6 ms·

Most economists agree that corporate taxes are bad anyways: http://www.npr.org/blogs/money/2012/10/18/163106924/a-tax-plan-that-economists-love-and-politicians-

by VMG 14y ago

Most economists agree that corporate taxes are bad anyways: http://www.npr.org/blogs/money/2012/10/18/163106924/a-tax-plan-that-economists-love-and-politicians-hate http://www.npr.org/blogs/money/2012/10/18/163106924/a-tax-pl... "The corporate income tax makes no sense whatsoever," said Robert Frank, a professor at Cornell. "We don't want to prevent Microsoft and General Motors ... from investing more and improving their product line," Baker said. "That's a good thing in my view." Our economists said if you want to tax rich people as public policy, then tax rich people — tax the people who own corporations. But taxing the corporation itself is taxing the thing that really does create jobs. In my personal opinion, the money does more good in Google's hands than in the government's hands.

Alaskan005 14y ago
In my personal opinion, the money does more good in Google's hands than in the government's hands. Ok then: in my opinion my money is better in my hands, but I have a hard time convincing the IRS. My wife and my family agree with me too, by the way. Who is going to pay for the roads and the military and the......
- davidw 14y ago
  Corporations can't hold on to money forever: at some point it goes to actual people. For the sake of argument, without saying whether it's a good idea or not, you could make a revenue-neutral elimination of corporate tax by raising taxes on people.
  - ed209 14y ago
    That guy's money will go somewhere eventually too, into local coffee shops, craft market, plasma TV. Just because it goes somewhere, doesn't mean it goes to the right place.
  - kale 14y ago
    I'm not an economist, so this is layman speculation, but it seems that taxing corporate money would encourage the company to re-invest it more quickly. Some have said that reducing corporate taxes (and increasing taxes on money when it actually goes to people) would provide more money to create jobs/grow the business. Wouldn't there also be a reduced incentive re-invest the money?
    - davidw 14y ago
      Taxing it would mean they had less of it to spend. They might spend it depending on tax breaks, but that might skew incentives in terms of forcing companies to spend the money on something for themselves rather than see it disappear in taxes. That something might not be the best investment though.
- obituary_latte 14y ago
  The difference being that Google is not going by opinion, but rather by law. Not saying I like what Google is doing (or like that they can), but if you want Google's behavior to change, the only route is likely going to be to change the law.
  - Alaskan005 14y ago
    I responded to his comment. But I agree that what Google is doing is common and I do not blame them since it seems legal. IMO, laws will change.
- kragen 14y ago
  You might be right. What kinds of public goods have you created lately? I listed a bunch that Google has done.
rayiner 14y ago
So in the vast world of disciplines, there are two kinds: disciplines that are scientific, and disciplines that aren't. Economics is one of the latter. There is no reason to take what economists say as conclusive, specially in the domain of macroeconomics. The comment by the Cornell professor above also ignores a very simple fact: capital expenditures are tax deductible. The idea that taxation directly reduces the money available to invest in the company or hire workers is just factually incorrect. It may reduce those things indirectly, through deadweight losses in the economy, but tax law is structured so that capital expenditures and salaries are paid for with pre-tax dollars. There is a strong fairness argument to taxing corporations the same as individuals: corporations are treated as separate persons for liability purposes, they should be taxed as separate persons for tax purposes.
- jdswain 14y ago
  There is a lot of science in economics, but where it becomes unscientific is when humans are involved. Much early macroeconomics made the simplifying assumption that humans made rational decisions, and that they had perfect information when making these decisions. That is useful for some models, but the real world is much more complex than that, and that is why the models often don't reflect reality. There is a lot of science in economics though. If the business tax rate is different to the individual tax rate then this creates some distortions, but more importantly there is the issue of double taxation. In New Zealand dividends/drawings are treated as tax paid, i.e. the business has already paid tax on this income, so no further tax is due. In UK, and I think USA, the individual would be taxed again, hence there is a double taxation on business profits, which does seem kind of unfair.
  - rayiner 14y ago
    It's not double taxation. Income tax is by it's nature a transaction tax: income is taxed when money changes hands. But that income is counted as income each time it changes hands, so that's not "double taxation." Say we have an economy with just you and me. I make $100. I'm taxed $20 (20%). I give you $80. You're taxed $16 (20%). Total income = $180. Total taxes paid = $36 (20% of $180). The mistake is assuming that the corporation's money is the shareholder's money the minute the corporation makes it, i.e. that the corporation is a mere proxy for the shareholder. It's not. The corporation is a separate person. If the corporation incurs a liability (say one of its trucks runs someone over), it's not automatically the shareholder's liability, again because the corporation is a separate person. A dividend payment is no different than the payment between you and me in the example above. It's not "double taxed"--it's taxed each time it is counted as income, the same as every other payment. There is a deep symmetry here between how income is treated between separate entities and how it is taxed between separate entities. Say we have a married couple. The husband stays at home and does housework, and the wife gives him a $1,000 a week allowance. If they divorce, but the husband still does the housework in return for $1,000, then GDP (i.e. the sum of national incomes) goes up by $1,000. This is the nature of the GDP calculation--when you break apart an internal transaction and make it a market transaction, GDP goes up without anything else changing. Taxation precisely mirrors this. The husband doesn't pay taxes on his $1,000 while he is married and part of the same taxable entity. It's not income to him. But if they divorce, it becomes income to him. GDP goes up and taxes go up by the same proportion.
