% of GDP. The U.K. is at 2.8%, while the U.S. is at 1.9%.[1] Although the U.S. raises more of its taxes from corporations than Germany, France, Italy, or Spain, it has a much lower tax burden overall. However, the absolute tax burden on corporations is not that far off. Germany was at 1.7% in 2012, while the U.S. was at 2.3% in 2104.
Same thing for income taxes: https://data.oecd.org/tax/tax-on-personal-income.htm#indicat.... Income taxes ranged from 7.5% to 10.9% of GDP Germany, France, Italy, Spain, and the UK in 2017. The U.S. was at 10.5%, near the top of the range.
Almost all of our overall much lower tax burden is explained by the fact that our "middle class taxes" are far lower than in Europe. Socials security taxes are 6.3% of GDP, versus 11.5-16.8% in France, Germany, Italy, and Spain. (The U.K. is at 6.4%.) https://data.oecd.org/tax/social-security-contributions.htm#....
Consumption taxes in the U.S. are just 4.3% of GDP, versus 9.7-12% in the U.K., Spain, France, Germany, and Italy: https://data.oecd.org/tax/tax-on-goods-and-services.htm#indi....
What is the policy takeaway? Those on the left point to Europe and say "we should be more like that; those countries have already figured out how to have a fairer, more humane society." What would our taxes look like if we raised the U.S. tax burden to European levels, but also adopted a similar distribution of taxes? Corporate taxes would go up slightly. Income taxes would not go up at all. Middle class taxes would double or triple.
Put it another way. What if we raised income taxes to Swedish levels? We would add about $500 billion in revenue, assuming that did not reduce GDP. Nice, but not even enough to balance the budget. What if we raised consumption taxes to Swedish levels? We'd raise $1.55 trillion, enough to balance the budget, pay for free college, and make a serious dent in universal healthcare.
What if we tried to raise that same money through income taxes? Our income tax burden would shoot to 18.5% of GDP, higher than all but Denmark (which is a huge outlier in the OECD). And what if we tried to raise that money from just the top 1%, like the left wants to do, instead of from everybody, as in Sweden (where the top tax bracket kicks in at $70,000)? You'd have to raise taxes on that group to 100% of income.
[1] I use these countries as reference points because they are the largest in the EU28--accounting for over 70% of the population.
At the very least, you need to add healthcare costs from the US in to compare vs personal tax costs in European nations. Otherwise what the taxes buy is vastly different. The US pays more than double per capita for healthcare what the Europeans pay, and when you look at the subset of working citizens in America, it's even higher because they're the ones loaded with the US health system costs. Healthcare is just one major difference in what taxes pay vs other costs which can be offloaded to private budgets, or fees, or other non-tax categories.
Edit: Just back of the envelope: if median income is 50k and US health costs are 10k/year vs 5k/year in the average EU nation, then healthcare alone could account for a 10% higher "tax" load from the US side. Warren Buffet often laments that for all our obsession about tax rates, the healthcare inefficiency costs in the US are GDP percentage wise, much higher.
I'm not getting into a calculation of what you get in return for your money. I'm just talking about where the dollars come from to pay for whatever the government wants. I think it's important to compare the existing tax revenue mix because the proposals for expanding the U.S. welfare state focus on paying for those benefits through corporate taxes or progressive income or payroll taxes. E.g. Sanders' proposals: https://www.vox.com/2019/4/10/18304448/bernie-sanders-medica.... Nobody is proposing what e.g. Germany does, a 15% payroll tax essentially capped at incomes of $70,000.
Then all you're comparing is that x% pays for apples and y% pays for apples & oranges, and you really can't compare x% vs y%.
Sure you can! The corporate and income tax burdens in the U.S. are already at similar levels to Germany, France, the U.K., Spain, and Italy, but they're paying for just apples, versus apples + oranges. If we want to also buy everyone oranges, we should probably pay for those oranges by looking at the tax-revenue sources where the U.S. burden is much lower than in Europe.
The political question is: how do we go from taxes being 27% of GDP to taxes being 37.5% of GDP. (That's the level in Germany, and there is no way we do a welfare state more efficiently than Germany.) That's like $2 trillion. If we raise that money through higher income and corporate taxes, we'd be departing substantially from the norms established by the big EU countries. If we raise that money instead through higher middle class taxes, we'd be keeping within those norms. Not only that, the actual tax increase would be offset to a large degree by the savings to the middle class from not having to pay health insurance premiums and tuition fees.
Well if we are throwing around numbers haphazardly: Healthcare in the US is 17% GDP. 27 + 17 is 42% GDP, vs 38% GDP in Germany (covering healthcare).
