3 ms·

To be fair, you have to wonder what the point of corporations even paying taxes is. I always thought that they should wait until the shareholders or employees

To be fair, you have to wonder what the point of corporations even paying taxes is. I always thought that they should wait until the shareholders or employees actually received money/goods/services from the Borg. In a highly simplified world, 100% of profits are passed through, but then you currently get the issue of dividends being non-deductible (that's true, isn't it?). Odd. On the other hand, with the Senator from Mastercard running matters, I don't expect to see any consequential changes.

PeterisP 6y ago
The key issue with that is that in this case the shareholders can defer the distribution (and thus the taxation) for multiple decades and potentially forever. If you need to get some spending money/goods/services from the Borg, you can instead sell a small share of the Borg; if you'd want to invest the profits somewhere else, you instead have the Borg invest it there (because that's untaxed in that case), if you'd want to buy a fancy villa you can have the Borg buy it and rent it to you - even at a fair price, the key thing is that you're only taxed on the amount you'd need to extract for rent, but the purchase is with pre-tax money. If we would wait until the shareholders actually receive the money, it means they have the ability to arbitrarily decide when the revenue will be taxed, so they'll ensure that it definitely isn't taxed now. So the result would be that profits are never passed through until/unless absolutely necessary - or perhaps they can wait out a couple governments until some decades later the rules change.
- kingsuper20 6y ago
  It seems to me that that argument could be made for any appreciating asset class. Real estate (especially in Prop 13 California) would go up in value and could be borrowed against. Same with collectibles. I hear what you are saying in that the gaming on a simplification begins on Day 2. With tax law, I'd say that the West is covering new ground in the last 100 years. Multiple mitts in the pie of legislation who all want something different (money, partial control of the taxee, veering of social goals) resulting in increasingly arcane rule sets, edge conditions resulting in tax court decisions with yet more fuzziness on the outlines. The death of self employment and economy of scale of the modern corporation leads you to some weird places.
  - PeterisP 6y ago
    No, the argument is about revenue generating asset class, and the thing is is that such a deferred taxation enables, and motivates (perhaps even forces) one to effectively convert any revenue generating asset class to an appreciating asset through a corporate wrapper. And the deferral of taxes breaks the process of governance, as there's no income now to pay for the common expenses now. Real estate is a good example - assume non-appreciating real estate, which is the historically main example of a revenue generating asset (i.e. the rentier landlord class historically). If you defer taxation of profits until they're removed from the company, then any rent-earning landlord can instead of earning rent, getting taxed, and investing that after-tax money in more real estate would establish a corp for that, and use the rental profits (untaxed) to buy more real estate within that corporation. It gives a tax advantage (ability to arbitrarily defer) to everyone who can put their earnings under a corporation, and punishes those who can't. The key problem with such taxation is essentially the same as moving to a consumption-only tax - it means that you disproportionally tax the people who (have to) spend all their income to buying things for consumption (i.e. the poor), and don't tax the people who use their income to buy revenue-generating assets and control (i.e. capitalists); it's a rich-get-richer, poor-get-poorer form of taxation.
    - kingsuper20 6y ago
      "rich-get-richer, poor-get-poorer form of taxation." Is poor-get-richer, rich-get-poorer the purpose of taxation? Why?
ghaff 6y ago
Corporate income tax is double taxation--in theory. On the other hand, as others note, there are so many ways for individuals to defer taxation, for example in the case of 401 (k)s, or even eliminate it in the form of large charitable contributions or other mechanisms. So I'm not entirely opposed to some level of corporate income tax.

PeterisP 6y ago

The key issue with that is that in this case the shareholders can defer the distribution (and thus the taxation) for multiple decades and potentially forever. If you need to get some spending money/goods/services from the Borg, you can instead sell a small share of the Borg; if you'd want to invest the profits somewhere else, you instead have the Borg invest it there (because that's untaxed in that case), if you'd want to buy a fancy villa you can have the Borg buy it and rent it to you - even at a fair price, the key thing is that you're only taxed on the amount you'd need to extract for rent, but the purchase is with pre-tax money. If we would wait until the shareholders actually receive the money, it means they have the ability to arbitrarily decide when the revenue will be taxed, so they'll ensure that it definitely isn't taxed now. So the result would be that profits are never passed through until/unless absolutely necessary - or perhaps they can wait out a couple governments until some decades later the rules change.

kingsuper20 6y ago
It seems to me that that argument could be made for any appreciating asset class. Real estate (especially in Prop 13 California) would go up in value and could be borrowed against. Same with collectibles. I hear what you are saying in that the gaming on a simplification begins on Day 2. With tax law, I'd say that the West is covering new ground in the last 100 years. Multiple mitts in the pie of legislation who all want something different (money, partial control of the taxee, veering of social goals) resulting in increasingly arcane rule sets, edge conditions resulting in tax court decisions with yet more fuzziness on the outlines. The death of self employment and economy of scale of the modern corporation leads you to some weird places.
- PeterisP 6y ago
  No, the argument is about revenue generating asset class, and the thing is is that such a deferred taxation enables, and motivates (perhaps even forces) one to effectively convert any revenue generating asset class to an appreciating asset through a corporate wrapper. And the deferral of taxes breaks the process of governance, as there's no income now to pay for the common expenses now. Real estate is a good example - assume non-appreciating real estate, which is the historically main example of a revenue generating asset (i.e. the rentier landlord class historically). If you defer taxation of profits until they're removed from the company, then any rent-earning landlord can instead of earning rent, getting taxed, and investing that after-tax money in more real estate would establish a corp for that, and use the rental profits (untaxed) to buy more real estate within that corporation. It gives a tax advantage (ability to arbitrarily defer) to everyone who can put their earnings under a corporation, and punishes those who can't. The key problem with such taxation is essentially the same as moving to a consumption-only tax - it means that you disproportionally tax the people who (have to) spend all their income to buying things for consumption (i.e. the poor), and don't tax the people who use their income to buy revenue-generating assets and control (i.e. capitalists); it's a rich-get-richer, poor-get-poorer form of taxation.
  - kingsuper20 6y ago
    "rich-get-richer, poor-get-poorer form of taxation." Is poor-get-richer, rich-get-poorer the purpose of taxation? Why?

ghaff 6y ago

Corporate income tax is double taxation--in theory. On the other hand, as others note, there are so many ways for individuals to defer taxation, for example in the case of 401 (k)s, or even eliminate it in the form of large charitable contributions or other mechanisms. So I'm not entirely opposed to some level of corporate income tax.