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You’re ignoring that the companies can just keep lots of cash without distributing it to individuals in order to avoid taxation under your system. So for exampl

You’re ignoring that the companies can just keep lots of cash without distributing it to individuals in order to avoid taxation under your system. So for example the company can rent houses, cars, and airplanes for every employee to ensure there is not much money left to be taxed as income. On paper they look like corporate expenses but it’s really just a way to distribute money without it being taxable.

NovemberWhiskey 5y ago
Perks/fringe benefits for employees are imputed income in virtually every tax system.
charlesdm 5y ago
That should be taxable in the hands of the employee, obviously. Estonia seems to be doing well with their tax system, and it's pretty much exactly what is described above.
kapuasuite 5y ago
Those would be taxable for the employees receiving those perks, giving away shareholders' money to employees to reduce a tax bill is absolutely nonsensical in financial, and if a publicly traded company were to do this for "every employee" (or even just management) there would be an immediate lawsuit.
IanCal 5y ago
> You’re ignoring that the companies can just keep lots of cash without distributing it to individuals Nobody benefits from a company growing indefinite wealth without distributing it to actual people. > So for example the company can rent houses, cars, and airplanes for every employee If they could do this, all companies would do this already to avoid taxes. In reality, this is dealt with by (in the UK) considering those things "benefits in kind" aka equivalent to cash.
- tw04 5y ago
  That is completely avoided if the person makes less than 12k/year though. So there is already a loophole, there just hasn’t been enough incentive to use it yet. Although I’d question if that’s why some executives take a $1 salary and the rest in stock. All of their benefits are now tax free*. yes I realize it’s nuanced and depends on country.
  - saddlerustle 5y ago
    No, the value of benefits in kind count towards the income tax band.
  - IanCal 5y ago
    That is absolutely not true in the UK. Again, this would just be what every business would do if that were the case.
- TomVDB 5y ago
  > Nobody benefits from a company growing indefinite wealth without distributing it to actual people. Isn't this exactly what companies like Apple etc. are doing? As it accumulates wealth, the stock price (which is supposed to reflect the value of the company) goes up as well. And thus the shareholders benefit.
  - hbosch 5y ago
    I believe actual cash hoards on hand is considered bad business. Apple having cash on hand is seen as okay, at present, because investors trust them to spend it well on expansion. Remember share price doesn’t indicate how well a company is doing today, it indicates how well people believe it will do In the future. If you have piles of cash and don’t plan on spending it, somehow, on your business then you can’t expect your stock to rise and in fact if you’re so inept that you don’t know how to spend your billions your stock price may actually drop.
    - TomVDB 5y ago
      You can expect that the market cap will be at least the amount of cash they have, if it’s a profitable company. (This isn’t always the case, but it’s close.) The more cash they gather, the higher the lower bound of the share price.
  - IanCal 5y ago
    Why would the stock price go up for a company that explicitly did not distribute the money ever to real people? And don't apple pay dividends?
    - TomVDB 5y ago
      Company A has $X in revenue, $Y in profits, and $0 in cash. Company B has X revenue, Y in profits, and $1T in cash. Which of the two would fetch a higher price in an acquisition?
- jk7tarYZAQNpTQa 5y ago
  > Nobody benefits from a company growing indefinite wealth without distributing it to actual people. Shareholders do. And shareholders own the company.
  - IanCal 5y ago
    Shareholders don't benefit unless the company is or is expected to distribute it to actual people.
- rsj_hn 5y ago
