6 ms·

An alternative to attempting to tax companies, is to tax people. There is no company that would just exist to forever eat money away from the public. Eventuall

by jusssi 6y ago

An alternative to attempting to tax companies, is to tax people. There is no company that would just exist to forever eat money away from the public. Eventually they intend to pay the profits to a real person (either in money, or other benefits). Taxing that dividend or salary transaction might be simple enough to just work. And you have a real person to put to jail when the taxes were avoided.

gnicholas 6y ago
This could work, but it would have to be reconciled with the existing basis step-up at death, which is a key part of our intergenerational personal tax system. If you only taxed people when there is a dividend or salary payment, a savvy CEO of a private company could follow the tax advice of "borrow, buy, die". Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. Then when the CEO dies, the loans are repaid out of the estate. And the basis in the remaining shares is stepped up when passed to heirs. So while you can get rid of corporate taxation, the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime.
- jusssi 6y ago
  > Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. This would mean that they essentially pay a "wealth tax" (interest on all their borrowed net worth, with probably a decent premium for the risk) to the bank. > Then when the CEO dies, the loans are repaid out of the estate. And at this point, income is raised out of the company and would become taxable. At least where I live, the estate of a natural person pays taxes for their income like a living natural person. > the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime But they'd still pay the taxes eventually. I don't see this as a huge issue. If the society can't wait to get their the taxes (IMHO a nation state should plan for timeframes longer than a single lifetime), they can use the same trick to get a loan from the bank with the future tax income as collateral.
  - sokoloff 6y ago
    We could even invent borrowing mechanisms where governments could get money today in exchange for a binding agreement to make future payments against those future tax revenues. We could call these binding agreements a government bond.
beefield 6y ago
Forever is a long time. In practice there are wealthy people willing to pass vast majority of their wealth through generations. Personally I don't think it is fair or likely healthy in the long term for the society to let vast majority of the income/wealth of wealthy and thus powerful people to go untaxed - even[1] if that income/wealth is not consumed. [1] Actually it should be "especially if it is not consumed". In the old days there was a shortage of capital for investments indicated by relatively high interest rates. Nowadays there is shortage of consumption. But that to my understanding is a bit of a heterodox view, so I am just leaving it there.
- jusssi 6y ago
  > Personally I don't think it is fair or likely healthy in the long term for the society to let vast majority of the income/wealth of wealthy and thus powerful people to go untaxed But this is already happening even with the current system that attempts to tax company profits, isn't it? My point is that taxing the person instead of the company would enable taxing the wealthy. There are already quite severe restrictions of using company assets for your personal benefit, at least where I live that is taxable as income. I should amend how I expressed the idea: I never meant that companies pay no tax at all, only that they'd pay no tax on profit (which can be hidden for the yearly checkpoint by creative accounting). That leaves all sorts of tax categories still available for use (land, transactions, resource usage), which are much harder to hide or deny. A company making profit would be involved in some activity that would be taxable through these. Money on a bank account is by itself a bad medium to store wealth, as it's generally subject to 1%~5% yearly inflation. Whether wealth (aside from income/profit) of individuals or companies should be taxed is a different discussion. Many countries choose to tax wealth only when it's in form of land or constructed property.
  - beefield 6y ago
    If we transform the taxation so that the income/profit of people and corporations is no more taxed, but the tax revenue is still somehow fairly collected, I am all in. It is just that typically when people propose stopping taxing corporate profits, they offer nothing to replace the tax. One of my pet ideas is to stop taxing income/profits of limited liability companies completely. Instead make the the companies issue a certain percentage of their stock to the tax authorities annually. For public companies, Tax authorities just sell the shares in exchange. For private ones, the shares would be auctioned publicly. Outcomes: - No negative tax cashflows to companies. Ever. - No need for creative tax accounting. Only ones left to fool with accounting are the owners of the companies. - Strong incentive to simplify corporate structures. Any company owned by a company would add to tax burden of the ultimate owners. (For private companies, it might be nice to allow them to ask to postpone the auctions for e.g. 5 years if they want to keep the control of the company but are short of cash to buy the stock from the auction)
berdario 6y ago
Maybe? Ingvar Kamprad net worth was "only" 3 billion $ That's about 25 billion $ lower than if he had unfettered access to all of IKEA's worth. https://www.forbes.com/profile/ingvar-kamprad/ https://www.forbes.com/profile/ingvar-kamprad/ If you like how the company you built spends money more than how the state spends money, you're going to want your company to capture more money/worth without relinquishing it to the public. Another rationale could also be when you can give a stake in your company to your family, that way you won't ever have need to pay profits during your lifetime, since the company (which could be a charity) will actually work as a cross-generational fund. Also, this works well with the ethos of some companies (like Amazon, allegedly) which reinvest a lot of their profits to cut margins/develop new products... And overall just tighten their hold on the market
- lotsofpulp 6y ago
  > Also, this works well with the ethos of some companies (like Amazon, allegedly) which reinvest a lot of their profits to cut margins/develop new products... And overall just tighten their hold on the market Should a businesses goal not be to tighten their hold on the market? I’m pretty sure if I don’t, someone else will.
  - draugadrotten 6y ago
    Pure greed dictates that companies must do what is best for the individual company. Grow like cancer, engulf all competition, capture the market etc. However, the owners of the company are humans that do not need to be constrained by those rules. Indeed, humans can hold other values higher - such as seeing that acting in the benefit of the entire society or even to benefit the entire planet is better than focusing on the best for a single corporation. Pretend for a while that you are the majority owner of an internet company that preys on attention. You can capture the attention of millions, even billions of humans, and grow your vast empire. You can even become so successful that humans choose your product before the attention of other humans, choosing the dopamin kick from social media before real social interactions. But...should you? Replacing the social interactions of an entire planet might make you rich today, but the price might be very high. Even your own offspring might suffer and perish in a world where social life has been replaced by hearts, thumbs up and endless scrolling.
kokey 6y ago
We already tax people and most of the noise about companies not paying tax basically ignores that because it makes a good headline. I'm of the opinion that taxes on corporations are a bit of a nonsense tax. If they sell goods or services, there's sales tax. If their employees and shareholders receive salaries and profits, they get income and dividend tax. When we see a headline of a company paying almost no taxes, they've usually paid more in sales taxes and their staff and shareholders will be paying more in taxes than corporation taxes can ever dream of bringing in. Taxes on profits is difficult, profits can be moved easily. Tax profits too much and companies simply won't make any profits. Sales tax is good since it goes to the actual market the product is sold into, it's the cost of having access to that market. Income/dividend taxes brings in the money where the employees and shareholders live and spend their money, so it's the cost of benefiting from the society they live in. We can quibble about loopholes and levels around those taxes because they make sense, but corporation taxes is never going to bring in enough money to warrant all the noise.

