I was doing some research earlier on sources of US taxes when I stumbled upon this quick breakdown from the Center on Budget and Policy Prioties:
USA tax revenue for 2014: 3 trillion dollars
46% Income Taxes
34% Payroll Taxes
11% Corporate Taxes
9% Estate Taxes
This got me thinking:
-What if you were to eliminate the Corporate Tax and make it up with higher Income Taxes?
-Would this spur any economic growth and investments in Corps? Or would it mostly be a wash?
From what I can tell Estonia has something close to this system: 0% on Corporate tax combined with 20% flat tax and 33% payroll tax.
What I understand Estonia is considered one of the most business friendly and fastest growing countries in the EU. Especially for a former Soviet state.
The argument against corporate taxes, of course, is that profits are paid to shareholders as dividends and so taxed a second time.
However, the flaw in your post is simple - just because they don’t collect that much in corporate tax, does not mean that the effect of raising personal income tax would be to recover that money. Instead, you and I with no major assets tied up in shared would pay higher taxes, while those who have plenty of dividend income would get more and possibly find loopholes to shelter that income.
IMHO double-taxing corporate profits should be a fee for the right to shelter corporate liability from your personal finances - “Limited”. In fact, I assume like Canada, the USA taxes profits and dividends with lower rates that compensate for the double taxation.
The argument against corporate taxes is “waaaaah…I don’t want to pay taxes!”
Well nobody wants to pay taxes. But most of us can’t afford to pay the Cato Institute a million dollars to make up bullshit about why we shouldn’t have to. Taxes are just the price we collectively have to pay to keep the country working.
The double taxation argument you mentioned doesn’t fly. Corporations pay out money for a variety of reasons. They pay out wages to their employees, they pay out bills for the energy they use, they pay for maintenance of their buildings, they pay out dividends to their shareholders, and they pay out taxes to the government. Taxes are just another business expense - the money that was spent on taxes wasn’t around to be profits so it has nothing to do with dividends.
Corporations pass on the cost of taxes to its customers. If I thought that corporations would pass the savings they would see if corporate taxes were eliminated, I would be in favor, but there would be no lowering of prices – you would have to be a shareholder to see any result (other than, of course, paying higher personal taxes so that corporations don’t have to).
The issue is way too complex for a thread post. Maybe several volumes penned by competing economists. But here’s one simplistic problem:
No tax on corporations - why would they invest in more plants and products? You have to have demand before production increases (apologies to all the marketing folks out there). Consumers have to have money available to purchase these new products - think discretionary spending. If you tax the people more - there is less available for new spending over and above necessities which kills demand. You see this during recessions. Consumer staples corporations do okay - you will still need toilet paper - you go cheaper for the variety with wood chunks still in it. A new car? Probably just fix the old one.
Again, a very complex issue. My thoughts are a government should push (subsidize to some extent) for full employment. Income is not a bell curve. Lower income people are the majority and they spend pretty much everything earned driving demand. High earners spend a certain portion on discretionary purchases but are big savers. I’m not an advocate of income redistribution - just the fullest possible employment. Please excuse the sweeping generalizations above (I know); some quick thoughts.
Do you have any factual evidence for this claim? I would prefer hard evidence for or against it.
I really don’t care about the politics of it, not weather you think its right or wrong. Not what “fair” or “what sould be” I just want to know if it works. As in:
-Will it improve tax revenues? There bye creating better social saftey nets and properly funded social welfare system?
-Will it be more efficient of a system? Eliminating “loop holes”, for the rich and Corps?
-Will it help maintain sustainable economic growth?
I am a factual based person, if the numbers work–they work, don’t care about ideology.
This is more of an opinion or debate type of question than a factual question. It seems to me that there’s enough of a debate here to justify moving it to GD. If the debate doesn’t thrive it may end up in IMHO, but let’s give GD a shot for now.
Moving thread from General Questions to Great Debates.
X = 11% of 3 trillion dollars.
Y = 46% of 3 trillion dollars
Z = (Y - X) ie - the amount of dollars you need to make up in income taxes under your proposal.
Then explain how you would adjust the current marginal tax rates to produce that amount (or what your alternate taxation scheme would be).
