Yes, but the income people are taxed on is also taxed a second time: salaries are used to buy from companies whose employees and profits are taxed.
No simple answer for OP but two observations:
(1) U.S. corporate profits are at record levels – totalling 1.8 Trillion dollars, more than four times what it was in the booming 1990’s. Even restricted to domestic profits, the total is still thrice the 1990’s level.
IOW, a further boost in corporate profitability is not what the economy desperately needs right now. :rolleyes:
(2) A giant loophole to plug is the way big corporations hide their profit as foreign-earned.
I could get behind this idea if you are targeting US companies with no foreign business activity. But I was thinking of the big companies like Microsoft, Google, and Apple who derive a significant percentage of their profits from foreign customers. Restricting their funds from foreign banks would effectively cripple any kind of non-domestic activity.
(Really, the reason why Microsoft bought Skype for 8.5 billion? To invest their offshore revenues rather than pay the taxes to repatriate them. In my opinion, at least.)
I do agree with you to some extent, however the current tax rates are high enough that there is a real disincentive to bringing the money home. Lowering it a bit would take much of the sting out. Wouldn’t getting five percent on billions be better than getting 25 to 39% of nothing? That’s what happens when the money is left to rot outside of the country.
That’s probably the most inaccurate, and dumbest, representation of an economic issue I’ve seen in a long time.
I guess American corporations have also paid the governments of the entire rest of the world to have lower corporate tax rates, and our high rates are just an example of American exceptionalism when it comes to tax policy.
There’s a lot of confusion about basic economics both in what you say here and in the post you were responding to, but to ignore all that I’ll just state: all corporate taxes are a tax on shareholders and the corporation’s customers. It doesn’t matter how you collect it, that is what it is.
The debate about corporate taxes versus personal tax is a debate about tax incidence and not a debate about tax burden. All corporate taxes are born by individuals, in fact all taxation is born by individuals ultimately.
Tax incidence should be structured such as to maximize government revenues and minimize harm in economic growth. Society A and Society B can both have a total tax burden of 25% of GDP, but Society A may have its tax incidence structured much better, and thus has better economic growth.
These are complex issues and it’s not just a bunch of Republican, Koch Brothers, CATO Nonsense. There’s a reason most countries have fallen for different corporate tax policies than the United States–it’s largely because our policies are stupid. Our global taxation of corporate earnings is even more of an outlier than our corporate tax rate (which while high, and some companies absolutely do pay 35%, some pay 0%, so the total effective rate for all corporations is moderate.)
I’m not necessarily in favor of abolishing corporate taxes, but I am in favor of making them not be a complex shell game, lowering them to a standard rate that isn’t subject to a literal mountain of exemptions that cause corporations to keep on staff hundreds of tax accountants who produce nothing of any value to society or the corporation other than tax avoidance. I’m also in favor of abolishing things that cause corporations to leave billions in capital overseas when it could be injected back into our economy. I’m also in favor of any changes to corporate taxes being met with modifications to the personal income capital gains taxes.
FWIW my position is dividends and capital gains should be taxed as regular income, but anyone earning under $200,000 year should pay no tax on either. For those households dividends and capital gains are almost nothing, but taxing them discourages savings and investment for middle income people. For people who are wealthier and whose entire income is often in the form of dividend and capital gains, this taxes them at the full rate. Since the total amount of dividend and capital gains income for persons in the lower tax brackets is so low, there is really no cost to just dropping the tax for those people, especially given it’ll be more overall revenue to increase capital gains rates to regular income for all the wealthy who currently pay ~15% total tax. The standardizing of the corporate tax will also bring billions of dollars in investment capital back to the United States.
It’s my opinion (and the opinion of many) you can see economic benefits from shifting tax incidence away from corporate taxes to personal income taxes, without changing tax burden. As often proposed in the United States cutting corporate taxes would just be a straight line reduction in tax burden and government revenue, which I don’t generally support (I situationally support it if the numbers make sense.)
I would take steps to see that in shifting the tax incidence from corporations to personal taxes, we shift it where it belongs. Right now a large burden of corporate taxation falls on its shareholders (in the form of reduced share price growth) and on corporate customers.
The reasons for reducing incidence on the corporate structure is to eliminate economically negative activities like the various corporate expenditures on tax avoidance and the negatives of straight up keeping capital overseas where it will never be taxed at all, and never be invested back into our economy.
While we would all benefit from this, the biggest beneficiaries in my mind would be the corporate shareholders. Right now they enjoy a 15% tax rate on both capital gains (long term) and dividends. Dividends is a newer one, for ages that was always considered income–and in fact taxing dividends as capital gains is kinda obscene since quite literally they are not a capital gain. They are a type of passive income payment paid out simply for holding a share, regardless of whether its value goes up or down.