by jusssi 6y ago

gnicholas 6y ago

This could work, but it would have to be reconciled with the existing basis step-up at death, which is a key part of our intergenerational personal tax system. If you only taxed people when there is a dividend or salary payment, a savvy CEO of a private company could follow the tax advice of "borrow, buy, die". Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. Then when the CEO dies, the loans are repaid out of the estate. And the basis in the remaining shares is stepped up when passed to heirs. So while you can get rid of corporate taxation, the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime.

jusssi 6y ago
> Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. This would mean that they essentially pay a "wealth tax" (interest on all their borrowed net worth, with probably a decent premium for the risk) to the bank. > Then when the CEO dies, the loans are repaid out of the estate. And at this point, income is raised out of the company and would become taxable. At least where I live, the estate of a natural person pays taxes for their income like a living natural person. > the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime But they'd still pay the taxes eventually. I don't see this as a huge issue. If the society can't wait to get their the taxes (IMHO a nation state should plan for timeframes longer than a single lifetime), they can use the same trick to get a loan from the bank with the future tax income as collateral.
- sokoloff 6y ago
  We could even invent borrowing mechanisms where governments could get money today in exchange for a binding agreement to make future payments against those future tax revenues. We could call these binding agreements a government bond.

beefield 6y ago

Forever is a long time. In practice there are wealthy people willing to pass vast majority of their wealth through generations. Personally I don't think it is fair or likely healthy in the long term for the society to let vast majority of the income/wealth of wealthy and thus powerful people to go untaxed - even[1] if that income/wealth is not consumed. [1] Actually it should be "especially if it is not consumed". In the old days there was a shortage of capital for investments indicated by relatively high interest rates. Nowadays there is shortage of consumption. But that to my understanding is a bit of a heterodox view, so I am just leaving it there.

