3 ms·

Great question. My understanding was that the (primary) purpose of corprate income tax is not to directly collect revenue, but rather to encourage reinvestment

• camz 15y ago
  Well the corporate tax is meant to collect revenue but it's secondary goal is promote certain activities. Mainly, they want to promote job creation and increased productivity, which is in theory done through reinvestment. When you reinvest into equipment, the logic goes that the productivity increases and new higher paid jobs are created even though the lower end labor is eliminated or reduced. Increasing capital gains tax would in effect make everyone accelerate the sale of their company before the taxes are effective, so it was a mass liquidation of capital. But, I don't believe it would discourage investment because people would simply tax plan around the capital gains tax. A while back, during Reagan and friends presidency, the personal income tax as well as capital gains tax was more than 35%. People actually invested more into corporations because the corporate tax rates were lower (ironically).
  • mahyarm 15y ago
    I think as a side effect it encourages companies to use credit as a financial buffer (single digit interest rate vs. double digit tax rate) vs. savings since corporate taxes are effectively a tax on corporate savings longer than a few months to a year.