That calculation double counts US public healthcare spending, which makes up about half of that 17%: https://www.healthsystemtracker.org/chart-collection/health-.... It also leaves out Germany private health care spending, which is about 2% of GDP. So it’s more like 37% versus 40%.
The calculation is also irrelevant to the question of what taxes should pay for the 9-10% of GDP you want to transition from the private sector to the public sector. Right now, healthcare premiums are effectively a social insurance tax capped at a certain income level. Paying for universal healthcare with an explicit social insurance tax, like in Germany, would keep things within the norms established by Europe. Paying for it with income taxes or corporate taxes, like the left wants to do, would obliterate those norms, catapulting the US to the top of the charts in terms of income or corporate tax burden.
I feel like you’re arguing against a point I’m not raising. I think we should have universal healthcare. I think your calculation shows why the effective tax increase wouldn’t be as big as you might think if you account for the cost of healthcare premiums. My point here is completely different. It’s that we should follow European norms in choosing what taxes we use to fund that transition. Doubling the SS payroll tax would raise about a trillion in revenue, about 5% of GDP. A 10% federal VAT would raise another 5% of GDP in revenue. That tax increase would fall on the middle class, but would largely be offset by savings from not having to pay for health insurance. And the overall ratios of different types of taxes would stay within OECD norms.
Agreed. I was going to say that this is a good trend. Business tax is consumption which is regressive which if you're on the left you should want to minimize or do away with. But there seems to be a popular narrative that to tax business is to somehow penalize the "man" or the "wealthy" and is thus a good thing. Has always seemed to me like punching yourself in the face.
Going beyond your comment, it’s amazing how many American’s extol the virtue of Europe’s system without actually knowing the details of how it works!
“Single payer healthcare is the only solution!”
“What about Switzerland?”
“What about it?”
I think that the problem is actually the term "Europe's system". A lot of people in the US seem to think that the system of government among European countries are nearly homogenous. It is obvious that is far from the case, of course.
It is an oversemplification, but it is acceptable in most cases IMHO.
While there are individual differences, European countries' welfare/tax systems tend to have a lot more in common between themselves than with the US.
The differences between them matter though.
The Nordic countries do quite well, but it's on the back of a largely homogeneous population and a significant amount of national wealth from natural resource extraction, and just using the same policies somewhere that isn't the case wouldn't necessarily work. France has generous benefits but such a high youth unemployment rate that people are literally rioting in the streets. Italy is overrun with corruption and people don't pay tax there regardless of what the law says they're supposed to do, so looking at what laws they have doesn't paint an accurate picture of what actually happens.
They're as different as they are the same.
> Italy is overrun with corruption and people don't pay tax there regardless of what the law says they're supposed to do
Actually, as a whole, Americans are much less likely to cheat on taxes than Europeans, by a significant margin. This means a lower tax rate in America, when combined with the likelihood of Americans to actually cough up cash, may be on par with a higher tax rate in Europe, considering that Europeans are more likely to be cheaters.
It would be interesting to see an analysis of how this empirical truth affects the percent tax actually paid.
https://www.theatlantic.com/magazine/archive/2019/04/why-ame...
> Corporations only paid 7.6% of the tax take -- the lowest share since at least 1960, according to the IRS data
That sounds low but it's not far out of line of the rest of the OECD. The mean is around 9%. Sweden is about 6%. The two members above 20% (or anywhere near it) are Chile and Mexico.
Corporate income tax is kind of a mess to implement and enforce.
Why is it desirable to tax the business rather than the wealthy owners and stockholders? If the business money flows to those making millions of year, tax the millionaires some high rate at a new tax bracket.
The business money need not flow through to their owners. It can instead show up as unrealized capital gains, which A) gets taxed at a lower rate than ordinary income, B) can be deferred indefinitely, C) can be cheaply borrowed against for tax-free spending money, and D) gets wiped out when the shares are transferred via inheritance or in-kind charitable contribution.
If you have $10M of non-dividend paying stock, you could conceivably spend $200k per year while having a taxable income of zero and remaining eligible for income-based health insurance subsidies.
I often hear about C), but I have never heard an explanation of how it works.
I understand that if you have tons of valuable assets, you can get a loan against them for a very favorable rate. but then you have to pay back the loan or at least pay the interest on it. how do you do that without having at least some income or realizing some capital gains?
Your assets tend to become more valuable over time, which allows you to borrow more money to pay the interest and give yourself spending money.
Eg, suppose you have $10M in assets and borrow $200k against it. Next year it's worth something like $10.7M on average, you get charged something like $8k in interest, and you borrow another $200k to spend. So long as you leave enough of a buffer against volatility and the rate of growth of your assets is high enough, you can just borrow money indefinitely against appreciating assets.
