4 ms·

getting rid of corporate tax would simply increase inequality, because wealthier individuals can employ corporations more effectively to gain even more advantag

getting rid of corporate tax would simply increase inequality, because wealthier individuals can employ corporations more effectively to gain even more advantage. if you equalize tax treatment (not just rates, but other things like carryforwards) across people, corporations, and capital, wealthy folks wouldn't be able to game the differences like they do now. international competition can be addressed with tariffs, which is already quite prevalent but are used for petty politics rather than to level the playing field in international trade.

nightski 8y ago
How would they do that though? You can't take money out of a corporation without it being taxed as income? At some point it's going to be taxed. I agree capital gains rates could use a second look but I don't see this big "wealth loophole".
- a_c_s 8y ago
  How about this example: a corporation buys a yacht that the CEO has exclusive use of and lives on. Now the CEO gets full food & board & luxury sea transportation provided. The CEO's salary is $1. The CEO is taking untaxed value out of the corporation but paying no income tax. If the corporation pays no taxes either, then the staff of the yacht will be paying more taxes than the CEO & corporation combined!
  - aidenn0 8y ago
    Aside from the fact that this is illegal under the current rules (most perquisites are considered income by the IRS), the yacht is an expense, so reduces the taxes the corporation pays under today's rules.
- seanalltogether 8y ago
  Corporate car leases, corporate hotel stays, corporate supplied breakfasts and lunches, corporate sponsored day care, corporate tickets to games/performances. There are a lot of lifestyle perks that can be justified as a cost of doing business.
  - deleted 8y ago
    [deleted]
- dragonwriter 8y ago
  > You can't take money out of a corporation without it being taxed as income? There's a lot of ways (though there are limits) you can derive personal benefit through things that look like corporate expenses but not personal income, and so are not taxed to you or the corporation; these aren't even constrained by corporate taxes. But, back to the point, absent corporate taxes, you can use corporate retained earnings as a perpetual tax structuring vehicle by choosing to extract and realize income from the corporation when most convenient for you, as well as enjoying any personal benefits tax free that you can slide by as business expenses. It's that permanent deferment piggy bank,not the more limited tax free benefit extraction, that makes it a tax shelter. And given the high threshold at which estate tax kicks in, this is potentially a multigenerational tax shelter. Corporate income tax (which is really a retained earnings tax, because expenses are deducted) shuts down the corporation as tax shelter maneuver.
  - nightski 8y ago
    Sure, but how is that different than other investments such as stocks or bonds? Claiming personal expenses as business expenses is slippery, we are in illegal territory here.
    - dragonwriter 8y ago
      > Sure, but how is that different than other investments such as stocks or bonds? Since stocks are how one owns a corporation, it's literally exactly the same as stocks, which are not an “other investment”. Of course, there is a manifest difference between controlling enough stock that one determines, among other things, if, when, and how much a corporation distributes back to shareholders and, well, not controlling that much. But the same issue, in principal, exists with shareholders collectively as with a single shareholder individually, though coordinated action becomes harder with larger numbers.
tantalor 8y ago
> wealthier individuals can employ corporations more effectively I think onlyrealcuzzo suggested that problem would be fixed by "properly tax money as it LEAVES companies"
- tivert 8y ago
  > I think onlyrealcuzzo suggested that problem would be fixed by "properly tax money as it LEAVES companies" What if the money never leaves, but instead is spent by the corporation to benefit the individual?
  - tantalor 8y ago
    That type of behavior falls into category of either "income" or "embezzlement".
  - drcharris 8y ago
    Then it's probably regarded as a 'constructive dividend' by the IRS and is liable to tax. https://www.thetaxadviser.com/issues/2017/may/identifying-constructive-dividends-shareholders.html https://www.thetaxadviser.com/issues/2017/may/identifying-co...
Verdex 8y ago
This is actually a good point. If you're sufficiently rich, you can create your own corporation that exists to buy really nice boats and then sail you around as a business plan. The corporation will be able to avoid paying any taxes by virtue of being completely unable to exist without you pumping it full of money. I don't think we should give corporations a pass, but at the same time we can't also expect them to "play fair" when there is no way for anyone to actually determine what that means.
- onlyrealcuzzo 8y ago
  This is illegal under current laws. The truth is, there's really only a couple hundred thousand families in the US with enough money to do stuff like this. And the IRS should have the resources to make sure they aren't making $10M+ per year and reporting income of like $15k.
- smileysteve 8y ago
  Alternatively, you could do something similar as a religious organization and bypass a lot more IRS scrutiny.

