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> A lot of growing companies have US taxes that are quite low because they lose money for a long time while they're investing in growth. When they finally becom

• refurb 6y ago
  Student loans interest is deductible at lower incomes. You can deduct mortgage interest (investing in long term housing). You can defer taxes on income through a 401k. It’s not like individuals don’t have mechanisms to save on taxes.
  • bmj 6y ago
    This isn't really equivalent. The current maximum deduction for tuition is 4000$, and that gets phased out at incomes above ~150000$ if you are filing jointly. I have no idea what the limit on a corporation carrying forward losses is, but I'm sure the percentage is significantly greater. Yes, individuals can save on taxes, but can most of us get an effective tax rate of 1%? And, many of the common deductions (mortgage interest, charitable deductions, tuition) all have caps. I don't believe there's a cap on a corporation carrying forward losses from year to year.
    • sokoloff 6y ago
      Why should there be a cap on carrying forward losses? There’s no cap on individuals carrying forward capital losses.
      • bradleyjg 6y ago
        Why should there be a cap and income phaseout on student loan interest deductions?
        • sokoloff 6y ago
          In my opinion, there should not be caps on anything productive that we allow deductions for. When you want to tax high-income people at a higher rate, have the courage and forthrightness to simply raise their rate; don't do it via the backdoor complexity of phaseouts.
        • refurb 6y ago
          Because progressive income tax rates.
    • gamblor956 6y ago
      There are all sorts of limitations on carrying forward corporate losses. There was a 20-year cap on corporations carrying forward losses.I had clients that actually timed-out on using carried-forward losses because they had insufficient profits to use their losses against. However, since 2017, losses can be carried forward indefinitely, but in any given year may only offset up to 80% of taxable income. (As a result of the CARES Act, losses between 2018 and 2021 are not subject to the 80% limitation.) There are section 382 limitations on losses of acquired companies. (In a nutshell, the idea is to discourage a company from being acquired so that the acquirer can use those losses to offset their own taxable profits.) There are other limitations on loss carrying as well but they tend to be pretty esoteric. Yes, individuals can save on taxes, but can most of us get an effective tax rate of 1%? Yes, you can get a 0% (combined tax rate) as an individual if your income is primarily municipal bonds or other tax-free government bonds, even before taking into account deductions. And wage-earners can get single-digit combined tax rates if they are below the poverty line (the exact threshold varies from state to state).
• PragmaticPulp 6y ago
  > Human beings cannot do the equivalent. Spend the entirety of your 20s making very little money because you are investing in growth That’s not really an equivalent, though. These companies aren’t simply giving up opportunity cost. They’re spending real money on real R&D expenditures. In software, that R&D expenditure is largely wages for developers like us. The tax code gives companies benefits for spending this R&D money because we want to encourage them to make the R&D investment even if it comes at a loss (to the company, the employees still gain wages) for several years. We need to think long and hard about changing incentive structures in ways that reduce incentives for companies to invest in R&D and spend money on paying people.
  • symlinkk 6y ago
    That doctor is spending real money on attending medical school, which pays professors. It is an equivalent.
    • Retric 6y ago
      Yes, the Doctor likely makes to much to even deduct the interest on student loans from their taxes where a company could in effect deduct both the interest and principal from those student loans as an expense. Deducting every cost associated with a job would be a huge tax benefit that simply doesn’t apply to people. It’s one of the ways that referring to tax burdens based on income as defined by the tax code is misleading.
      • smaryjerry 6y ago
        First of all you can deduct interest but the standard tax deduction already given usually accommodates a lot of that deduction. Companies can’t deduct principal payments either. There is a crazy amount of people including this article that have no concept of what taxes are. Taxes are not on gross income they are on profit. Calculating taxes on gross income, as this article says, would be outrageous. Take this articles reference that a deduction on stock paid to employees should not be given. The employees who receive that stock have to pay taxes on that money so if it was taxed it would then be essentially double taxed. Also this article states that accelerated depreciation does not encourage investment, and that is just bollocks. Anyone who works in finance would know that accelerated depreciation allows better cash flow on your investment and can make a project feasible or not feasible.