jivatmanx 14y ago
When you tax something you disincentive it. Corporate income tax is a disincentive to profit. Worse, profit is too intangible, and essentially all companies above a certain size hire teams of creative accountants to either 1. Create faux losses, or faux deferments. (See Hollywood). Or just locate abroad, see Google. It's a tragedy of the commons. If you're not doing these things, you're at a competitive disadvantage. Much better to tax wages, property, sales, etc. And of course, as progressively as possible. Overly complicated or bureaucratic schemes never work.(Carbon tax, Trading), instead tax fossil fuels. Edit: Perhaps Iand has already said this in a simpler manner: "They are pointing out that they pay taxes on tangibles such as salaries, VAT and business rates. Corporation tax is based on the fungible concept of profit and really is unworkable."
- joonix 14y ago
  Yes, it needs to be pointed out that the corporate income tax is basically regressive. Large corporations with enough scale can afford to implement advanced tax avoidance strategies along with armies of accountants, lawyers, and shell companies. Your average small business and even larger private companies can't afford to do this at all. Yes, they have the S-corp option available, but a C-corp paying 3% effective tax rate on its profits and its shareholders only paying a dividend tax is superior to being an S-corp and paying payroll taxes on your paycheck to yourself (required) and then personal income taxes on the rest. 39% corporate tax rate is really mind boggling IMO.
AnthonyMouse 14y ago
Meh. "Tax rich people" is not a tax plan. How do you tax them? VAT? Property tax? Income tax? Capital gains tax? All taxes are distortionary. It's their nature. If you ignore the benefits gained from programs that tax dollars buy, all taxes are bad for the economy. The problem with capital gains and corporate income tax is not (just) that they're bad for the economy, it's that they're de facto optional for multinational entities because of transfer pricing. Cash doesn't have a country, so anyone with more than one country just puts their cash in the country that takes the smallest piece of it. Now we hear the cries of "but they made the money here" -- OK, sure. So make that the rule then, if that's what you care about. If you sell your product in a country, you pay its taxes. That's sales tax or VAT. If you make your money employing a country's workers, you pay its taxes. That's personal income tax. If you like you can specify that the product tax will be paid by the seller and the labor tax will be paid by the employer. That may actually provide some amount of leverage to buyers and employees in price negotiations (to the extent it doesn't push sellers and employers toward other countries), but at the end of the day it is what it is: A tax that makes products more expensive or reduces the amount that employees bring home, but can't be avoided by sly accountants and tax lawyers if you still want to sell products or hire workers.
- rayiner 14y ago
  Those taxes are hard to avoid, but they are bourne by workers/consumers, regardless of who you collect them from (i.e. the economic incidence of a tax is not the same as the legal incidence). I.e. foreign entity Google profits doing business in your jurisdiction, but your citizens (both consumers in your country and workers in your country) bear the whole tax burden.
  - jivatmanx 14y ago
    Even assuming corporate taxes were perfectly collectible (they're not, that's the primary problem with them). Why would it make sense to disincentive profit than to disincentize wages or sales. (Taxes are at heart, a disincentive, or more properly, a Price, to do the a certain thing.)
    - 14y ago
MikeKusold 14y ago
Companies also take advantage of the infrastructure that taxes pay for. As an example, what if FedEx/UPS didn't have to pay corporate taxes even though they heavily use public highways? In my opinion, companies should pay taxes but there is room for debate as to what percentage they should be forced to pay.
- AnthonyMouse 14y ago
  >As an example, what if FedEx/UPS didn't have to pay corporate taxes even though they heavily use public highways? If this is your concern then the simple solution is to fund public highways with fuel taxes. (This theoretically allows taxpayers to "cheat" by buying more fuel efficient vehicles, but I think we can live with that incentive structure.)
- VMG 14y ago
  The question is, do they use these services proportionally to their corporate income or even over-proportionally, as often implemented by progressive taxation? Considering that they make money by advertising, I bet the infrastructure use is heavily sub-proportional.
Permit 14y ago
>We don't want to prevent Microsoft and General Motors ... from investing more and improving their product line A lack of cash is not what stops these companies from improving their product line. Apple is sitting on $100 billion (maybe somewhat less now that they're doing dividends?). Corporate taxes are not preventing Apple from employing more people, they have no need for more people. If Apple were taxed less, they would not hire more people. I am highly skeptical of the claim that removing corporate taxes would create jobs in other sectors as well. Why would GM need to employ more people if their taxes were lowered? Consumer demand is unchanged, they don't suddenly need to pump out twice as many cars. Innovation and improvements on product lines don't come from the number of product designers a company has.
- raganwald 14y ago
  I've never understood that argument. If anything, it's the other way around: Reduce taxes on the middle class so they buy more cars and iPhones. Reducing tax on corporations and the wealthy doesn't do much. Is a rich person going to buy another car if you reduce their taxes?
  - artsrc 14y ago
    There are numerous attempts to measure marginal propensity to spend. They agree that people on lower incomes have a high marginal propensity to spend, and a lower marginal propensity to save.
  - VMG 14y ago
    Corporation != rich person
gstar 14y ago
It only does good if Google does something with it. That's why there's a call to tax long-held reserves, rather than profits.
deleted 14y ago
[deleted]

