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Trump Wants Tax Plan to Cut Corporate Rate to 15%
- nodesocket 10y agoThe thing that most people fail to realize is that a lower corporate tax rate helps the overall enconomy and all Americans. Companies now suddenly have increased capital to spend on growth (hiring, R&D, and acquisitions). Additionally it boost earnings which will likely increase most people's retirement accounts and stock portfolios. Typical that I'm getting downvoted without any rebuttal.
- thrillgore 10y agoHow much of the capital would realistically go to those, as opposed to shareholder payouts?
- xmj 10y agoRealistically what do you think shareholders do with payouts?
- frebord 10y agoShareholder's are investors, investors invest.
- xmj 10y agoThen why insist on dividends, and not have companies reinvest?
- WJW 10y agoBecause they might want to diversify into areas other than where the company operates in?
- civilian 10y agoSometimes a company has matured, where it's captured most of it's market and it's been around so long that it's not very innovative. A company can be good at just "doing it's thing", and that's okay. But that means that--- if there is not more of the market that a company can efficiently capture, then it's time for the shareholders to reap their ROI. I'm sure you've seen lots of instances of failed innovation in big companies. This is a way to avoid it, and put money where it'll have better odds.
- dsparkman 10y agoShareholder's are speculators, speculators speculate. Most US public companies do not pay dividends to shareholders. An "investment" in this scenario is not an investment but speculation. You are speculating that you can convince others to pay more for my shares than I paid for them.
- jrmurad 10y agoWouldn't many such shareholders be Americans as well? Americans who could do something more productive with these payouts than the government might with taxes? (Non-American shareholders could similarly reinvest these payouts in things which improve the global economy and, by extension, the livelihoods of Americans.)
- maxerickson 10y agoOne of the arguments for lower corporate taxes is to move the taxation to the shareholders.
- dmix 10y agoOnly a small percentage of companies are public and have CEOs making giant bounces off of tax cuts. This worldview that Bernie Sanders esque people hold, where every business person is a rich multi millionaire, ignores the reality of business... where the vast majority are small and medium sized businesses. The critique of George Bush's temporary tax credit was that it was used as bonuses rather than stimulating the economy. But a long term tax reduction is something you can actually plan for with expenditures like R&D. I've seen many people comparing the two disingenuously like they are the same. They aren't, that's not how business finance works. There have also been a number of examples in history where reducing the tax rate has actually increased tax revenue as companies are much more productive and more capital is available to invest in industry. The more revenue companies generate the more taxable income there is both from the company revenue and the incomes of employees they hire.
- aanm1988 10y agoDidn't sanders tax plan involve closing loopholes used by big companies and taxing the wealthy more heavily? Neither of which would hurt your precious small businesses. They would hurt the corporate overlords though.
- dmix 10y ago> Didn't sanders tax plan involve closing loopholes used by big companies and taxing the wealthy more heavily? Steve Mnuchin talked about closing these by simplifying the tax code during his senate hearing. This was Ted Cruz primary pitch for his tax plan... and in general on of the staples of tax reform people on both sides of the party. Bernie Sanders also said he would be comfortable with a 90% top tax bracket too, which completely failed when the socialist party tried to do it in France. Regardless, the goal should be increasing tax revenue, not tax rates. And the US government already takes in a massive amount of money. There's probably a million ways for it to be better spent and still dramatically improve the social safety nets and offer public healthcare. Yet whenever these goals are discussed it's always in the context of adding more and more spending. And re: closing loopholes, the usual result of these efforts such as Obama's various attempts, were to add even more complexity to the tax code. There are many ways to reach a goal. Just because you want lower taxes and a dramatically simplified tax code doesn't mean I'm against social policies.
- djtriptych 10y agoRight because GE builds roads and funds public schools.
- jrmurad 10y ago> Right because GE builds roads and funds public schools. I'm going to assume sarcasm so: http://archive.fortune.com/2008/06/30/news/companies/ge_philanthropy.fortune/index.htm http://archive.fortune.com/2008/06/30/news/companies/ge_phil... https://www.google.com/search?q=general+electric+charitable+contributions https://www.google.com/search?q=general+electric+charitable+...
- djtriptych 10y agoCool. GE paid an average of 5.2% tax over the last 15 years. But they donated millions and that's a lot right? http://www.taxjusticeblog.org/archive/2016/04/just_plain_wrong_ge_and_verizo.php#.WP6Z8lPyvfA http://www.taxjusticeblog.org/archive/2016/04/just_plain_wro...
