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That's very interesting. We just hear 'tax cuts for the rich' and just get angry about the privileged not paying their fair share. 'Tax cuts for the Rich' has

That's very interesting. We just hear 'tax cuts for the rich' and just get angry about the privileged not paying their fair share. 'Tax cuts for the Rich' has become kind of a buzzword phrase, like defund the police or climate change. it sounds totally obvious on an emotional level but the devil is in the details.

AnthonyMouse 5y ago
It's actually worse than that because we have a tax code that actively promotes corporate expansion. If you're Walmart and you're making money and you've got a billion dollars in after-tax profit, what do you do with it? You could reinvest the money in the company. Open more Walmarts. Then you have a billion dollars to invest. You could pay it out as dividends to the shareholders. Then the shareholders, they're investors, they go invest in something else. Somebody goes out and builds more Walmart competitors. But dividends are income, even if you reinvest them. So if Walmart keeps the money and uses it to build more Walmarts, they get a billion dollars. If they pay the money out to the investors to invest in something else, and there is a 15% tax rate on dividends, there is only $850M to invest in the competitors. That's a huge disadvantage for the competitors, which induces the shareholders to prefer to invest in building more Walmarts. Now guess what happens to that incentive if you raise the tax rate on dividends to 25%. We could fix this by making dividends a tax deduction to the corporation. Right now Walmart makes a dollar, they pay corporate tax on it, then if they reinvest it themselves, no more tax. If they pay it as a dividend, it's taxed again before it can be reinvested in anything else. If the dividend was a deduction to the corporation, it would be taxed either to the corporation or to the shareholder, but not both as it is now -- and so there would be no preference for keeping the money inside the corporation and increasing its size. This sounds like "tax cut for corporations / rich people" but it's really just doing away with the tax penalty for removing money from a corporation to invest it in a different one. Which is the thing that reduces wealth inequality.
- edmcnulty101 5y ago
  Interesting. >taxing dividends But even if the corporation reinvests that money back into the corporation instead of distributing dividends, wont shareholders have capital gains tax if they try to sell the stock after it increases in value from the reinvestment?

AnthonyMouse 5y ago

It's actually worse than that because we have a tax code that actively promotes corporate expansion. If you're Walmart and you're making money and you've got a billion dollars in after-tax profit, what do you do with it? You could reinvest the money in the company. Open more Walmarts. Then you have a billion dollars to invest. You could pay it out as dividends to the shareholders. Then the shareholders, they're investors, they go invest in something else. Somebody goes out and builds more Walmart competitors. But dividends are income, even if you reinvest them. So if Walmart keeps the money and uses it to build more Walmarts, they get a billion dollars. If they pay the money out to the investors to invest in something else, and there is a 15% tax rate on dividends, there is only $850M to invest in the competitors. That's a huge disadvantage for the competitors, which induces the shareholders to prefer to invest in building more Walmarts. Now guess what happens to that incentive if you raise the tax rate on dividends to 25%. We could fix this by making dividends a tax deduction to the corporation. Right now Walmart makes a dollar, they pay corporate tax on it, then if they reinvest it themselves, no more tax. If they pay it as a dividend, it's taxed again before it can be reinvested in anything else. If the dividend was a deduction to the corporation, it would be taxed either to the corporation or to the shareholder, but not both as it is now -- and so there would be no preference for keeping the money inside the corporation and increasing its size. This sounds like "tax cut for corporations / rich people" but it's really just doing away with the tax penalty for removing money from a corporation to invest it in a different one. Which is the thing that reduces wealth inequality.

edmcnulty101 5y ago
Interesting. >taxing dividends But even if the corporation reinvests that money back into the corporation instead of distributing dividends, wont shareholders have capital gains tax if they try to sell the stock after it increases in value from the reinvestment?