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This isn't a pre-canned response. I'm not arguing for or against the current tax regime. Here is the theory: Assume a normal corporate tax rate of 20%. If a

This isn't a pre-canned response. I'm not arguing for or against the current tax regime. Here is the theory: Assume a normal corporate tax rate of 20%. If a company makes $100 of profit it will have $80 of after tax profit. Let's just be very simple an say that $80 of retained profit makes the value of the company increase by $80 and no dividends are paid. When you go to to sell that stock assuming you hold it long-term then you pay another 20% capital gains tax on the $80 profit so now you are at $64 of after tax profit as an investor from the original $100. Compare that to $100 of income taxed at 35%. You end up pretty much the same place of $65 retained earnings. Prior to the Trump corporate tax cuts (which no I don't agree with before I am downvoted again as a right-wing corporate shill) the difference of double taxation was more stark. At a 35% corporate tax rate and then a 20% short term gains tax the double taxation led to an effective tax rate around 50% on investment profits. One can argue the tax code should disfavor capital income vs. labor income etc but that is a different matter.

drcode 7y ago
My comment was a bit flippant, I admit. But still, from an economic standpoint I think it's flawed to think of the $80 after tax profits as just "money owned by the company sitting in a bank account". The idea of "value investing" (in the original sense of the term as it was used in the 1920s-1940s, where people would value companies by just taking "cost of building"+"cost of desks"+"cost of chairs"+"money in bank") is no longer how the stock market works: Virtually all companies are now valued at more than the mere physical assets that they own, so clearly that $80 in the bank account of the company should be worth more than $80 in terms of stock market valuation. After all, the whole point of a corporation is to act as a machine that turns small amounts of money (i.e. capital) into larger sums of money- This is in large part what determines the price of a stock in the investment markets, i.e. how well this machine works... the $80 is merely (a small bit of) evidence that this machine is functioning properly. In conclusion, stock valuation and raw revenue/assets/income are categorically different things and arguing that taxation of one category is equivalent to taxation of the other is a categorical mistake, in my opinion.

drcode 7y ago

My comment was a bit flippant, I admit. But still, from an economic standpoint I think it's flawed to think of the $80 after tax profits as just "money owned by the company sitting in a bank account". The idea of "value investing" (in the original sense of the term as it was used in the 1920s-1940s, where people would value companies by just taking "cost of building"+"cost of desks"+"cost of chairs"+"money in bank") is no longer how the stock market works: Virtually all companies are now valued at more than the mere physical assets that they own, so clearly that $80 in the bank account of the company should be worth more than $80 in terms of stock market valuation. After all, the whole point of a corporation is to act as a machine that turns small amounts of money (i.e. capital) into larger sums of money- This is in large part what determines the price of a stock in the investment markets, i.e. how well this machine works... the $80 is merely (a small bit of) evidence that this machine is functioning properly. In conclusion, stock valuation and raw revenue/assets/income are categorically different things and arguing that taxation of one category is equivalent to taxation of the other is a categorical mistake, in my opinion.