- civilian 10y agoThat's a mischaracterization of his argument. He's saying that a lower corporate tax rate would help grow companies, and the economy as a whole. We would continue to pay income and payroll taxes (which are the main source of tax income anyway), and that the benefits of a larger economy + more income/payroll tax income would offset the lowest revenue in corporate taxes.
- djtriptych 10y agoAre you kidding? The idea that companies hire linearly with revenue growth should be dying by now no? Is this not hacker news? We think that will continue for the foreseeable future? Corporate revenue follows a power law distribution, and the top companies are not growing by hiring as many people as they can. Apple earns about $1M/US employee in profit. Federal tax rate (~30%) on that number is say $300k. Payroll tax is 12.5% of salary (~100k) or $12.5k. So Apple would need to hire 12x the employees overnight to make up the tax shortfall if we suddenly halved their tax liability to $150k. That's if they actually paid the nominal tax rate (they dont). This is all besides the fact that an inverse correlation between tax rates and economic growth is purely theoretical.
- HaloZero 10y agoRaising taxes on profits would also incentivize them to spend their cash or they would just lost more of it in taxes.
- lutorm 10y agoYou mean https://en.wikipedia.org/wiki/Trickle-down_economics https://en.wikipedia.org/wiki/Trickle-down_economics ?
- Eridrus 10y agoAre most R&D activities not valid tax deductions? If they are, this should not significantly impact that.
- apocalyptic0n3 10y agoHasn't this sentiment been repeatedly disproven in practical applications since at least Reagan?
- b0sk 10y agoAwesome. Let's cut it down to 0%. Why did you remove "snowflakes" from your post?
- nodesocket 10y agoBecause I want to follow HN etiquette and stay civilized even though on HN opposing views are immendiatly squashed and silieneced without proper debate.
- rpedela 10y agoThat is the ideal but that isn't reality. The big corporations have large departments devoted to tax avoidance. Where does that saved money go? Usually distributed as dividends to shareholders, executive bonuses, or enormous bank accounts where the money does nothing (e.g. Apple). The best way to improve the economy is put more money into the hands of normal people so that they will buy more stuff which in turn helps those businesses. Lowering or eliminating income taxes for non-rich people would help far more than a tax break for the rich which includes companies.
- nodesocket 10y agoWhile some companies indeed return profits back with stock buybacks or increased divvys, lots of companies do expand and grow their hiring and R&D. Here is the problem, without corporations and small/medium businesses this entire world that we live in ceases to exist. Jobs are what make this all possible.
- maxerickson 10y agoThe other side of that argument is that you need people for the jobs to exist. The idea that a "job" isn't mutually beneficial is such a preposterous talking point. America!
- rpedela 10y agoRight but just giving more money to companies regardless of size doesn't create jobs. Businesses try to be as efficient as possible with their capital. Hiring people just because is inefficient. However companies will hire more people if they are unable to meet their current demand. What is one way to increase demand? Increase the number of people who can afford the goods and services which can be accomplished far more effectively by reducing tax on the middle class and poor. If you do that businesses will have no choice but to create jobs in order to meet demand.
- aanm1988 10y agoAnd I can support corporate tax cuts on the idea of helping small/medium businesses because it does just leave them with more money. Where you lose me is all the trickle down voodoo economics ideas about how slashing taxes on big corporations and he wealthy is going to help me.
- say_no_to_tde 10y agoCan you show any proof of this connection? If the goal is to make money then why would they spend more to expand with a lower tax rate than with a higher one? If anything it would have the opposite affect since the R&D and the salary of new employees would be tax deductible.
- giarc 10y agoThere was a Planet Money podcast (or similar) recently that talked about tax cuts to small/medium size businesses. They looked at a few anecdotal cases and small cuts in taxes didn't result in enough money to hire someone or spend large amounts. They just simply weren't paying a ton in tax anyways, so a cut here or there wasn't a big change.
- aanm1988 10y agoHow many businesses fail that could have succeeded with lower taxes?
- giarc 10y agoI could ask a similar question, how many businesses would fail with a 0% tax rate. If we reduced that barrier to entry, more people would open businesses, thus creating a ton of competition, which would lead businesses to fail. Businesses are going to fail no matter what. Sometimes it's the tax rate, sometimes it's the market, the location, the product, the employees, the manager, the owner etc etc etc.
- snowpanda 10y agoWow looks like you triggered half of HN with basic economics. You'd think people disagreeing with you would love Venezuala. But nobody is moving there. So odd. Economics never lie... https://i.imgsafe.org/e594388497.png https://i.imgsafe.org/e594388497.png
- pavlov 10y agoYou're getting downvoted because you pretend that a neoliberalist trope ("lower corporate tax rate helps everyone") which has been beaten to death over the past 40 years is something that "most people fail to realize".