by VMG 14y ago

Alaskan005 14y ago

In my personal opinion, the money does more good in Google's hands than in the government's hands. Ok then: in my opinion my money is better in my hands, but I have a hard time convincing the IRS. My wife and my family agree with me too, by the way. Who is going to pay for the roads and the military and the......

davidw 14y ago
Corporations can't hold on to money forever: at some point it goes to actual people. For the sake of argument, without saying whether it's a good idea or not, you could make a revenue-neutral elimination of corporate tax by raising taxes on people.
- ed209 14y ago
  That guy's money will go somewhere eventually too, into local coffee shops, craft market, plasma TV. Just because it goes somewhere, doesn't mean it goes to the right place.
- kale 14y ago
  I'm not an economist, so this is layman speculation, but it seems that taxing corporate money would encourage the company to re-invest it more quickly. Some have said that reducing corporate taxes (and increasing taxes on money when it actually goes to people) would provide more money to create jobs/grow the business. Wouldn't there also be a reduced incentive re-invest the money?
  - davidw 14y ago
    Taxing it would mean they had less of it to spend. They might spend it depending on tax breaks, but that might skew incentives in terms of forcing companies to spend the money on something for themselves rather than see it disappear in taxes. That something might not be the best investment though.
obituary_latte 14y ago
The difference being that Google is not going by opinion, but rather by law. Not saying I like what Google is doing (or like that they can), but if you want Google's behavior to change, the only route is likely going to be to change the law.
- Alaskan005 14y ago
  I responded to his comment. But I agree that what Google is doing is common and I do not blame them since it seems legal. IMO, laws will change.
kragen 14y ago
You might be right. What kinds of public goods have you created lately? I listed a bunch that Google has done.