People did this in the run-up to the 2008 housing crisis with homes, too. Take out a loan, cash-out refinance later when it's worth more, end up with a house you've taken more cash out of than put in.
ah, now I understand. sort of like the "safe withdrawal rate" for normal people.
also sorry, didn't realize both of my questions went to the same person.
Taxing corporations allows you to impose taxes on the pensions of the middle class, without being seen to do so. Most wealth is in the hands of the middle class either immediately pre- or post- retirement, so you need to tax this; but baby boomers vote so you have to pretend otherwise.
Ok, it's not a good reason... but face it, taxes are determined by politics, not policy.
For a dissenting opinion, one of the major points in Picketty's nobel-winning dataset is that market returns are, over the long term, pretty fixed. Short term fluctuations aside, they're not really impacted by GDP growth
It's an empirical measurment rather than a theoretical point.
I don't know if he's right. But, I do think that it's dicey taking conclusions like "corporate tax is a tax on pensions" as fact. Economics is not science. Economic theories that yield these conclusions are not testable. The reason macroeconomics exists as a field is that core theories which seem to work well at the micro level don't seem to make the right predictions at the macro-level.
Taxing profits makes reinvestment a better strategy than profit taking.
It also makes share buybacks a better strategy. Further, low rates and low inflation mean buybacks are a better strategy than reinvestment.
False, for corporations, share buybacks are not deductible as a cost and thus come from post tax profits. The main reason for share buybacks is it allows you to defer taxes until you want to sell [0].
[0]: https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient...
We can't generalise to blanket statements like that, or the perfect company would never reinvest and would end up owning all it's shares. Not every company can reinvest and get the same benefits, or buy back it's shares and yield the same returns to investors. All taxes do is landscape the playing field a bit.
How is this at all the case? The second sentence is true in some circumstances, but you buyback for other reasons than interest rates, and corporate taxes don't affect how good or bad buybacks are.
Suppose the business is located in the USA, taking advantage of US infrastructure, public services, legal protections, etc, but the owners live in the UK. You'd be ok with them only paying UK income tax?
It's desirable when the alternative is those businesses reinvesting in the business and payroll. Which is easy to do by allowing them to deduct salary up to a certain amount.
I'm ok with reduced taxes in general. An extraordinarily small percentage of our tax money goes to essential services: police, fire, EMS, etc. The efficiency of the US government (deliverable per dollar) is very poor. It may not be like this in every country, but for now, it's likely best to keep those dollars in the hands of individuals and businesses rather than a forced transfer elsewhere.
Over and over, government corruption is extremely valuable.
I see my "Defense" counterparts are significantly worse programmers and claim to work less/never, but get paid 20k more per year than me.
These people don't create value, they destroy value.
They don't contribute to our roads/schools/local services that are actually useful.
As much as everyone is afraid of Google and Amazon, I don't see them getting bigger. They have hit a beaurcratic celling that will cause them to act too slow or too expensive.
The only reason government keeps growing is because they are not affected by profit.
Just raise taxes.
Government is all about stability. Being over worked and under paid is a recipe for burn out. Burnout leads to turn over which leads to instability. A reliable system needs to have knowledgeable, available, long time workers.
The efficiency of government is pretty high when it comes to IRS collection, to Medicare, to many systems. Defense spending I'd agree is extraordinarily inefficient.
Does it: it costs 100's of billions to comply with tax law.
There are other factors there, like corporations lobbying to block the IRS doing simple preparations of personal returns (like other nations do).
> to Medicare
This is most definitely not true. Doctors that take medicare know fully well the medicare reimbursement rates will not cover the patient's bills, and raise privately insured rates to cover the gap.
And how will individuals and businesses address infrastructure and other necessary expenditures?
Once upon a time, most business income was taxed on the business side. For small businesses, the tax paperwork was a pain. So passthrough laws were made, allowing the owners to treat the business income as personal income, simplifying tax paperwork. The tax is still paid.
These changes over decades have moved the same tax from being called corporate tax to personal tax. There is nothing nefarious about it.
This last year, more such changes made to simplify taxes for small buisness moved more of the income in this manner.
I have been a small business owner for a long time, and do precisely this, because it simplifies my paperwork. The tax is still paid.
In aggregate this accounts for a lot more than most people realize.
Here's what happened this last year to move the needle
https://www.nerdwallet.com/blog/taxes/pass-through-income-ta...
Look, if you raise the rates or establish a more concrete AMT (Alternative Minimum Tax - a base rate that can't be ducked under), then corporations will just move their headquarters to another country with more favorable tax conditions. IMHO establish AMTs on corporations not headquartered here to incentivize them to move here and bring jobs.