• deleted 6y ago
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• fractionalhare 6y ago
  That's not equivalent. An equivalent example would be a person who makes a large amount of money in their 20s, but spends the majority of it on things that could conceivably appreciate, such that their income artificially represents a loss. Then all of a sudden, whatever they spent money on becomes extremely profitable in their mid 30s. Someone doing that will normally do it within the confines of an LLC by convention (because it almost always implies a business). But you could do it with investing, too. In either case you need not be a megacorp. There are also income tax offsets for education, provided your tax bracket isn't too high.
  • ysavir 6y ago
    > That's not equivalent. An equivalent example would be a person who makes a large amount of money in their 20s, but spends the majority of it on things that could conceivably appreciate, such that their income artificially represents a loss. Then all of a sudden, whatever they spent money on becomes extremely profitable in their mid 30s. Like someone getting a $150k student loan to go to college and/or post-college education?
    • Schiendelman 6y ago
      A loan isn’t a loss. A business can’t deduct that either.
      • bradleyjg 6y ago
        It can deduct the interest. It can also get an R&D credit+ for how it spent the proceeds of the loan. +Depending on a lot of details
        • Schiendelman 6y ago
          Yeah, and if an individual creates a sole proprietorship they could probably hire an instructor and deduct that R&D.
      • ysavir 6y ago
• jjcon 6y ago
  I’m pretty sure you can use previous material capital losses to offset current gains.
  • cube00 6y ago
    You can but the problem is finding a lender to underwrite a mortgage when you're in your 20s in your part time collage job.
• Naga 6y ago
  The purpose is to equalize the amount of tax that companies pay. Consider the following example: Assuming a tax rate of 30%, Company A has net income (profit) of $100 in year 1 and $100 in year two pays $60 in tax on a total profit of $200. Company B has a net loss of $100 in year 1 and net income of $300 ni year 2 has a total profit still of $200. Assuming loss carryforwards are allowed, Company B pays $60 in tax still. Without loss carryforwards, Company B ends up paying $90 in tax on the same amount of profit. It leads to bad headlines when companies claim a bunch of loss carryforwards, but it actually is a fair practice. The other thing to keep in mind is that losses are only paid out in refunds when you actually pay tax. Company B does not earn $30 back from the government for losing money in year 1, it instead gets money back once it starts making profit. Note that at least in Canada, these rules apply to all types of income, not just business income, although losses on employment income basically never happen.
  • bradleyjg 6y ago
    I understand why the rule exists. What I don’t understand is why a similar rule doesn’t exist for people. Here’s another example of where it could help. Take two men, one earns $75k/year (let’s say inflation adjusted) for thirty years as a bus driver. The other plays in the NFL for 1 year makes $2MM and thereafter only makes $250k over the next twenty five years. They’ve made the same amount of money over their lifetimes but the second man paid much higher taxes.
    • fitchjo 6y ago
      NOL (net operating loss) carryforwards, which is what is being described above, would not make a difference in the situation you have laid out here - it sounds like your issue is the fact that we have a progressive tax for personal income (versus a flat tax for corporations)
    • lupire 6y ago
      Your example is bad one because of time value of money and because the rates aren't equal. Better example is someone who invented an amazing technology after 25 years of failure, or someone who works for the same hourly rate but does 3000 hrs one year and 1000 hrs the next.
• defundtheirs 6y ago
  > Human beings cannot do the equivalent Please do not spread disinformation. This is some Qanon level bs. https://www.irs.gov/taxtopics/tc409 https://www.irs.gov/taxtopics/tc409
• frankydp 6y ago
  You can do what describe with education credits, along with other tools. And in your example you could also use student loan repayments for taxable income reductions in the same manor. Only the interest, but that is the same a business not being able to deduct capital investment. With the assumption that we are treating debt like income for the individual, except that individuals do not report that as other income.
