4 ms·

Are corporate taxes critical? Aren't most profits paid out (and taxed) as income to workers and dividends to shareholders or used for stock buy backs and taxed

by itake 5y ago

Are corporate taxes critical? Aren't most profits paid out (and taxed) as income to workers and dividends to shareholders or used for stock buy backs and taxed as capital gains?

wanderingmind 5y ago
Wages are part of expenses that are subtracted from revenue that determines profit.
- itake 5y ago
  yep, so the extra cash goes to dividends (that are taxed as income to the investor) and buy backs that appear as capital gains taxes.
missedthecue 5y ago
All corporate taxes combined make up only 7% of the federal government's revenue, and an even smaller percentage of federal spending. We could end corporate taxes tomorrow and the treasury department would barely notice, but I can't help but imagine the efficiency gains that would ripple across the whole economy. There is so much productivity and human effort and brain power wasted that just goes into minimizing (and maximizing) the amount of tax paid by businesses. Not to mention the way it skews investment decisions.
kristjansson 5y ago
Nope, and yup respectively. All the discussion over corporate tax (and unrealized capital gains) seems rooted in pathos, not practical policy. It seems unfair that some corporation pays zero income tax while people pay xx%, so people write firebrand articles to argue that it's unfair. Nevermind that pathways from corporate income to income an actual natural person can enjoy are patrolled pretty carefully by the taxman. Total receipts might be less than if corporate managers picked a suboptimal strategy, but the operating assumption of tax policymakers _must_ be that actors are rational and wealth-maximizing. We can't write tax policy that admits certain strategy then complain that receipts are lower under that strategy than they might be, just like you can't lose a game, and complain that you would've won if only your opponent was worse.
einpoklum 5y ago
> Are corporate taxes critical? Aren't most profits paid out (and taxed) as income to workers and dividends to shareholders or used for stock buy backs and taxed as capital gains? The answer is that even if that is the case, it doesn't matter. But let me elaborate. First - wages paid to workers are out of the equation, since they're deductible; see: https://www.irs.gov/publications/p535 https://www.irs.gov/publications/p535 (caveat: I'm not a USer nor a tax specialist) As for dividends for shareholders, those are sometimes/often "qualified": https://smartasset.com/taxes/dividend-tax-rate https://smartasset.com/taxes/dividend-tax-rate and there may be other loopholes I'm not aware of. And the non-qualified tax rate is not that high either. But then, think of what remains. A business has gotten a bunch of income, untaxed. It is not simply a funnel of money to individuals: A business is a social entity, a social actor - and on a macro level, commercial enterprises are a very powerful part of society (especially the huge ones). Them not being taxed mean they control a larger fraction of society's resources. Now, sure, when they use that money, it will often end up being taxed further along the way - but that's no different from your income being taxed when you use it. And just like with a business, the income we make eventually gets passed on to others through our purchases or gifts or what-not. So why should we pay any income tax at all? It's faulty logic both for us as individuals and for corporations.
satya71 5y ago
Would be nice if the dividends were taxed. But most corporations return cash using stock buy-backs. They are more tax-efficient (read 0 tax). Also dividends are often taxed at a lower rate than ordinary income and entirely tax-free in some countries.
- whoknowswhat11 5y ago
  Distributions of cash are taxed in most cases regardless of how structured. The value of your stock might go up. That is taxed if you sell if for cash.
  - satya71 5y ago
    See my earlier comment. Stock gains are often not taxed (retirement accounts, pension funds, etc) . And private company owners can postpone realized gains for a very long time or put it in a trust.
- scolson 5y ago
  A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense. Any value increase is completely on paper. The holder of the stock is still taxed when they sell their shares. This is the same concept as you owning a home and someone builds a nicer home next to you. Your home value just went up. But you don't have a cent of that money until you sell your home, and then you are taxed on the gains (unless you roll it into another home, but that's a separate discussion).
  - qeternity 5y ago
    > A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense. Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
    - itake 5y ago
      trading is zero sum. The investor that sold the share would of sold the same share to another investor. The company isn't buying stock above market price (thus adding value to the system). The company may stock buy back directly from employee's RSUs, which are taxed as income.