  > Nobody benefits from a company growing indefinite wealth without distributing it to actual people. No, many would benefit in very obvious ways, if you just think about it a little bit: if you want to accumulate wealth you prefer to be taxed on what you spend rather than what you earn. That allows you to save more quickly, it allows you to create a dynasty where wealth is passed to your offspring, who in turn would prefer to pay taxes on their consumption rather than their income. So if a company served as a type of money making engine but didn't distribute anything, you can save by purchasing shares and letting compound interest work to your benefit and then spend some of that in your retirement by selling some of your shares and give the rest to your kids. You would have a lower overall tax burden as you could earn like a king but live just a middle class lifestyle, allowing your kids to live like kings even if they earned just a middle class lifestyle, and with some left over due to the magic of interest. This is why if your income >> your consumption, you really want only consumption taxes. There is also the issue of precautionary saving. Most people prefer to have money in the bank to insure themselves against future loss of income, and this type of precautionary savings benefits people even if there is no consumption, just as having insurance provides a benefit even if you never get into an accident. So if you don't need to pay taxes on savings, then you can shield yourself more easily from future income losses and smooth consumption so you always prefer taxes on consumption, which do not make consumption smoothing more difficult, than taxes on income, which do. Think of it in this way -- a tax on insurance makes insurance more costly and thus more difficult. But financial savings are a form of insurance for when you lose your job or face some other financial setback. So in summary, one can argue that the purpose of money is consumption so "nobody benefits" by acquiring money that they don't spend on consumption. But this is a naive view that ignores the role of risk, time and inter-generational concerns.
  - IanCal 5y ago
    Your explanation requires paying out money to real people, so I don't see how it relates to the idea of a company that does not pay out money to real people. > So in summary, one can argue that the purpose of money is consumption so "nobody benefits" by acquiring money that they don't spend on consumption. But this is a naive view that ignores the role of risk, time and inter-generational concerns. It's also not what I've said.
- ashtonkem 5y ago
  > Nobody benefits from a company growing indefinite wealth without distributing it to actual people. And yet companies actually do this. Perhaps your model of what motivates companies is wrong?
  - IanCal 5y ago
    Companies tend to pay wages, dividends or use capital for growth to pay for those.
SMAAART 5y ago
> So for example the company can rent houses, cars, and airplanes for every employee ... there's already laws in the books today that those are taxable as in-kind compensation
darksaints 5y ago
That problem already exists, and I can't see it getting any worse than it already is. And you solve it the same way that you do now: by regulating which expenses are actually deductible. Basically any benefit that primarily benefits an individual is counted as income to that individual. What goes away is the incentive to locate all of the company's IP in a subsidiary in the Cayman Islands, and then rent it all back to the subsidiary in New York at wildly inflated prices that ensure that all income is technically earned in the Cayman Islands. Because it would no longer matter where the income was earned, it would only matter to whom it is paid out to. Less protection for billionaires who are primarily interested in asset inflation. I'm pretty sure this would actually increase total taxes collected because it shifts tax burden away from low and easily avoided corporate taxes, and towards individuals that pay higher income tax rates that are much harder to avoid. But even if it doesn't fully compensate, you can easily adjust top bracket rates to fill the gap, without any worry that it will hurt workers like the corporate income tax does. https://taxfoundation.org/labor-bears-corporate-tax/ https://taxfoundation.org/labor-bears-corporate-tax/
aiisjustanif 5y ago
That would be imputed income passed on to employees.