nightski 8y ago

How would they do that though? You can't take money out of a corporation without it being taxed as income? At some point it's going to be taxed. I agree capital gains rates could use a second look but I don't see this big "wealth loophole".

a_c_s 8y ago
How about this example: a corporation buys a yacht that the CEO has exclusive use of and lives on. Now the CEO gets full food & board & luxury sea transportation provided. The CEO's salary is $1. The CEO is taking untaxed value out of the corporation but paying no income tax. If the corporation pays no taxes either, then the staff of the yacht will be paying more taxes than the CEO & corporation combined!
- aidenn0 8y ago
  Aside from the fact that this is illegal under the current rules (most perquisites are considered income by the IRS), the yacht is an expense, so reduces the taxes the corporation pays under today's rules.
seanalltogether 8y ago
Corporate car leases, corporate hotel stays, corporate supplied breakfasts and lunches, corporate sponsored day care, corporate tickets to games/performances. There are a lot of lifestyle perks that can be justified as a cost of doing business.
- deleted 8y ago
  [deleted]
dragonwriter 8y ago
> You can't take money out of a corporation without it being taxed as income? There's a lot of ways (though there are limits) you can derive personal benefit through things that look like corporate expenses but not personal income, and so are not taxed to you or the corporation; these aren't even constrained by corporate taxes. But, back to the point, absent corporate taxes, you can use corporate retained earnings as a perpetual tax structuring vehicle by choosing to extract and realize income from the corporation when most convenient for you, as well as enjoying any personal benefits tax free that you can slide by as business expenses. It's that permanent deferment piggy bank,not the more limited tax free benefit extraction, that makes it a tax shelter. And given the high threshold at which estate tax kicks in, this is potentially a multigenerational tax shelter. Corporate income tax (which is really a retained earnings tax, because expenses are deducted) shuts down the corporation as tax shelter maneuver.
- nightski 8y ago
  Sure, but how is that different than other investments such as stocks or bonds? Claiming personal expenses as business expenses is slippery, we are in illegal territory here.
  - dragonwriter 8y ago
    > Sure, but how is that different than other investments such as stocks or bonds? Since stocks are how one owns a corporation, it's literally exactly the same as stocks, which are not an “other investment”. Of course, there is a manifest difference between controlling enough stock that one determines, among other things, if, when, and how much a corporation distributes back to shareholders and, well, not controlling that much. But the same issue, in principal, exists with shareholders collectively as with a single shareholder individually, though coordinated action becomes harder with larger numbers.

tantalor 8y ago

> wealthier individuals can employ corporations more effectively I think onlyrealcuzzo suggested that problem would be fixed by "properly tax money as it LEAVES companies"

tivert 8y ago
> I think onlyrealcuzzo suggested that problem would be fixed by "properly tax money as it LEAVES companies" What if the money never leaves, but instead is spent by the corporation to benefit the individual?
- tantalor 8y ago
  That type of behavior falls into category of either "income" or "embezzlement".
- drcharris 8y ago
  Then it's probably regarded as a 'constructive dividend' by the IRS and is liable to tax. https://www.thetaxadviser.com/issues/2017/may/identifying-constructive-dividends-shareholders.html https://www.thetaxadviser.com/issues/2017/may/identifying-co...

Verdex 8y ago

This is actually a good point. If you're sufficiently rich, you can create your own corporation that exists to buy really nice boats and then sail you around as a business plan. The corporation will be able to avoid paying any taxes by virtue of being completely unable to exist without you pumping it full of money. I don't think we should give corporations a pass, but at the same time we can't also expect them to "play fair" when there is no way for anyone to actually determine what that means.

onlyrealcuzzo 8y ago
This is illegal under current laws. The truth is, there's really only a couple hundred thousand families in the US with enough money to do stuff like this. And the IRS should have the resources to make sure they aren't making $10M+ per year and reporting income of like $15k.
smileysteve 8y ago
Alternatively, you could do something similar as a religious organization and bypass a lot more IRS scrutiny.