- itstrueok 10y agoIm sure you have plenty of 90 year old socialist tropes yourself.
- deleted 10y ago[deleted]
- jliptzin 10y agoI never understood this argument. I am a business owner. I optimize for personal profit, which is the profit from my business, with some percentage cut out for taxes. When I optimize my business profit, the tax rate is not part of the equation. If I find that hiring someone for $100k / year is a good thing to do for the long term profitably of the company, I will do that. If I need to spend $50k on a machine because it will save me $80k a year in costs, I'll do that. The tax rate is never an issue. It's just some fraction of my already optimized business income that I was able to bring in for the year. Whether that fraction is 15%, 25%, 50% etc makes no difference in any business decision I have previously made. (Unless of course the tax rate is 100%, then there would be no reason for me to work).
- nodesocket 10y agoI am also a small business owner. Agree, everyday expenses I don't evaluate against how much in taxes I am going to pay. However at public companies scale and the rule of large numbers applies. It makes a significant impact to bottom lines and profits of corporations.
- jliptzin 10y agoI still have yet to hear any concrete ways a corporate tax hike impacts business decisions. I tried doing some research, I found this snippet that attempts to explain it: "Therefore, when a corporation is forced to pay high amounts of income tax, the company may not be able to grow and offer employment to new employees. In fact, one of the most common ways that corporations respond to large corporate tax hikes or new types of corporate taxes is to begin to lay off workers or employees in order to cut costs and maintain profit margins." http://www.finweb.com/taxes/how-does-a-corporate-income-tax-affect-company-decisions.html#ixzz4fDAq5tTH http://www.finweb.com/taxes/how-does-a-corporate-income-tax-... Let's say company ABC makes lawn mowers. Corporate tax rate is 20%. They sell their lawn mowers for $200 each and cost to manufacture each unit is $150 for a $50 profit. They sell 100,000 units in a year, making $5M in profit for the year. At 20% tax, they get to keep $4 million of that. If the tax rate is suddenly bumped to 40%, then they only keep $3 million. But I don't see how that impacts any of their business decisions related to building and selling lawn mowers. Their goal is to maximize profit by building the lawn mowers as efficiently as possible and then selling as many of them at they can at some price point. Expenses and wages to do all of that are all tax deductible. The tax rate does not figure into any of these decisions. That only comes into effect at the end of the year after they've made as much profit as possible from their sales. If they respond by laying off employees, then they should have done so before the tax break, and are probably just using the tax break as an easy excuse to get rid of people they don't want working there anymore. What part of this do I have wrong?
- jellicle 10y agoMoney that a corporation spends on hiring, buying new equipment or anything like that is completely tax deductible and always has been. Not a cent of corporate income tax has ever been paid on such things, and reducing the corporate tax rate actively DISCOURAGES such things. It encourages disinvestment in expansion, by rewarding not growing.
- dsparkman 10y agoYou really need to watch https://www.youtube.com/watch?v=bBx2Y5HhplI https://www.youtube.com/watch?v=bBx2Y5HhplI if you think that because corporations have to pay less in taxes that they will suddenly spend more on R&D and jobs.
- technotony 10y agoI think the big thing about this is that it will lead more companies to bring capital back to the US from overseas where they are hoarding it. If they either spend it or distribute it to Americans that's likely good for the economy. It also improves the IRR for projects, which should lead to more investment. Hopefully, it works to get the economy going.
- JKCalhoun 10y agoGreedy companies are greedy. Lowering to 15% won't magically make them good corporate citizens. The carrot and a really big stick are needed. I don't see this admin taking a stick to corporate America.
- lettergram 10y agoImplying "Greedy companies are greedy" is bad makes little sense... Greed is defined as: > intense and selfish desire for something, especially wealth, power, or food. I've never met a person who wasn't greedy, seriously even a pastor has the intense desire for followers. Further, it's literally only possible for a company to exist if it is greedy. How else will they pay their employees, investors, etc? Now, we can argue some companies are "excessively greedy". However, I think that's still probably not the correct way to describe companies that shaft their employees for the bottom line. By definition being "greedy" implies "intense" or "excessive", I think a better term would be "short sighted". A company which harms it's employees, customers, etc. and tries to get the most value is "greedy" (just as all companies are), but what makes it "bad" is the poor management. I think the whole point of this new proposed system (aka 15% tax), is that it tips the pro's vs con's list of companies keeping money here to "pro". That's how economies work.
