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i think this oversimplification may obfuscate the issue in a way that's a little misleading. in reality, the two choices are not only taking a tax hit or reinve

i think this oversimplification may obfuscate the issue in a way that's a little misleading. in reality, the two choices are not only taking a tax hit or reinvesting in the business. there are a pretty wide array of tax avoidance schemes that are utilized in the united states. if my corporate tax rate is low, but personal tax rate is high, as in your example. i may choose to invest in a SEP, or a deferred compensation plan, kicking the taxes down the road. potentially, because of the estate tax laws, my heirs may inherit these investments with no tax penalty due to step up basis rules. if you were making a million dollars a year in profit, you probably wouldn't need ordinary income anyway. there are so many different types of credit vehicles you could leverage at a lower interest rate than the tax rate. though i suppose, arguably this is a type of economic growth. it grows profit in the financial services industry.

freen 7y ago
My example is intentionally simplified, and doesn't consider either a high or low personal tax rate. It also doesn't consider tax avoidance because, frankly, legislation that enables tax avoidance is equivalent to lowering effective taxes. Statutory vs Effective tax rates are what actually count in terms of the long term choices companies make and the outcomes for the rest of us. In my example, imagine that there are absolutely no tax dodges whatsoever. The statutory rate is the effective rate. If it were impossible to pay accountants to dodge taxes, i.e. the middle class income tax bracket, then my example holds. Note for the casual reader: please be aware that there is a HUGE difference between statutory and effective tax rates. Politicians and Corporations hope you don't catch on. https://www.npr.org/2017/08/07/541797699/fact-check-does-the-u-s-have-the-highest-corporate-tax-rate-in-the-world https://www.npr.org/2017/08/07/541797699/fact-check-does-the...

freen 7y ago

My example is intentionally simplified, and doesn't consider either a high or low personal tax rate. It also doesn't consider tax avoidance because, frankly, legislation that enables tax avoidance is equivalent to lowering effective taxes. Statutory vs Effective tax rates are what actually count in terms of the long term choices companies make and the outcomes for the rest of us. In my example, imagine that there are absolutely no tax dodges whatsoever. The statutory rate is the effective rate. If it were impossible to pay accountants to dodge taxes, i.e. the middle class income tax bracket, then my example holds. Note for the casual reader: please be aware that there is a HUGE difference between statutory and effective tax rates. Politicians and Corporations hope you don't catch on. https://www.npr.org/2017/08/07/541797699/fact-check-does-the-u-s-have-the-highest-corporate-tax-rate-in-the-world https://www.npr.org/2017/08/07/541797699/fact-check-does-the...