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Just a thought. How about abolishing corporate tax and then making every entity as pass through entity for tax purposes? At the EOD all entities are owned by so

Just a thought. How about abolishing corporate tax and then making every entity as pass through entity for tax purposes? At the EOD all entities are owned by someone and that income is taxed at a progressive rate. From what I've read the corporate tax is only 10% of the federal budget anyway. Edit: This wouldn't stop a company from doing what Amazon did and reinvest all the time but at least given a profit an entity would be pressured to pay out cash in order to cover tax liability of owners. Would help avoid hoarding of cash on balance sheets.

reitzensteinm 7y ago
We have that in Australia & NZ, called Franking. When a corporation pays tax, it receives credits which can be distributed with the dividends it pays out. While strictly better than the alternative for business owners, I always felt the incentives were a bit weird; if you left profits in the company to expand, you'd pay tax on that up front which would slow growth. So it would bias you towards withdrawing profits (at least compared to the tax policies of other countries). https://en.wikipedia.org/wiki/Franking_credit https://en.wikipedia.org/wiki/Franking_credit In my opinion, corporate taxation should be tied to liability; essentially being the compensation to society for the risk that your company will go though bankruptcy. If you are willing to be personally liable for your business, you should be able to operate it as a simple pass-through vehicle. And this should apply even to something the size of Apple - investors willing. It's commonly argued that capital gains combined with corporate tax is double taxation, but limited liability has a huge amount of value; making the link between them explicit and optional would (I think) be the best of both worlds.
- AdamM12 7y ago
  I believe double taxation actually refers to paying the corporate tax rate as well as the shareholder paying their dividend tax rate. Not capital gains.
  - reitzensteinm 7y ago
    I misspoke and meant to say corporate tax which would be more correct. But the tax rate also effectively applies to capital gains, since the value of a company is the NPV of its future distributions. If Apple were suddenly permanently excepted from income tax tomorrow through some bizarre legislation, its future dividends would be proportionally increased, and its market cap would (should) rise to match. The water is muddied due to a few factors such as inflation, uncertainty around future tax rates, potential tax holidays for overseas income etc. But they're in very general terms two sides of the same coin.
  - nordsieck 7y ago
    > the shareholder paying their dividend tax rate. Not capital gains. In theory, dividends and stock buybacks perform the same function. Because stock buybacks have more favorable tax implications (capital gains instead of income), they are often favored by institutional investors (who also like the added liquidity).
smileysteve 7y ago
This! Shareholders either extract value through capital gains or through dividends. And if you eliminate the corporate tax, it follows that repealing the bush tax cuts would be a thing, because no more double taxation argument.
skybrian 7y ago
Investors can delay capital gains tax by not selling their shares. If they delay them until they die, they don't pay capital gains at all. (Step-up basis for their heirs.) You kind of want to collect at least some taxes in the year the economic activity happened.
- AdamM12 7y ago
  This would be a tax on income not on capital gains. The entities would have to pay out some amount of money to shareholders to cover their tax liability.

reitzensteinm 7y ago

We have that in Australia & NZ, called Franking. When a corporation pays tax, it receives credits which can be distributed with the dividends it pays out. While strictly better than the alternative for business owners, I always felt the incentives were a bit weird; if you left profits in the company to expand, you'd pay tax on that up front which would slow growth. So it would bias you towards withdrawing profits (at least compared to the tax policies of other countries). https://en.wikipedia.org/wiki/Franking_credit https://en.wikipedia.org/wiki/Franking_credit In my opinion, corporate taxation should be tied to liability; essentially being the compensation to society for the risk that your company will go though bankruptcy. If you are willing to be personally liable for your business, you should be able to operate it as a simple pass-through vehicle. And this should apply even to something the size of Apple - investors willing. It's commonly argued that capital gains combined with corporate tax is double taxation, but limited liability has a huge amount of value; making the link between them explicit and optional would (I think) be the best of both worlds.

AdamM12 7y ago
I believe double taxation actually refers to paying the corporate tax rate as well as the shareholder paying their dividend tax rate. Not capital gains.
- reitzensteinm 7y ago
  I misspoke and meant to say corporate tax which would be more correct. But the tax rate also effectively applies to capital gains, since the value of a company is the NPV of its future distributions. If Apple were suddenly permanently excepted from income tax tomorrow through some bizarre legislation, its future dividends would be proportionally increased, and its market cap would (should) rise to match. The water is muddied due to a few factors such as inflation, uncertainty around future tax rates, potential tax holidays for overseas income etc. But they're in very general terms two sides of the same coin.
- nordsieck 7y ago
  > the shareholder paying their dividend tax rate. Not capital gains. In theory, dividends and stock buybacks perform the same function. Because stock buybacks have more favorable tax implications (capital gains instead of income), they are often favored by institutional investors (who also like the added liquidity).

smileysteve 7y ago

This! Shareholders either extract value through capital gains or through dividends. And if you eliminate the corporate tax, it follows that repealing the bush tax cuts would be a thing, because no more double taxation argument.

skybrian 7y ago

Investors can delay capital gains tax by not selling their shares. If they delay them until they die, they don't pay capital gains at all. (Step-up basis for their heirs.) You kind of want to collect at least some taxes in the year the economic activity happened.

AdamM12 7y ago
This would be a tax on income not on capital gains. The entities would have to pay out some amount of money to shareholders to cover their tax liability.