- Arnt 10y agoIIRC the Russians tried a 13% rate for a major tax and found that it worked fairly well. If you hassle enough you can get below 13% (or 15%), but hassle has its own cost.
- mmanfrin 10y ago15% is still 15% compared to the 0% they pay on money funneled to tax havens. A lower rate won't stop this; a closing of the loophole will.
- friedman23 10y agoI challenge all of those against this to learn what tax incidence is and how it applies to the corporate tax rate
- jellicle 10y agoHere you go: http://piketty.pse.ens.fr/files/Clausing2012.pdf http://piketty.pse.ens.fr/files/Clausing2012.pdf "At the end of the searching, I find some evidence that suggests that corporate taxation may lower wages, but the preponderance of evidence does not suggest any wage effects from corporate taxation."
- cheald 10y agoAnd counterpoints: http://piketty.pse.ens.fr/files/Desaietal2007.pdf http://piketty.pse.ens.fr/files/Desaietal2007.pdf "between and 45 and 75 percent of the burden of corporate taxes is borne by labor with the balance borne by capital. " https://www.kansascityfed.org/Publicat/RegionalRWP/RRWP07-01.pdf https://www.kansascityfed.org/Publicat/RegionalRWP/RRWP07-01... "Using cross-country data I estimate that a ten percentage point increase in the corporate tax rate of high-income countries reduces mean annual gross wages by seven percent." https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/WP-101.pdf https://www.treasury.gov/resource-center/tax-policy/tax-anal... "While further research is necessary to draw definitive conclusions, these studies suggest that labor may bear a substantial burden from the corporate income tax. Overall, the recent empirical evidence, the open economy computable general equilibrium models of tax incidence, and the sensitivity of the amount of capital investment within a country suggest reconsidering the assumption that the corporate income tax falls on the owners of capital; labor may bear a substantial portion of the burden from the corporate income tax."
- cuchoi 10y agoSummary: "Economists are divided on the issue. Some (including Gregory Mankiw) are persuaded that the corporate income tax ultimately falls mainly on labor, rather than on the presumably wealthier owners of capital. One can actually make a case for cutting the tax in the name of a more progressive income-tax structure, which should appeal to voters and politicians left of center. Other economists, including the authors of the surveys cited above (Jane Gravelle, Jennifer Gravelle and Thomas Hungerford), are persuaded by the available empirical evidence on the five factors I note that the burden of the corporate tax ultimately rests mainly on the owners of capital. That also appears to be the operative assumption of the Congressional Budget Office, the Treasury and other agencies when they analyze the distributional impact of various forms of taxation." Source: https://economix.blogs.nytimes.com/2010/07/23/who-ultimately-pays-the-corporate-income-tax/ https://economix.blogs.nytimes.com/2010/07/23/who-ultimately...
- cuchoi 10y agoPaul Krugman on Tax Cuts: "Zombies of Voodoo Economics" https://www.nytimes.com/2017/04/24/opinion/zombies-of-voodoo-economics.html https://www.nytimes.com/2017/04/24/opinion/zombies-of-voodoo...
- itstrueok 10y agoPaul Krugman is an idiot.
- bpodgursky 10y ago0%, with raises to capital gains to offset the tax revenue, would be better, but I can understand it's politically infeasible (because people are ignorant). Better than nothing.
- harryh 10y agoAbsolutely correct. For others here is a nice essay on why this is a good idea: https://www.theatlantic.com/business/archive/2010/10/why-we-should-eliminate-the-corporate-income-tax/65351/ https://www.theatlantic.com/business/archive/2010/10/why-we-...
- hn_throwaway_99 10y agoYeah, to me it seemed to make much more sense to get rid of corporate taxes entirely, and then just tax all dividends and capital gains at income tax rates. Is there an economic (as opposed to political) reason this is a bad idea?
- cheald 10y agoMight raise too little revenue. But in general, if you want to tax capital, you should tax capital, rather than taxing companies (which do a pretty good job of offloading tax incidence onto labor.)
- ed_balls 10y ago0.5% of revenue. I bet corporation spent more on accounting.
- abhv 10y agoLower corporate taxes can also help create structures which allow wealthier people to avoid taxes. For example, if you can create a structure in which all of your consulting income + capital-asset income goes into a C-corp, and you pay most of your own expenses through the C-corp (e.g., Trump tower home office), then you can keep most of your income taxed at only 15%. The C-corp holds it forever, and pays your expenses, and pays you a small salary for non-expensable items. The C-corp can purchase things like corporate cars, boats, airplanes, and real-estate, and pay for trips as well. Obviously, there is administrative overhead in setting these things up; you can't be earning 150k and trying to pull this off. There cannot be a gap between C-corp taxation and individual taxation rates if you want to avoid creating more loopholes for wealthier people---especially those who earn mostly from their capital assets.
