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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. Whil

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 8y 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 8y 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 8y 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).

AdamM12 8y 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 8y 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 8y 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).