NovemberWhiskey 5y ago

Perks/fringe benefits for employees are imputed income in virtually every tax system.

charlesdm 5y ago

That should be taxable in the hands of the employee, obviously. Estonia seems to be doing well with their tax system, and it's pretty much exactly what is described above.

kapuasuite 5y ago

Those would be taxable for the employees receiving those perks, giving away shareholders' money to employees to reduce a tax bill is absolutely nonsensical in financial, and if a publicly traded company were to do this for "every employee" (or even just management) there would be an immediate lawsuit.

IanCal 5y ago

> You’re ignoring that the companies can just keep lots of cash without distributing it to individuals Nobody benefits from a company growing indefinite wealth without distributing it to actual people. > So for example the company can rent houses, cars, and airplanes for every employee If they could do this, all companies would do this already to avoid taxes. In reality, this is dealt with by (in the UK) considering those things "benefits in kind" aka equivalent to cash.

tw04 5y ago
That is completely avoided if the person makes less than 12k/year though. So there is already a loophole, there just hasn’t been enough incentive to use it yet. Although I’d question if that’s why some executives take a $1 salary and the rest in stock. All of their benefits are now tax free*. yes I realize it’s nuanced and depends on country.
- saddlerustle 5y ago
  No, the value of benefits in kind count towards the income tax band.
- IanCal 5y ago
  That is absolutely not true in the UK. Again, this would just be what every business would do if that were the case.
TomVDB 5y ago
> Nobody benefits from a company growing indefinite wealth without distributing it to actual people. Isn't this exactly what companies like Apple etc. are doing? As it accumulates wealth, the stock price (which is supposed to reflect the value of the company) goes up as well. And thus the shareholders benefit.
- hbosch 5y ago
  I believe actual cash hoards on hand is considered bad business. Apple having cash on hand is seen as okay, at present, because investors trust them to spend it well on expansion. Remember share price doesn’t indicate how well a company is doing today, it indicates how well people believe it will do In the future. If you have piles of cash and don’t plan on spending it, somehow, on your business then you can’t expect your stock to rise and in fact if you’re so inept that you don’t know how to spend your billions your stock price may actually drop.
  - TomVDB 5y ago
    You can expect that the market cap will be at least the amount of cash they have, if it’s a profitable company. (This isn’t always the case, but it’s close.) The more cash they gather, the higher the lower bound of the share price.
- IanCal 5y ago
  Why would the stock price go up for a company that explicitly did not distribute the money ever to real people? And don't apple pay dividends?
  - TomVDB 5y ago
    Company A has $X in revenue, $Y in profits, and $0 in cash. Company B has X revenue, Y in profits, and $1T in cash. Which of the two would fetch a higher price in an acquisition?
jk7tarYZAQNpTQa 5y ago
> Nobody benefits from a company growing indefinite wealth without distributing it to actual people. Shareholders do. And shareholders own the company.
- IanCal 5y ago
  Shareholders don't benefit unless the company is or is expected to distribute it to actual people.
rsj_hn 5y ago
> Nobody benefits from a company growing indefinite wealth without distributing it to actual people. No, many would benefit in very obvious ways, if you just think about it a little bit: if you want to accumulate wealth you prefer to be taxed on what you spend rather than what you earn. That allows you to save more quickly, it allows you to create a dynasty where wealth is passed to your offspring, who in turn would prefer to pay taxes on their consumption rather than their income. So if a company served as a type of money making engine but didn't distribute anything, you can save by purchasing shares and letting compound interest work to your benefit and then spend some of that in your retirement by selling some of your shares and give the rest to your kids. You would have a lower overall tax burden as you could earn like a king but live just a middle class lifestyle, allowing your kids to live like kings even if they earned just a middle class lifestyle, and with some left over due to the magic of interest. This is why if your income >> your consumption, you really want only consumption taxes. There is also the issue of precautionary saving. Most people prefer to have money in the bank to insure themselves against future loss of income, and this type of precautionary savings benefits people even if there is no consumption, just as having insurance provides a benefit even if you never get into an accident. So if you don't need to pay taxes on savings, then you can shield yourself more easily from future income losses and smooth consumption so you always prefer taxes on consumption, which do not make consumption smoothing more difficult, than taxes on income, which do. Think of it in this way -- a tax on insurance makes insurance more costly and thus more difficult. But financial savings are a form of insurance for when you lose your job or face some other financial setback. So in summary, one can argue that the purpose of money is consumption so "nobody benefits" by acquiring money that they don't spend on consumption. But this is a naive view that ignores the role of risk, time and inter-generational concerns.
- IanCal 5y ago
  Your explanation requires paying out money to real people, so I don't see how it relates to the idea of a company that does not pay out money to real people. > So in summary, one can argue that the purpose of money is consumption so "nobody benefits" by acquiring money that they don't spend on consumption. But this is a naive view that ignores the role of risk, time and inter-generational concerns. It's also not what I've said.
ashtonkem 5y ago
> Nobody benefits from a company growing indefinite wealth without distributing it to actual people. And yet companies actually do this. Perhaps your model of what motivates companies is wrong?
- IanCal 5y ago
  Companies tend to pay wages, dividends or use capital for growth to pay for those.

SMAAART 5y ago

> So for example the company can rent houses, cars, and airplanes for every employee ... there's already laws in the books today that those are taxable as in-kind compensation

darksaints 5y ago

That problem already exists, and I can't see it getting any worse than it already is. And you solve it the same way that you do now: by regulating which expenses are actually deductible. Basically any benefit that primarily benefits an individual is counted as income to that individual. What goes away is the incentive to locate all of the company's IP in a subsidiary in the Cayman Islands, and then rent it all back to the subsidiary in New York at wildly inflated prices that ensure that all income is technically earned in the Cayman Islands. Because it would no longer matter where the income was earned, it would only matter to whom it is paid out to. Less protection for billionaires who are primarily interested in asset inflation. I'm pretty sure this would actually increase total taxes collected because it shifts tax burden away from low and easily avoided corporate taxes, and towards individuals that pay higher income tax rates that are much harder to avoid. But even if it doesn't fully compensate, you can easily adjust top bracket rates to fill the gap, without any worry that it will hurt workers like the corporate income tax does. https://taxfoundation.org/labor-bears-corporate-tax/ https://taxfoundation.org/labor-bears-corporate-tax/

aiisjustanif 5y ago

That would be imputed income passed on to employees.