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>It's basically a fact that all forms of taxation cause problems and they interact with each other... Much of your post reminds me of the oft-repeated fallacie

>It's basically a fact that all forms of taxation cause problems and they interact with each other... Much of your post reminds me of the oft-repeated fallacies regarding the supposed "massive" effects that taxation have on behavior. Sure, there are some, but I believe predictions and discussion regarding those effects to frequently be greatly exaggerated or completely unrealistic. >Instead of issuing profits as dividends at all, corporations can hold the capital internally which causes share price appreciation... Corporations would still have strong incentive to pay dividends. Dividends are a more direct means of providing participation in the company's success (i.e. distributing profits) than stock appreciation (which is obviously a function of many other factors, including psychology). Solid dividends can thereby drive demand for the stock, and hence its price. Shareholders might say, "Don't give me an increase on paper. Give me a payment on my current holding, while I maintain that holding". This is especially so if, as you say, shareholders are more reluctant to sell shares and trigger a larger personal tax event. However, again, I think the latter prediction is generally overstated. The short is that each company is still competing for shareholders. Accruing cash well-beyond what the company can deploy to grow revenue is not in the interest of the company or its shareholders. This is part of the fallacy around taxation and how it drives behavior. Companies aren't just going to start doing things that are bad for them (e.g. making bad investments), simply to avoid taxation. And, they won't withhold the dividend simply to prevent shareholders from incurring a tax event. This is profit that is being distributed to shareholders, just as now. No one is coming to take the investors' previous wealth (as is often implied). These taxes are simply deducted from what is otherwise a "windfall". >The problem is, at bottom, that taxing something discourages that thing Yes, but again, I believe that many give too much weight to the degree to which it discourages, as well as to its "distorting" effects overall. People do not choose to opt out of investment (or profit-taking) altogether due to taxation. If I have a million dollar gain on a thousand dollar investment, then sure I'm going to cash out at some point. This, of course, is already happening on a regular basis. Even if you take half of it, it's still a massive gain. And, what else I'm going to do with it? Hold it on paper forever where it has zero value? That's not rational. Yes, I'd wish there were no taxes (just as we wish there are no income taxes), but we are still going to work and invest to maximize our return, given the current environment.

AnthonyMouse 13y ago
> Sure, there are some, but I believe predictions and discussion regarding those effects to frequently be greatly exaggerated or completely unrealistic. You're basically questioning the efficient market hypothesis. If a corporation or investor can save $50M in taxes by spending $45M rearranging their affairs, they're making a $5M profit to do it. Which they tend to not want to leave on the table. > Shareholders might say, "Don't give me an increase on paper. Give me a payment on my current holding, while I maintain that holding". Again, you're claiming that shareholders will want to act irrationally. There is mathematically no non-tax difference between issuing a dividend and using the same money to have a share buy-back combined with a stock split, except that the latter allows shareholders to choose whether they want more stock value or cash right now, which when you consider the tax implications really means choosing whether to pay any taxes right now. > This is especially so if, as you say, shareholders are more reluctant to sell shares and trigger a larger personal tax event. That doesn't make any sense. If a shareholder wants cash then they can sell that portion of their shares and the tax event would be smaller than receiving a dividend in the same amount if capital gains and dividends are taxed at the same rate, because the capital gain would have the price originally paid for the shares deducted from the taxable income rather than taxing the full amount. > The short is that each company is still competing for shareholders. Accruing cash well-beyond what the company can deploy to grow revenue is not in the interest of the company or its shareholders. Then explain the multi-billion dollar cash hoards held by most large successful corporations. > Companies aren't just going to start doing things that are bad for them (e.g. making bad investments), simply to avoid taxation. They don't make intentionally bad investments. But they can make bad or less good investments than the real parties in interest (the actual owners of the capital) would do if the money was under their direct control -- just not so much worse that it's worth losing half the money to the tax man. > This is profit that is being distributed to shareholders, just as now. No one is coming to take the investors' previous wealth (as is often implied). These taxes are simply deducted from what is otherwise a "windfall". I'm not sure why that should make the investors want to pay it any more. > If I have a million dollar gain on a thousand dollar investment, then sure I'm going to cash out at some point. Not necessarily. You might just hold onto it until your kids inherit it, which is what so many of the people you most want to tax because they have so much money are doing. > This, of course, is already happening on a regular basis. But not as much as it would if there weren't as many taxes on it. > And, what else I'm going to do with it? Hold it on paper forever where it has zero value? It has not zero value. You can take a loan against it and then deduct the interest on the loan from your taxes. Holding ownership of a company's stock may allow you to control the company and e.g. give cushy jobs to yourself or your buddies, or build cool stuff and change the world, etc. These are not zero value things.

AnthonyMouse 13y ago

> Sure, there are some, but I believe predictions and discussion regarding those effects to frequently be greatly exaggerated or completely unrealistic. You're basically questioning the efficient market hypothesis. If a corporation or investor can save $50M in taxes by spending $45M rearranging their affairs, they're making a $5M profit to do it. Which they tend to not want to leave on the table. > Shareholders might say, "Don't give me an increase on paper. Give me a payment on my current holding, while I maintain that holding". Again, you're claiming that shareholders will want to act irrationally. There is mathematically no non-tax difference between issuing a dividend and using the same money to have a share buy-back combined with a stock split, except that the latter allows shareholders to choose whether they want more stock value or cash right now, which when you consider the tax implications really means choosing whether to pay any taxes right now. > This is especially so if, as you say, shareholders are more reluctant to sell shares and trigger a larger personal tax event. That doesn't make any sense. If a shareholder wants cash then they can sell that portion of their shares and the tax event would be smaller than receiving a dividend in the same amount if capital gains and dividends are taxed at the same rate, because the capital gain would have the price originally paid for the shares deducted from the taxable income rather than taxing the full amount. > The short is that each company is still competing for shareholders. Accruing cash well-beyond what the company can deploy to grow revenue is not in the interest of the company or its shareholders. Then explain the multi-billion dollar cash hoards held by most large successful corporations. > Companies aren't just going to start doing things that are bad for them (e.g. making bad investments), simply to avoid taxation. They don't make intentionally bad investments. But they can make bad or less good investments than the real parties in interest (the actual owners of the capital) would do if the money was under their direct control -- just not so much worse that it's worth losing half the money to the tax man. > This is profit that is being distributed to shareholders, just as now. No one is coming to take the investors' previous wealth (as is often implied). These taxes are simply deducted from what is otherwise a "windfall". I'm not sure why that should make the investors want to pay it any more. > If I have a million dollar gain on a thousand dollar investment, then sure I'm going to cash out at some point. Not necessarily. You might just hold onto it until your kids inherit it, which is what so many of the people you most want to tax because they have so much money are doing. > This, of course, is already happening on a regular basis. But not as much as it would if there weren't as many taxes on it. > And, what else I'm going to do with it? Hold it on paper forever where it has zero value? It has not zero value. You can take a loan against it and then deduct the interest on the loan from your taxes. Holding ownership of a company's stock may allow you to control the company and e.g. give cushy jobs to yourself or your buddies, or build cool stuff and change the world, etc. These are not zero value things.