rayiner 14y ago

So in the vast world of disciplines, there are two kinds: disciplines that are scientific, and disciplines that aren't. Economics is one of the latter. There is no reason to take what economists say as conclusive, specially in the domain of macroeconomics. The comment by the Cornell professor above also ignores a very simple fact: capital expenditures are tax deductible. The idea that taxation directly reduces the money available to invest in the company or hire workers is just factually incorrect. It may reduce those things indirectly, through deadweight losses in the economy, but tax law is structured so that capital expenditures and salaries are paid for with pre-tax dollars. There is a strong fairness argument to taxing corporations the same as individuals: corporations are treated as separate persons for liability purposes, they should be taxed as separate persons for tax purposes.

jdswain 14y ago
There is a lot of science in economics, but where it becomes unscientific is when humans are involved. Much early macroeconomics made the simplifying assumption that humans made rational decisions, and that they had perfect information when making these decisions. That is useful for some models, but the real world is much more complex than that, and that is why the models often don't reflect reality. There is a lot of science in economics though. If the business tax rate is different to the individual tax rate then this creates some distortions, but more importantly there is the issue of double taxation. In New Zealand dividends/drawings are treated as tax paid, i.e. the business has already paid tax on this income, so no further tax is due. In UK, and I think USA, the individual would be taxed again, hence there is a double taxation on business profits, which does seem kind of unfair.
- rayiner 14y ago
  It's not double taxation. Income tax is by it's nature a transaction tax: income is taxed when money changes hands. But that income is counted as income each time it changes hands, so that's not "double taxation." Say we have an economy with just you and me. I make $100. I'm taxed $20 (20%). I give you $80. You're taxed $16 (20%). Total income = $180. Total taxes paid = $36 (20% of $180). The mistake is assuming that the corporation's money is the shareholder's money the minute the corporation makes it, i.e. that the corporation is a mere proxy for the shareholder. It's not. The corporation is a separate person. If the corporation incurs a liability (say one of its trucks runs someone over), it's not automatically the shareholder's liability, again because the corporation is a separate person. A dividend payment is no different than the payment between you and me in the example above. It's not "double taxed"--it's taxed each time it is counted as income, the same as every other payment. There is a deep symmetry here between how income is treated between separate entities and how it is taxed between separate entities. Say we have a married couple. The husband stays at home and does housework, and the wife gives him a $1,000 a week allowance. If they divorce, but the husband still does the housework in return for $1,000, then GDP (i.e. the sum of national incomes) goes up by $1,000. This is the nature of the GDP calculation--when you break apart an internal transaction and make it a market transaction, GDP goes up without anything else changing. Taxation precisely mirrors this. The husband doesn't pay taxes on his $1,000 while he is married and part of the same taxable entity. It's not income to him. But if they divorce, it becomes income to him. GDP goes up and taxes go up by the same proportion.

jivatmanx 14y ago

When you tax something you disincentive it. Corporate income tax is a disincentive to profit. Worse, profit is too intangible, and essentially all companies above a certain size hire teams of creative accountants to either 1. Create faux losses, or faux deferments. (See Hollywood). Or just locate abroad, see Google. It's a tragedy of the commons. If you're not doing these things, you're at a competitive disadvantage. Much better to tax wages, property, sales, etc. And of course, as progressively as possible. Overly complicated or bureaucratic schemes never work.(Carbon tax, Trading), instead tax fossil fuels. Edit: Perhaps Iand has already said this in a simpler manner: "They are pointing out that they pay taxes on tangibles such as salaries, VAT and business rates. Corporation tax is based on the fungible concept of profit and really is unworkable."

joonix 14y ago
Yes, it needs to be pointed out that the corporate income tax is basically regressive. Large corporations with enough scale can afford to implement advanced tax avoidance strategies along with armies of accountants, lawyers, and shell companies. Your average small business and even larger private companies can't afford to do this at all. Yes, they have the S-corp option available, but a C-corp paying 3% effective tax rate on its profits and its shareholders only paying a dividend tax is superior to being an S-corp and paying payroll taxes on your paycheck to yourself (required) and then personal income taxes on the rest. 39% corporate tax rate is really mind boggling IMO.