FYI: the most efficient way to do something is to do that thing, not some other thing in hopes that it will affect the thing you care about. If you want to prevent tax shelters and loopholes, then pass a law and do so. Don’t blow up other parts of the tax code and hope it will all work out.
Kansas slashed corporate income taxes a few years ago, and it’s going so well that they’reletting kids out of school early so they have time to spend all the money they now find themselves swimming in.
It’s gone so well the Wisconsin might even follow suit!
This idea that lowering taxes will somehow increase tax revenues, no matter how it’s spun, is simply magical thinking by conservatives.
I won’t argue that it couldn’t work. Obviously, it could. In fact, the income tax is only about 100 years old, so the country got by for 140 years without an income tax at all. There are lots of different ways to raise tax revenue.
That said, I’m not sure it’s a good idea.
What you need from corporation is a combination of their tax revenue and their general activity (employment, sales, investments, etc.) So any reduction in income tax would have be justified by either raising the tax revenue elsewhere or by seeing major new investments. I think we can write off the idea of new investments; corporations are mostly sitting on piles of cash right now and they’re not investing until they feel more confident about the current economic, business and political environment. The US is not Estonia.
So we’re left with raising the revenue from some other source. If 11% of total income tax comes from corporations and we shift that to 57% from individuals, that’s about a 25% increase on individual income tax. This is not going to be popular, no matter how you implement it.
(One idea, though, would be to make C Corporation income pass-through just like it is for partnerships and S Corporations. The popularity of S Corporations is actually one major reason why corporate tax revenue has been declining in the US for a long time. But the issue is that tax is now being paid from holdings in 401k plans as well as from all those “rich people.” It’ll affect the majority of the population one way or another.)
There’s always the idea of cutting spending, but cutting 11% of the budget isn’t going to happen either.
The simple and factual answer to this is that the economy is a massive and complicated system. Trying to move one piece to another is at best a messy proposition. Depending on a dozen other factors, you could end up with major economic growth leading to unimagined prosperity, or you could collaspe everything like a house of cards.
I suggest you forget Estonia and look and Ireland to see the net result of slashing corporate taxes.
Long story short, what happens is that business “move” their head office, which really just means their stationary gets updated, but their corporate leadership et al stays put. (see Medtronic, Burger King, tax inversion).
Canada has been trying this for as long as I can remember. They’d offer huge tax breaks and incentives to automotive companies to set up factories. Things would seem good for a while, since those jobs meant the government wasn’t paying people to sit around.
Eventually one of two things happen: the company goes under and all those jobs are lost, or another country offers a sweeter deal (cough Mexico cough) and all the jobs are lost. Then all those employees ask the government, “what are you doing to bring back more jobs?”
The real truth is that nobody can tell, then. It’s so massively complicated that any real treatment of the subject requires volumes written by PhDs. This, I am sure, has been tried, and with the following result:
-The paper has a “pro” bias, has no difficulty “proving” the pro side, and is rejected as biased.
-The paper has a “con” bias, has no difficulty “proving” the con side, and is rejected as biased.
-The paper has no bias, comes to an honest conclusion (which may or may not be correct, depending on the methodology), and is rejected as biased.
What about all of the billions of dollars in profits sitting offshore because corporations are reluctant to repatriate those funds under the current tax laws? With no corporate taxes, that money would be able to be used back home rather than being invested in foreign projects.
Even if you argue that corporations should pay at least some tax, it might be that (say) a 5% rate on everything could bring in more tax revenues than the current 25-39% rates do after money is hidden in all of the various sheltering schemes.
That was because the government had more respect for the Constitution in those days. Easily two-thirds (probably more) of all current non-defense spending is unconstitutional. If we eliminated Social Security, Medicare, and Medicaid, we wouldn’t need any sort of income tax.
Or, if your goal is to keep the money in the country, you could pass a law making it illegal for corporate profits to be held in offshore banks. You could even fudge it a little and say that X% of all profits over Y amount must be invested locally.
Again, that’s the most efficient way to do it, if your actual goal is to keep the money local. My suggestion would achieve the requested results.
Your suggestion is based on hoping that action in one area (lowering taxes) would result in a different action in another area (increased corporate investment). There’s no direct cause and effect making it inefficient, and really, kind of a crapshoot.