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When dealing with corporate tax rates one should talk about effective tax rate. There are quite a few examples of corporations paying very little tax on their

When dealing with corporate tax rates one should talk about effective tax rate. There are quite a few examples of corporations paying very little tax on their profits. Some even pay zero tax whilst making billions in profit. I believe that the effective tax rate on U.S. corporations is roughly the industrialized nation average. Having no corporate tax would make the U.S. an outlier in terms of tax policy. This doesn't make it unsound but does make me hesitant to agree with you on this point. Are the tax policies of most nations unfair to corporations? I have a hard time believing this to be so. Imagine a business with one owner. The owner employs 5 workers. Shouldn't the business pay tax on the profits? Suppose the business owner makes a profit of $100,000. Should this be tax free because he/she owns a business? If the business owner made $100,000 while working at 3M then the salary (profit) would be taxed. I think the philosophy under girding the tax system is that, roughly speaking, any entity that gets money [edit] should pay tax on it. This seems fair to me. There are notable exceptions of course. If I find $5 million dollars in gold while on a walk I pay tax on the whole amount. If I get the money because someone died I don't.

yummyfajitas 16y ago
Some even pay zero tax whilst making billions in profit. Yes, typically because they lost billions in prior years. Sometimes also due to various tax subsidies (e.g., green energy tax credits in the case of GE). Are the tax policies of most nations unfair to corporations? I didn't say it was unfair to corporations. I don't believe that a claim like "unfair to corporations" even makes logical sense. I said it was unfair to their owners. Consider your hypothetical business owner. Out of the $100k in profits, the business pays perhaps $20k. The business owner then pays another $15k. But then people trying to score political points complain that he is getting away with something, and paying only $15k on $80k (19%). I think that's unfair. Under my proposal, the business pays $0k and the owner pays $35k. This way, he gets to take (moral/political) credit for the taxes he pays just like a salaried employee. (Similarly, I favor eliminating payroll taxes.)
- yequalsx 16y ago
  In the example provided, the business does not pay tax on the $100,000 given to the owner (as salary or other form of compensation) as that is an expense of the business. The business only pays tax on the profits to the business (as an entity separate from the owner). There is nothing illogical with the phrase "unfair to corporations". A corporation is a person in the U.S. Is is it illogical to say, "unfair to people"? It can be said of a policy that it is unfair to corporations. Suppose the only entities that were taxed were corporate entities. In such a case one would reasonably say that the tax structure was unfair to corporations. Owners of a corporation are stock holders. They make a profit on their holding via dividends and selling the stock at a higher price than what they bought it for. I disagree that it is unfair to a stock holder to pay taxes on the dividends received or on the capital gains. I believe it is a sound principle - for the maintenance of consistency, which is what fairness really is about in this issue - that entities that make a profit pay tax on it.
  - yummyfajitas 16y ago
    You are conflating salaries and dividends. The business doesn't pay tax on $100k salary (it's an expense) and the owner pays ordinary income tax on that. The same is true for pass-through corporations, which make up a large fraction of the profitable corporations that pay no taxes. The business does pay tax on profits and spends after tax dollars distributing dividends to shareholders. Similarly, after tax dollars contribute to a corporate valuation which enables owners to sell shares and take capital gains. A corporation is a person in the U.S. The term "person" has been overloaded and you are conflating different uses of the term. A corporation is a legal person, which means they can enter contracts, file lawsuits and be sued. This provides a common interface for counterparties, nothing more. A corporation is a set of assets, liabilities, a web of contracts governing the management of said assets/liabilities and a government guarantee of limited liability. I can't see how it makes sense to discuss whether something is unfair to my company. Similarly, it makes no sense discussing whether something is unfair to my cell phone and service contract. I disagree that it is unfair to a stock holder to pay taxes on the dividends received or on the capital gains. Me too. All I said is that it's unfair to tax profits to the tune of $20k, dividends to the tune of $15k, and then pretend the owner of the corporation is only paying $15k in taxes. If you want to discuss the taxes paid by the top 400 taxpayers in the US, include the corporate taxes paid by the companies they own.
URSpider94 16y ago
Imagine a business with one owner. The owner employs 5 workers. Shouldn't the business pay tax on the profits? Suppose the business owner makes a profit of $100,000. Should this be tax free because he/she owns a business? If the business owner made $100,000 while working at 3M then the salary (profit) would be taxed. You are missing the exact point. If this business were owned as a sole proprietorship, then the owner would indeed claim the $100,000 as income and be taxed on it. If the business were owned as a C-corporation with only one shareholder, then the business would pay corporate taxes on any profits. Then, if the owner wants to have immediate access to those profits, she needs to distribute them to herself as a dividend. She would then pay taxes AGAIN, on the same income, since dividends are taxable. So, the second entrepreneur, just by virtue of owning a corporation, could be subject to a higher tax rate for the same income. That said, if one were to entirely eliminate the corporate income tax, then it would be all too easy to stockpile gains inside a corporation and let them compound tax-free until withdrawal, which would be a pretty nice tax shelter.
- yequalsx 16y ago
  Suppose the owner pays herself $100,000 in salary and the business has, after this expense and all other expenses, $20,000 in the bank. The business then pays tax on this $20,000. Any entity that makes a profit pays tax on it (roughly speaking). This is consistent and fair. If the business (as an entity separate from the owner) decides to pay a dividend then whoever gets the dividend pays a tax on the money. Suppose the business decides to give me a dividend of $20,000 and I have nothing to do with the business. Shouldn't I pay tax on it? There shouldn't be a distinction on who gets their dividends taxed. A dividend is a dividend. If the owner wanted $120,000 in salary then the owner should have paid herself $120,000. If she decides to give me a $20,000 dividend then I should pay tax on that dividend. If she decides to give herself a dividend then I she should pay a tax on that dividend. A dividend to herself is no more worthy of a tax break than a dividend to me. In the interest of consistency (fairness) the guiding principle is that an entity pay tax on money it gets after expenses. It also makes things easier.
  - URSpider94 16y ago

