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U.S. business contributes smallest share of federal taxes in a generation
- megaman821 7y agoWhy 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.
- jedrek 7y agoTaxing profits makes reinvestment a better strategy than profit taking.
- sabroad 7y agoIt also makes share buybacks a better strategy. Further, low rates and low inflation mean buybacks are a better strategy than reinvestment.
- simonh 7y agoWe 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.
- Phillipharryt 7y agoHow 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.
- mrep 7y agoFalse, 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_distribution_of_earnings https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient...
- tw04 7y agoIt'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.
- cperciva 7y agoTaxing 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.
- netcan 7y agoFor 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.
- simonh 7y agoSuppose 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?
- ThrustVectoring 7y agoThe 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.
- leetcrew 7y agoI 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?
- ThrustVectoring 7y agoYour 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.
- leetcrew 7y agoah, 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.
- gok 7y ago> 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.
- usr1987 7y agonot 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!
- cm2012 7y agoOne party is clearly different than the other here.
- defterGoose 7y agoMore 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."
- tehjoker 7y agoTry 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/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf https://scholar.princeton.edu/sites/default/files/mgilens/fi...
- JamesBarney 7y agoThe 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.
- PrimalDual 7y agoI 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.
- PrimalDual 7y agoI 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.
- TAForObvReasons 7y agoIf 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.
- woah 7y agoLLCs are pass through entities but are limited liability
- anonymous5133 7y agoYup. 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.
- Causality1 7y agoAll 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.
- anonymous5133 7y agoMost 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.
- ETHisso2017 7y agoWhen people cite the stock market as proof Trump's trade war isn't hurting average Americans, it's helpful to show them this chart.
- stunt 7y agoIf you look back in history, taxes always have been for ordinary citizens. Even before modern tax systems.
- Wildgoose 7y agoOnly 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.
- stunt 7y agoI don’t think fair tax system doesn’t exist. (With a few exceptions in EU)
- Tsubasachan 7y agoI 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.
- hannasanarion 7y agoYou 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)
- ApolloFortyNine 7y agoIt's worth pointing out according to poll Hillary was supposed to win as well.
- hannasanarion 7y agoYeah, by a much smaller margin.
- jppope 7y agoWondering 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.
- dv_dt 7y agoEntrepreneurship has gone down because fewer people as a whole make enough money from their wages to fund new ventures.
- jimbob45 7y agoLook, 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.
- known 7y agoTax corporate revenues. Problem solved.
- rayiner 7y agoAccording 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-2019 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.
- rfeather 7y agoI'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.
- DaiPlusPlus 7y agoAren’t consumption taxes generally regressive?
- jsty 7y agoIf 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.
- refurb 7y agoOr what Canada does, which is rebate over the year based on your income level and assumed consumption.
- humanrebar 7y agoI favor a minimum income and/or earned income tax credit to offset.
- ChrisLomont 7y agoOnce 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-tax-deduction/ https://www.nerdwallet.com/blog/taxes/pass-through-income-ta...
- exabrial 7y agoI'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.
- throwayEngineer 7y agoOver 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.
- dougmany 7y agoGovernment 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.
- pnutjam 7y agoAnd how will individuals and businesses address infrastructure and other necessary expenditures?
- dv_dt 7y agoThe 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.
- conanbatt 7y ago
- dfilppi 7y agoBusinesses don't pay taxes, their customers do.
- ObscureMind 7y agoJust 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.