jusssi 6y ago
> Personally I don't think it is fair or likely healthy in the long term for the society to let vast majority of the income/wealth of wealthy and thus powerful people to go untaxed But this is already happening even with the current system that attempts to tax company profits, isn't it? My point is that taxing the person instead of the company would enable taxing the wealthy. There are already quite severe restrictions of using company assets for your personal benefit, at least where I live that is taxable as income. I should amend how I expressed the idea: I never meant that companies pay no tax at all, only that they'd pay no tax on profit (which can be hidden for the yearly checkpoint by creative accounting). That leaves all sorts of tax categories still available for use (land, transactions, resource usage), which are much harder to hide or deny. A company making profit would be involved in some activity that would be taxable through these. Money on a bank account is by itself a bad medium to store wealth, as it's generally subject to 1%~5% yearly inflation. Whether wealth (aside from income/profit) of individuals or companies should be taxed is a different discussion. Many countries choose to tax wealth only when it's in form of land or constructed property.
- beefield 6y ago
  If we transform the taxation so that the income/profit of people and corporations is no more taxed, but the tax revenue is still somehow fairly collected, I am all in. It is just that typically when people propose stopping taxing corporate profits, they offer nothing to replace the tax. One of my pet ideas is to stop taxing income/profits of limited liability companies completely. Instead make the the companies issue a certain percentage of their stock to the tax authorities annually. For public companies, Tax authorities just sell the shares in exchange. For private ones, the shares would be auctioned publicly. Outcomes: - No negative tax cashflows to companies. Ever. - No need for creative tax accounting. Only ones left to fool with accounting are the owners of the companies. - Strong incentive to simplify corporate structures. Any company owned by a company would add to tax burden of the ultimate owners. (For private companies, it might be nice to allow them to ask to postpone the auctions for e.g. 5 years if they want to keep the control of the company but are short of cash to buy the stock from the auction)

berdario 6y ago

Maybe? Ingvar Kamprad net worth was "only" 3 billion $ That's about 25 billion $ lower than if he had unfettered access to all of IKEA's worth. https://www.forbes.com/profile/ingvar-kamprad/ https://www.forbes.com/profile/ingvar-kamprad/ If you like how the company you built spends money more than how the state spends money, you're going to want your company to capture more money/worth without relinquishing it to the public. Another rationale could also be when you can give a stake in your company to your family, that way you won't ever have need to pay profits during your lifetime, since the company (which could be a charity) will actually work as a cross-generational fund. Also, this works well with the ethos of some companies (like Amazon, allegedly) which reinvest a lot of their profits to cut margins/develop new products... And overall just tighten their hold on the market

lotsofpulp 6y ago
> Also, this works well with the ethos of some companies (like Amazon, allegedly) which reinvest a lot of their profits to cut margins/develop new products... And overall just tighten their hold on the market Should a businesses goal not be to tighten their hold on the market? I’m pretty sure if I don’t, someone else will.
- draugadrotten 6y ago
  Pure greed dictates that companies must do what is best for the individual company. Grow like cancer, engulf all competition, capture the market etc. However, the owners of the company are humans that do not need to be constrained by those rules. Indeed, humans can hold other values higher - such as seeing that acting in the benefit of the entire society or even to benefit the entire planet is better than focusing on the best for a single corporation. Pretend for a while that you are the majority owner of an internet company that preys on attention. You can capture the attention of millions, even billions of humans, and grow your vast empire. You can even become so successful that humans choose your product before the attention of other humans, choosing the dopamin kick from social media before real social interactions. But...should you? Replacing the social interactions of an entire planet might make you rich today, but the price might be very high. Even your own offspring might suffer and perish in a world where social life has been replaced by hearts, thumbs up and endless scrolling.

kokey 6y ago

We already tax people and most of the noise about companies not paying tax basically ignores that because it makes a good headline. I'm of the opinion that taxes on corporations are a bit of a nonsense tax. If they sell goods or services, there's sales tax. If their employees and shareholders receive salaries and profits, they get income and dividend tax. When we see a headline of a company paying almost no taxes, they've usually paid more in sales taxes and their staff and shareholders will be paying more in taxes than corporation taxes can ever dream of bringing in. Taxes on profits is difficult, profits can be moved easily. Tax profits too much and companies simply won't make any profits. Sales tax is good since it goes to the actual market the product is sold into, it's the cost of having access to that market. Income/dividend taxes brings in the money where the employees and shareholders live and spend their money, so it's the cost of benefiting from the society they live in. We can quibble about loopholes and levels around those taxes because they make sense, but corporation taxes is never going to bring in enough money to warrant all the noise.