yummyfajitas 16y ago

Some even pay zero tax whilst making billions in profit. Yes, typically because they lost billions in prior years. Sometimes also due to various tax subsidies (e.g., green energy tax credits in the case of GE). Are the tax policies of most nations unfair to corporations? I didn't say it was unfair to corporations. I don't believe that a claim like "unfair to corporations" even makes logical sense. I said it was unfair to their owners. Consider your hypothetical business owner. Out of the $100k in profits, the business pays perhaps $20k. The business owner then pays another $15k. But then people trying to score political points complain that he is getting away with something, and paying only $15k on $80k (19%). I think that's unfair. Under my proposal, the business pays $0k and the owner pays $35k. This way, he gets to take (moral/political) credit for the taxes he pays just like a salaried employee. (Similarly, I favor eliminating payroll taxes.)

yequalsx 16y ago
In the example provided, the business does not pay tax on the $100,000 given to the owner (as salary or other form of compensation) as that is an expense of the business. The business only pays tax on the profits to the business (as an entity separate from the owner). There is nothing illogical with the phrase "unfair to corporations". A corporation is a person in the U.S. Is is it illogical to say, "unfair to people"? It can be said of a policy that it is unfair to corporations. Suppose the only entities that were taxed were corporate entities. In such a case one would reasonably say that the tax structure was unfair to corporations. Owners of a corporation are stock holders. They make a profit on their holding via dividends and selling the stock at a higher price than what they bought it for. I disagree that it is unfair to a stock holder to pay taxes on the dividends received or on the capital gains. I believe it is a sound principle - for the maintenance of consistency, which is what fairness really is about in this issue - that entities that make a profit pay tax on it.
- yummyfajitas 16y ago
  You are conflating salaries and dividends. The business doesn't pay tax on $100k salary (it's an expense) and the owner pays ordinary income tax on that. The same is true for pass-through corporations, which make up a large fraction of the profitable corporations that pay no taxes. The business does pay tax on profits and spends after tax dollars distributing dividends to shareholders. Similarly, after tax dollars contribute to a corporate valuation which enables owners to sell shares and take capital gains. A corporation is a person in the U.S. The term "person" has been overloaded and you are conflating different uses of the term. A corporation is a legal person, which means they can enter contracts, file lawsuits and be sued. This provides a common interface for counterparties, nothing more. A corporation is a set of assets, liabilities, a web of contracts governing the management of said assets/liabilities and a government guarantee of limited liability. I can't see how it makes sense to discuss whether something is unfair to my company. Similarly, it makes no sense discussing whether something is unfair to my cell phone and service contract. I disagree that it is unfair to a stock holder to pay taxes on the dividends received or on the capital gains. Me too. All I said is that it's unfair to tax profits to the tune of $20k, dividends to the tune of $15k, and then pretend the owner of the corporation is only paying $15k in taxes. If you want to discuss the taxes paid by the top 400 taxpayers in the US, include the corporate taxes paid by the companies they own.

URSpider94 16y ago

Imagine a business with one owner. The owner employs 5 workers. Shouldn't the business pay tax on the profits? Suppose the business owner makes a profit of $100,000. Should this be tax free because he/she owns a business? If the business owner made $100,000 while working at 3M then the salary (profit) would be taxed. You are missing the exact point. If this business were owned as a sole proprietorship, then the owner would indeed claim the $100,000 as income and be taxed on it. If the business were owned as a C-corporation with only one shareholder, then the business would pay corporate taxes on any profits. Then, if the owner wants to have immediate access to those profits, she needs to distribute them to herself as a dividend. She would then pay taxes AGAIN, on the same income, since dividends are taxable. So, the second entrepreneur, just by virtue of owning a corporation, could be subject to a higher tax rate for the same income. That said, if one were to entirely eliminate the corporate income tax, then it would be all too easy to stockpile gains inside a corporation and let them compound tax-free until withdrawal, which would be a pretty nice tax shelter.

yequalsx 16y ago
Suppose the owner pays herself $100,000 in salary and the business has, after this expense and all other expenses, $20,000 in the bank. The business then pays tax on this $20,000. Any entity that makes a profit pays tax on it (roughly speaking). This is consistent and fair. If the business (as an entity separate from the owner) decides to pay a dividend then whoever gets the dividend pays a tax on the money. Suppose the business decides to give me a dividend of $20,000 and I have nothing to do with the business. Shouldn't I pay tax on it? There shouldn't be a distinction on who gets their dividends taxed. A dividend is a dividend. If the owner wanted $120,000 in salary then the owner should have paid herself $120,000. If she decides to give me a $20,000 dividend then I should pay tax on that dividend. If she decides to give herself a dividend then I she should pay a tax on that dividend. A dividend to herself is no more worthy of a tax break than a dividend to me. In the interest of consistency (fairness) the guiding principle is that an entity pay tax on money it gets after expenses. It also makes things easier.
- URSpider94 16y ago