AnthonyMouse 14y ago

Meh. "Tax rich people" is not a tax plan. How do you tax them? VAT? Property tax? Income tax? Capital gains tax? All taxes are distortionary. It's their nature. If you ignore the benefits gained from programs that tax dollars buy, all taxes are bad for the economy. The problem with capital gains and corporate income tax is not (just) that they're bad for the economy, it's that they're de facto optional for multinational entities because of transfer pricing. Cash doesn't have a country, so anyone with more than one country just puts their cash in the country that takes the smallest piece of it. Now we hear the cries of "but they made the money here" -- OK, sure. So make that the rule then, if that's what you care about. If you sell your product in a country, you pay its taxes. That's sales tax or VAT. If you make your money employing a country's workers, you pay its taxes. That's personal income tax. If you like you can specify that the product tax will be paid by the seller and the labor tax will be paid by the employer. That may actually provide some amount of leverage to buyers and employees in price negotiations (to the extent it doesn't push sellers and employers toward other countries), but at the end of the day it is what it is: A tax that makes products more expensive or reduces the amount that employees bring home, but can't be avoided by sly accountants and tax lawyers if you still want to sell products or hire workers.

rayiner 14y ago
Those taxes are hard to avoid, but they are bourne by workers/consumers, regardless of who you collect them from (i.e. the economic incidence of a tax is not the same as the legal incidence). I.e. foreign entity Google profits doing business in your jurisdiction, but your citizens (both consumers in your country and workers in your country) bear the whole tax burden.
- jivatmanx 14y ago
  Even assuming corporate taxes were perfectly collectible (they're not, that's the primary problem with them). Why would it make sense to disincentive profit than to disincentize wages or sales. (Taxes are at heart, a disincentive, or more properly, a Price, to do the a certain thing.)
  - 14y ago

MikeKusold 14y ago

Companies also take advantage of the infrastructure that taxes pay for. As an example, what if FedEx/UPS didn't have to pay corporate taxes even though they heavily use public highways? In my opinion, companies should pay taxes but there is room for debate as to what percentage they should be forced to pay.

AnthonyMouse 14y ago
>As an example, what if FedEx/UPS didn't have to pay corporate taxes even though they heavily use public highways? If this is your concern then the simple solution is to fund public highways with fuel taxes. (This theoretically allows taxpayers to "cheat" by buying more fuel efficient vehicles, but I think we can live with that incentive structure.)
VMG 14y ago
The question is, do they use these services proportionally to their corporate income or even over-proportionally, as often implemented by progressive taxation? Considering that they make money by advertising, I bet the infrastructure use is heavily sub-proportional.

Permit 14y ago

>We don't want to prevent Microsoft and General Motors ... from investing more and improving their product line A lack of cash is not what stops these companies from improving their product line. Apple is sitting on $100 billion (maybe somewhat less now that they're doing dividends?). Corporate taxes are not preventing Apple from employing more people, they have no need for more people. If Apple were taxed less, they would not hire more people. I am highly skeptical of the claim that removing corporate taxes would create jobs in other sectors as well. Why would GM need to employ more people if their taxes were lowered? Consumer demand is unchanged, they don't suddenly need to pump out twice as many cars. Innovation and improvements on product lines don't come from the number of product designers a company has.

raganwald 14y ago
I've never understood that argument. If anything, it's the other way around: Reduce taxes on the middle class so they buy more cars and iPhones. Reducing tax on corporations and the wealthy doesn't do much. Is a rich person going to buy another car if you reduce their taxes?
- artsrc 14y ago
  There are numerous attempts to measure marginal propensity to spend. They agree that people on lower incomes have a high marginal propensity to spend, and a lower marginal propensity to save.
- VMG 14y ago
  Corporation != rich person

gstar 14y ago

It only does good if Google does something with it. That's why there's a call to tax long-held reserves, rather than profits.

deleted 14y ago

[deleted]