- JKCalhoun 10y agoThen that is what the AMT was designed for, no?
- harryh 10y agoNo. The AMT is completely unrelated to the issue abhv brings up. The AMT is essentially a 2nd tax code for individual income taxes were fewer deductions but also lower rates. Individuals compute their personal taxes both ways and pay the higher of the two systems. It's kind of a crazy system.
- JKCalhoun 10y agoBut that's kind of what I mean — if you were using your business as a "deduction" hopefully the alternate computation would ignore that and you would be in for the higher (and deserved, IMO) bracket.
- harryh 10y agoThere is no deduction for "a business" in the way you describe. That's....not how it works.
- JKCalhoun 10y agoThe big problem with our high corporate tax rate is that the big corporations have loopholes and don't pay anywhere near 30%. But the smaller businesses don't have the tax lawyers and so do pay the full amount. Hmmmm, this sounds familiar.... EDIT: typo
- civilian 10y agoMy knee-jerk reaction is to be in favor of tax cuts, but with these things I try to find relevant survey questions on IGMChicago Economic Experts panel: http://www.igmchicago.org/igm-economic-experts-panel http://www.igmchicago.org/igm-economic-experts-panel Here's one that's close, although it focuses on repatriated profits http://www.igmchicago.org/surveys/repatriated-profits http://www.igmchicago.org/surveys/repatriated-profits > Question B: Permanently lowering the effective marginal tax rate on US corporations’ repatriated profits, such as by moving to a territorial-based tax system, would boost US capital investment significantly. The economists' answers were very mixed and half of them answered "uncertain" or "no opinion". :-/ muh cognitive bias! mmanfrin points at that tax havens are the problem, here's a NYTimes opinion piece advocating for 0% corporate tax rates as a way to encourage companies to repatriate their profits: https://www.nytimes.com/2014/01/06/opinion/abolish-the-corporate-income-tax.html https://www.nytimes.com/2014/01/06/opinion/abolish-the-corpo...
- deleted 10y ago[deleted]
- pavlov 10y agoFinland tried this same thing with the same "dynamic effects will offset lost tax revenue!" rhetoric a few years ago, and it didn't work out anything like expected. At the start of 2014, Finland lowered its corporate tax rate to 20% (from a previous 24.5%). The lost tax revenue amounted to $800M EUR, but the government claimed that half of that would be recouped thanks to positive dynamic effects the tax cut would create in the national economy. Two years later, they were forced to admit [1] that none of those dynamic effects materialized. Cutting corporate tax may still be a good thing, but it's most likely nothing close to revenue-neutral anywhere in the developed world. So this plan would expand the US budget deficit (which Republicans seem to hate only when they're not the ones expanding it with tax cuts). [1] http://yle.fi/uutiset/3-7773569 http://yle.fi/uutiset/3-7773569 (in Finnish)
- mjfl 10y agoTo play devil's advocate, Finland was giving sort of a vague argument for their tax cuts: "dynamic effects", while in America there are very concrete potential effects of the policy. You can point directly to Apple and say, "If we cut tax rates to 15%, Apple will bring back $X to the USA", "Exxon Mobile will bring back $X to USA", and so on. You can even... talk to them and ask them what it would take to repatriate the offshore funds, and I would hope Trump would do that. So yeah, I think it's one thing to cut taxes and hope "economic growth" happens automatically, but a completely different thing if you have a quantifiable number of offshore dollars, deals can be made, etc.
- muninn_ 10y agoEventually that money will be either returned to share holders, or will be invested in the business. You also have to consider that the government in Finland is probably way less shitty than the US government.
- mjfl 10y agoThe money is already returned to shareholders offshore as equity in the global company. I don't know what you are talking about.
- mathiasben 10y agoNeed to get back to the rates we had following the Internal Revenue Act of 1954. 51% corporate rate, that's what made America great.
- watertom 10y agoWhat a fucking joke. Apple is sitting on almost 2250 Billion and they won't bring a penny of it back to the U.S. because they don't want to pay some tax. The rich people who are making the congressmen and senators rich are making sure that the rich and the corporations are flush with money while 20% of all children in the U.S are living in poverty. Reagan was right it is trickle down, it flowed down at one time, now it trickles, soon to drip.
- itstrueok 10y agoTaxation is theft, but HN loves it.