• bzbarsky 6y ago
  > Human beings cannot do the equivalent. They can to some extent, actually... See IRS publication Publication 536, "Net Operating Losses (NOLs) for Individuals, Estates, and Trusts". > Spend the entirety of your 20s making very little money because you are investing in growth To actually do the equivalent you would need to spend your 20s _losing_ money. And if you do (in the NOL sense per publication 536) then you can in fact keep rolling the losses forward to offset future income until the losses are exhausted. Now one issue is that things like medical school tuition are not considered "losses" for individuals. So in that sense there is a definite asymmetry here. But businesses can't "go back and use all the unused 24% bracket", not least because US federal corporate income tax does not have brackets. What they can do is that _if_ they have negative taxable income (i.e. revenues - deductible expenses is negative) then they can roll the "unused" part of the deduction into future years to offset future revenues, which is exactly how NOL works for individuals. The primary difference between businesses and individuals here is in what counts as "deductible expense". The business definition is much wider in general, not just for purposes of NOL. > You also can’t deduct the interest on the loans you took to finance that growth. Well, you can until you start making that $800k/year. And only up to a limit, etc. Just like so many other things in the personal tax code, there's an income phaseout and a cap for student loan interest deductions...
  • asdff 6y ago
    If tuition is not considered a loss, surely every other expense would be considered a loss then. A medical school student isn't working a part time job to pay their rent and feed themselves; that's all out of pocket and a pure loss.
    • bzbarsky 6y ago
      The set of things that are considered "losses" (i.e. deductible expenses) for personal tax filings in the US is pretty limited. State/local taxes (now up to a cap). Mortgage interest payments (also with some cap). Mortgage points, mortgage insurance premiums. Medical expenses exceeding some percentage of AGI. Investment interest expenses. Capital losses. Gifts to charity. Casualty/theft losses, subject to a bunch of constraints. Gambling losses (but can't exceed gambling winnings). Some other things I can't recall off the top of my head. As I said above, corporation have a much larger set of things that are considered deductible against revenue to determine taxable income. Starting with the fact that corporations are generally taxed on "profit" while people are generally taxed on "income", which is closer to "revenue" in general.
• gfiorav 6y ago
  Individual humans don’t employ large groups of people and don’t move forward the economy like a company does. I don’t understand why we want to equate rules for companies to rules for individuals? People say “it’s not fair”? Who’s going to employ people? The government can’t produce your salary, companies do that. Btw, many countries should regulate companies more IMO, but that’s not to say companies shouldn’t be encouraged to grow and prosper. Of course companies and individuals should have different rules and of course tax should be one of them. Help companies start and grow and salaries will be paid to people.
  • tehWeeb 6y ago
    Why not let people employ each other where they are instead of importing grandpa’s beliefs about how money is produced? It’s the workers doing that produce the real value, not a rich person holding capital they’ll only spend on us if we capitulate. Why do we need the age old tale of a shared ephemeral store like religion and fiat finance when we see those things become monopolized and gamed by the previous generation every time? We need to believe one old person is literally worth 100x the average person? Who does that benefit?
    • gfiorav 6y ago
      Most companies are not AT&T. To cite one European example, in Spain 80% of companies are 1-3 employees. Giving the entrepreneur a tax break is a great way to help 80% of employers. In the US that number might be even higher [0] (99% percent according to that article but we’d have to cross check what “small business” means in this context). Your rhetoric seems to imply that all companies are owned and managed by greedy monopoly-esque despots wearing a penguin suit and smoking a cigar, but reality just doesn’t follow. You should also consider the alternative. Where is wealth generated if not through companies? Is it the government? In this scheme, the government is the company and covers 100% of business. How’s a government different than the closed board of a monopolic company? Or are they just “the good ones” and therefore somehow immune to produce injustice? To me, as you can probably tell, this notion is naive at best. I have no issues with taxing the super rich a lot more. I don’t think anyone needs to be worth USD 185 Billion. However, I’m not sour about it and don’t believe a “revolution” is the only solution. Far from it. We’ve dealt with this before: it’s about regulation and policy. Very incremental. IMHO what makes fairness is a social ladder. As long as there’s a way for the willing, there’s fairness. Any immigrant will tell you as much. [0] https://www.fundera.com/blog/small-business-employment-and-growth-statistics https://www.fundera.com/blog/small-business-employment-and-g...