by itake 5y ago

Are corporate taxes critical? Aren't most profits paid out (and taxed) as income to workers and dividends to shareholders or used for stock buy backs and taxed as capital gains?

wanderingmind 5y ago

Wages are part of expenses that are subtracted from revenue that determines profit.

itake 5y ago
yep, so the extra cash goes to dividends (that are taxed as income to the investor) and buy backs that appear as capital gains taxes.

missedthecue 5y ago

All corporate taxes combined make up only 7% of the federal government's revenue, and an even smaller percentage of federal spending. We could end corporate taxes tomorrow and the treasury department would barely notice, but I can't help but imagine the efficiency gains that would ripple across the whole economy. There is so much productivity and human effort and brain power wasted that just goes into minimizing (and maximizing) the amount of tax paid by businesses. Not to mention the way it skews investment decisions.

kristjansson 5y ago

Nope, and yup respectively. All the discussion over corporate tax (and unrealized capital gains) seems rooted in pathos, not practical policy. It seems unfair that some corporation pays zero income tax while people pay xx%, so people write firebrand articles to argue that it's unfair. Nevermind that pathways from corporate income to income an actual natural person can enjoy are patrolled pretty carefully by the taxman. Total receipts might be less than if corporate managers picked a suboptimal strategy, but the operating assumption of tax policymakers _must_ be that actors are rational and wealth-maximizing. We can't write tax policy that admits certain strategy then complain that receipts are lower under that strategy than they might be, just like you can't lose a game, and complain that you would've won if only your opponent was worse.

einpoklum 5y ago

> Are corporate taxes critical? Aren't most profits paid out (and taxed) as income to workers and dividends to shareholders or used for stock buy backs and taxed as capital gains? The answer is that even if that is the case, it doesn't matter. But let me elaborate. First - wages paid to workers are out of the equation, since they're deductible; see: https://www.irs.gov/publications/p535 https://www.irs.gov/publications/p535 (caveat: I'm not a USer nor a tax specialist) As for dividends for shareholders, those are sometimes/often "qualified": https://smartasset.com/taxes/dividend-tax-rate https://smartasset.com/taxes/dividend-tax-rate and there may be other loopholes I'm not aware of. And the non-qualified tax rate is not that high either. But then, think of what remains. A business has gotten a bunch of income, untaxed. It is not simply a funnel of money to individuals: A business is a social entity, a social actor - and on a macro level, commercial enterprises are a very powerful part of society (especially the huge ones). Them not being taxed mean they control a larger fraction of society's resources. Now, sure, when they use that money, it will often end up being taxed further along the way - but that's no different from your income being taxed when you use it. And just like with a business, the income we make eventually gets passed on to others through our purchases or gifts or what-not. So why should we pay any income tax at all? It's faulty logic both for us as individuals and for corporations.

satya71 5y ago

Would be nice if the dividends were taxed. But most corporations return cash using stock buy-backs. They are more tax-efficient (read 0 tax). Also dividends are often taxed at a lower rate than ordinary income and entirely tax-free in some countries.

whoknowswhat11 5y ago
Distributions of cash are taxed in most cases regardless of how structured. The value of your stock might go up. That is taxed if you sell if for cash.
- satya71 5y ago
  See my earlier comment. Stock gains are often not taxed (retirement accounts, pension funds, etc) . And private company owners can postpone realized gains for a very long time or put it in a trust.
scolson 5y ago
A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense. Any value increase is completely on paper. The holder of the stock is still taxed when they sell their shares. This is the same concept as you owning a home and someone builds a nicer home next to you. Your home value just went up. But you don't have a cent of that money until you sell your home, and then you are taxed on the gains (unless you roll it into another home, but that's a separate discussion).
- qeternity 5y ago
  > A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense. Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
  - itake 5y ago
    trading is zero sum. The investor that sold the share would of sold the same share to another investor. The company isn't buying stock above market price (thus adding value to the system). The company may stock buy back directly from employee's RSUs, which are taxed as income.