If you look back in history, taxes always have been for ordinary citizens. Even before modern tax systems.
Only indirectly. Governments/Rulers taxed richer individuals and they used their wealth (and/or other privileges) to extract excess money from ordinary people in order to pay those taxes.
That's why I don't think records of earlier tax rates are really giving the full picture.
Wondering why no one has mentioned the fact that Entrepreneurship has been weakening for the last 25 years... Seems like one would expect corporate taxes to go down when there's fewer companies.
Entrepreneurship has gone down because fewer people as a whole make enough money from their wages to fund new ventures.
Businesses don't pay taxes, their customers do.
not surprised everyone has their panties in the bunch about LGBTQ or abortion on extreme side, while the corps take over more and more! Both parties are slaves to them and do not represent you!
Both parties can be slaves to them, but I have a choice between people who are going to pull the pin on the climate change grenade or the guys who are going to hold it tightly for a bit longer. I'll take the latter any day.
One party is clearly different than the other here.
One party nakedly serves capital and allies with reactionary elements that are their natural allies, the other manages the disappointed expectations of the working class without ever intending to actually serve them. This is why Obama is a severe disappointment at best, deporter in chief, domestic spy in chief, and extrajudicial assassin nearing the side of worst while GWB was an abomination.
More and more I'm convinced that the "both sides are the same" argument is made less for its merits (deplorable influence of money on both sides of the aisle, which is, admittedly, a valid one) and more as another rightist attack on peoples' faith that a democratic system can be made to work well. It's right there in the Republican/Libertarian playbook next to "defund institutions until people believe they fail for social reasons and then dismantle them."
Try reading "The State and Revolution". It explains why democracy and capitalism are antagonistic forces. A 2014 landmark study showed that a basic assumption of the book, that the rich basically determine policy in a liberal democracy, is essentially correct in America. Unfortunately, the rich cannot be tamed under capitalism because they can perform a coordinated capital strike that brings the economy, and the regulatory system, to its knees. This is the private power that they have.
https://scholar.princeton.edu/sites/default/files/mgilens/fi...
Not sure what your comment is in reference to; however, I'm perfectly capable of interpreting current events for myself without relying on meta-analyses that only serve to confirm what I already know. Namely, that money as a corrupting influence in our politics is a growing specter that undermines peoples' ability to react appropriately in an increasingly complex world. The 'capital strike' you refer to sounds highly theoretical, save for the fact that the world's elites have found greater boldness in their ability to irreversibly extract value from the economies that have made them wealthy and move it elsewhere. Indeed, this doesn't bode well for our society, but the US is still a pretty nice place to reside and do business, comparatively. I, for one, believe that the ideal of this place as a beacon of hope for the common man can be restored, but it could go a different way too.
The wealthy wield power for much more mundane reasons. They tend to be politicians, friends with politicians, for much more face time with politicians, and pay for lobbyists.
Yep, pretty much. Let's hope our electorate can wake up and stop believing that these people have their best interests at heart.
When people cite the stock market as proof Trump's trade war isn't hurting average Americans, it's helpful to show them this chart.
I don’t think fair tax system doesn’t exist. (With a few exceptions in EU)
I don't think the US cares about fairness or wealth inequality. That's an ideological position- decided by the American people. Berny Sanders wanted the US to become like the Netherlands or Norway. The American electorate said no. Case closed.
You know that America more than one election ever, right?
(also, it was the Democratic electorate that rejected Bernie, the general electorate would have gone for him over Trump according to polls)
It's worth pointing out according to poll Hillary was supposed to win as well.
Yeah, by a much smaller margin.
Tax corporate revenues. Problem solved.
All the tricks and loopholes means that the corporate tax rate is almost a red herring to distract voters from what really matters, which is how easy it is to hide your money overseas. As we've seen with Ireland, tax havens are fully compliant with helping American corporations get around the law.
Most of those "double-irish" tax tricks are actually illegal tax evasion. The IRS has recently been auditing these companies and hitting them hard with back taxes. The transfer pricing rules clearly state that the transfer pricing must represent the nature of your business. You can't specifically use transfer pricing to reduce taxes on purpose.
Just to make sure we understand something here:
Taxation is robbery.
If you want companies and individuals to pay taxes, you're defending a state that is unethical (as taxation forces people to give away their private property through coercion), and authoritarian ("democracy" is no justification for the use of force).
If you have any supposed justification for a centralized state that enforces taxation through the use of force on its citizens, you're only denying the fact you agree with crime.
Please stop talking about companies and individuals paying more taxes. We should all be paying no taxes through coercion.