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I think the OP is talking about investing within the business. The business is a separate legal entity with its own income, expenditures, and assets that is un

I think the OP is talking about investing within the business. The business is a separate legal entity with its own income, expenditures, and assets that is under the control of its owner. Assuming that you want to continue owning the business as a going concern, it makes sense to maximize expenditures (by investing in the future) and minimize profits when tax rates are high. But if you're happy entering and exiting the business as a whole, it makes sense to sell it (transferring money equal to its value to your personal balance sheet) when taxes are low and about to go up, and then just not work while taxes are high. Inflation can put a bit of a wrinkle in this, since if you get $20M for your business and then you find that that's worth the equivalent of $2M in 5-10 years it can crimp your early retirement.

tonystubblebine 6y ago
Exactly. Corporate taxes are an incentive for businesses investing in themselves but, as I understand it, an disincentive for investors to invest in businesses. I'm mostly just bothered by how simplistic the debate is and how most people don't even understand this detail.
- nostrademons 6y ago
  Interesting. This also implies a shift from financial capital (VCs, hedge funds, private equity) to production capital (reinvested profits) when corporate tax rates go up. In the Carlota Perez model, this is the shift from the "frenzy" phase (of huge valuations, founders entering and exiting startups, bubble mentality) to the "deployment" phase (where the technology diffuses through the economy and is adopted as part of the fabric of many companies). I never thought of tax policy as helping drive that, but it seems to correspond pretty well. My other big question is how this interacts with monetary policy. Inflation tends to preference financial capital by a.) lowering the real cost of outside credit and b.) causing dislocations within the economy that create opportunities for new startups. That could offset higher corporate taxes to some extent, while if combined with low corporate taxes it could spark a mania.
- didibus 6y ago
  > but, as I understand it, an disincentive for investors to invest in businesses I don't see this holding true. Can you explain how? Like, yes as a personal investor you now have less to invest, because you are taxed more on your income. But of the money you have left after tax, investment is still investment. There's no other way to make money of your money then to invest it. So as long as you don't spend all the money immediately, the incentive to invest it is there. Also, the companies you invest in will be incentivized to reinvest in themselves, thus their stock growth potential will be higher, so a good time to invest in them. Finally, the biggest investors arn't individuals, but investment firms, and because they themselves are a company, they themselves are like all others more incentivized to reinvest into their business, thus they are more likely to want to take their profit and invest it some more, instead of cashing it out as revenue.
  - AnthonyMouse 6y ago
    > I don't see this holding true. Can you explain how? Suppose you have $40,000. You can buy some stock in a domestic corporation, or buy some stock in a foreign corporation, or put a down payment on a house, or buy a new car, or invest in government bonds, or ten other things. If you raise the domestic corporate tax rate, option one becomes less attractive compared to all the other ones.
    - didibus 6y ago
      Oh I was talking about personal income tax in my previous comment. For corporate tax rate, I think it depends if you're planning a growth investment or a dividend based one. For growth, capital tax rate shouldn't affect you at all, since you'll mostly target companies running at close to no revenue or even declaring losses, but growing very fast. For dividend investment, it would, since the companies will have less profit post tax, but if you think about it holistically, that's like the best thing to tax. You have a well established business, that's no longer growing or doing so very slowly, and it is making excess money even after paying all its employees and expenses. It seems a very good place to take from and redistribute. Think about the alternative sources of revenue for the government here? What could be better then that?
thaumasiotes 6y ago
> But if you're happy entering and exiting the business as a whole, it makes sense to sell it (transferring money equal to its value to your personal balance sheet) when taxes are low and about to go up, and then just not work while taxes are high. Not quite. The fact that taxes are about to go up has already taken a huge chunk out of the sale value of the business. You want to sell it when taxes are low and not about to go up.
zdragnar 6y ago
Ah yes, I did miss that, thank you.

tonystubblebine 6y ago

Exactly. Corporate taxes are an incentive for businesses investing in themselves but, as I understand it, an disincentive for investors to invest in businesses. I'm mostly just bothered by how simplistic the debate is and how most people don't even understand this detail.

nostrademons 6y ago
Interesting. This also implies a shift from financial capital (VCs, hedge funds, private equity) to production capital (reinvested profits) when corporate tax rates go up. In the Carlota Perez model, this is the shift from the "frenzy" phase (of huge valuations, founders entering and exiting startups, bubble mentality) to the "deployment" phase (where the technology diffuses through the economy and is adopted as part of the fabric of many companies). I never thought of tax policy as helping drive that, but it seems to correspond pretty well. My other big question is how this interacts with monetary policy. Inflation tends to preference financial capital by a.) lowering the real cost of outside credit and b.) causing dislocations within the economy that create opportunities for new startups. That could offset higher corporate taxes to some extent, while if combined with low corporate taxes it could spark a mania.
didibus 6y ago
> but, as I understand it, an disincentive for investors to invest in businesses I don't see this holding true. Can you explain how? Like, yes as a personal investor you now have less to invest, because you are taxed more on your income. But of the money you have left after tax, investment is still investment. There's no other way to make money of your money then to invest it. So as long as you don't spend all the money immediately, the incentive to invest it is there. Also, the companies you invest in will be incentivized to reinvest in themselves, thus their stock growth potential will be higher, so a good time to invest in them. Finally, the biggest investors arn't individuals, but investment firms, and because they themselves are a company, they themselves are like all others more incentivized to reinvest into their business, thus they are more likely to want to take their profit and invest it some more, instead of cashing it out as revenue.
- AnthonyMouse 6y ago
  > I don't see this holding true. Can you explain how? Suppose you have $40,000. You can buy some stock in a domestic corporation, or buy some stock in a foreign corporation, or put a down payment on a house, or buy a new car, or invest in government bonds, or ten other things. If you raise the domestic corporate tax rate, option one becomes less attractive compared to all the other ones.
  - didibus 6y ago
    Oh I was talking about personal income tax in my previous comment. For corporate tax rate, I think it depends if you're planning a growth investment or a dividend based one. For growth, capital tax rate shouldn't affect you at all, since you'll mostly target companies running at close to no revenue or even declaring losses, but growing very fast. For dividend investment, it would, since the companies will have less profit post tax, but if you think about it holistically, that's like the best thing to tax. You have a well established business, that's no longer growing or doing so very slowly, and it is making excess money even after paying all its employees and expenses. It seems a very good place to take from and redistribute. Think about the alternative sources of revenue for the government here? What could be better then that?

thaumasiotes 6y ago

> But if you're happy entering and exiting the business as a whole, it makes sense to sell it (transferring money equal to its value to your personal balance sheet) when taxes are low and about to go up, and then just not work while taxes are high. Not quite. The fact that taxes are about to go up has already taken a huge chunk out of the sale value of the business. You want to sell it when taxes are low and not about to go up.

zdragnar 6y ago

Ah yes, I did miss that, thank you.