• postingawayonhn 6y ago
  Paying tuition is more like an investment in a non-depreciating asset.
  • bradleyjg 6y ago
    How is it non-depreciating? You can’t practice medicine forever.
• JumpCrisscross 6y ago
  > Human beings cannot do the equivalent Some can. Those with assets to depreciate, for example. Frankly, the whole corporate tax debate seems manufactured to obscure the top personal tax bracket being about $500,000. Raise corporate taxes and you tax everyone with shares. That hits the rich, sure [1], but it also hits every pension fund and middle class saver. And if the corporate tax rate goes up instead of a $1mm, $2mm, $4mm and $8mm tax bracket being created, everyone at the top comes out ahead. [1] Screw with the tax code for companies, legal fictions, enough and they’ll magically start moving. Then it’s a game of whack-a-mole. People are much less likely to change their way of life in response to tax codes; this is well documented.
  • gmadsen 6y ago
    the ultra rich are paid in stocks, not salary. Raising the tax brackets wouldn't do anything
    • leetcrew 6y ago
      if you receive stock as compensation, it is taxed as income. if the stock wildly appreciates after that event (and is later sold), it is capital gains.
    • koheripbal 6y ago
      Stocks paid to employees are taxed at the same exact rate as cash salary income. There is so much politically motivated misinformation going around on social media - it's really concerning.
    • dragonwriter 6y ago
      So, new brackets or not, tax capital gains, gifts, and inheritances as regular income to the recipient. Also, apply taxes (and corresponding benefit eligibility) equivalent to payroll/self-employment taxes to that income. At the same time, allow corporations to expense disbursements: you are taxing individual income fairly, corporate tax just is a tool to prevent indefinite tax-free deferral of income.
• wtf_is_up 6y ago
  Why would you expect it to be the same (besides some nonsense appeal to 'corporations are people')?
  • gmadsen 6y ago
    not sure what side you are trying to argue? The whole point, is corporations get the benefits of both, and the downside of neither. They have liability and tax advantages that people don't have, yet they also have tremendous politic power as if acting with personal free speech (citizens united)
• tyingq 6y ago
  Well, and US corporations are taxed on profits, not income...like people are.
• valuearb 6y ago
  If you spent your 20s making money, little or no, you didn't have losses. If you spent your 20s conducting losing trades in the stock market, you accumulate capital gains losses that you can only apply $3,000 per year against your regular income. If at age 30 you made $800,000 in capital gains you are able to apply all those unused losses against those gains. So "human beings" aren't much different.
  • skybrian 6y ago
    A difference is that just about everything a business spends money on is a business expense, while many of the things people spend money on aren’t treated like business expenses. Travel is an example where buying exactly the same thing can have very different tax consequences depending on whether it’s considered for business or not. To some extent this is made up for with the standard deduction and various other deductions, but you can’t carry it forward if you made less than the standard deduction, even if you actually are spending more than you make. The idea of carrying forward losses is unintuitive to most people because we mostly don’t get to do that.
    • valuearb 6y ago
      Personal expenses are just that, personal. While some have a limited effect on your ability to earn a living, most are just consumption. Business expenses are almost always only the costs of actually generating revenues. Thats why there are strict limits on travel & entertainment deductions. Of course there are always exceptions, does the company need that private jet? But their accountants have to justify private jets, etc to ensure the company doesn't face tax fraud charges.
• clairity 6y ago
  we really should do away with tax-advantaging corporations. those regulations have done the work they were designed to do, which is not, strictly speaking, to 'encourage investment', but rather to juice the american economy into global competitiveness. now what we need is to more widely disperse capital to again encourage competitiveness, an edge we're losing rapidly as capital stagnates in the west (as opposed to the vibrancy of the east and global emerging markets).
• tracer4201 6y ago
  How is a company the same as an individual? How do you compare risk the company takes when investing in research, marketing, hiring, etc to a person going to medical school? This is an apples and oranges comparison at best. If companies were treated exactly as individuals in this case, I don’t think many companies would survive. With less of the pie to go around, that’s effectively fewer jobs and less wealth created for people who work at these companies.