Since that is where the primary benefit would go, I’d shift tax incidence to these individuals by making both long term capital gains and dividends taxable as regular income for anyone with AGI > $200,000/year. The last time I did math on this using Tax Policy Institute numbers, the additional revenue from the vast untaxed billions for the Top 1% and 5% of taxpayers who most enjoy the low capital gains rate actually changes the overall tax burden (and revenue) to be much higher. By doing this you could eliminate corporate taxes (I only advocate making them lower and set at a flat rate), but increase overall revenue by removing an insane tax benefit accrued almost solely to the wealthy at present. Further, if you wanted to keep overall tax burden the same, you could then reduce taxes for regular marginal income brackets or just the lower ones. Or, you could invest more in various underfunded government programs or etc. I’m less clear on what I want to do with the increased revenue.
The US federal business tax is one of the most inefficient taxes we have. As of the early 90s there was an estimate by some economists that it cost about a dollar for every two collected. That was a combination of both government and business costs for the attorneys, accountants, and bureaucrats that managed it. That’s some smart professional people who’s “productivity” is just about managing the corporate tax code. Along the way we produce incentives to outsource and make business decisions that are otherwise suboptimal.
We already have systems to tax outflows (income and capital gains). That system will be almost unaffected by shifting the tax burden to something like a higher capital gains tax rate. At the same time we reduce/eliminate the tax incentives to the business to offshore operations. Taxing capital gains at the same rate as other income (but with a capital gains only deduction to incentivize the small investors to save) is down the path of Piketty’s proposals to reduce wealth inequality. It could be a proposal that both the economically left and right got behind… or all sides to froth at the mouth over.
I’d bet we keep subsidizing the careers of tax attorneys and accountants.
There is no such thing as double taxation. The corporation as an entity pays taxes. The shareholders receive payments from the corporation and is income to them as much as the salaries of the workers is.
The minute someone mentions “double taxation” you should immediately dismiss that claim and take any other claims that person makes with great skepticism.
I’m having trouble figuring something out. If we eliminate corporate taxes, that will increase taxes from dividends and cap gains (I think?). I’m not sure if that should balance. Foreign shareholders won’t pay any tax, so that has to be factored in.
Ok, but the OP, to whom I addressed that bit you quoted, was specifically asking about eliminating Corporate Taxes and making it up with higher income taxes. If he meant that he wanted higher capital gains tax, he could have said so (and I know that capital gains are a sort of taxable income, but of a specific subset and are often discussed as their own field.) Either way, the OP, declaring himself a numbers guy, could have done his own math and made his own case, if that’s what he wanted.
Interesting, but I’m not really convinced that’s what the OP had in mind.
I’m also not convinced that lowering the corporate tax is necessary, even if we do boost the capital gains tax (with which I would have no problem). As was pointed out above, corporate profits are at an all time high. Whatever tax burden the corporations feel, it’s clearly not harming them. I would be more likely to put a flat tax at our current rates and pursue legislation to eliminate shelters and oversee tax dodges. Perhaps a two tier corporate tax - 35% on oversees banked money and 5% on money in the US. Or maybe just insist that all companies operating in the US are taxed at the same rate regardless of where they bank and the address on their letterhead. But that’s just me speculating wildly for examples.
One is that ultimately people pay taxes: a tax on corporations is essentially an indirect tax. It falls on shareholders, consumers and workers. I understand that it’s very difficult to figure out the shares accruing to each (i.e. no economist has made a convincing calculation, though they have tried).
To the extent that shareholders pay, a corporate tax is a tax on savings and investment. GWBush attempted to lower that tax via the back door by cutting dividend taxes. The subsequent economic growth record was lackluster.
Still, I wouldn’t mind cutting corporate taxes in exchange for increases in dividend taxes and higher rates on higher incomes. But even in the best world, it would be bad to cut corporate taxes to zero. Such a policy would encourage abusive tax shelters. Cite: http://mitpress.mit.edu/books/taxing-ourselves Taxing Ourselves, A Citizen’s Guide to the Debate over Taxes by Joel Slemrod and Jon Bakija. Keeping your funds in a shell company would permit them to compound tax free, even if they are merely being deposited in a bank account. At tax of say 15% could blunt that advantage.
Well then I’ll take that as a no and start with the basics; this place is about learning, after all.
As for double taxation, it depends. The oversimplified version is that the profits of S corporations are taxed once, at the owners as individuals; the corporation’s profits are not taxed at the corporation level. The profits of C corporations are taxed twice, first at the company level, then at the individual level.
When Company X generates profit, the owners, you and I, own those profits, just as we own the assets of the company. They’re already ours. We can set up Company X so that it pays us wages. Those are treated similarly to if we were working at some other place that we didn’t own. They are earned income and subject to payroll taxes. Let us assume that after all is said and done, there is money leftover, i.e. profit.
If our company is an S corp, its profits, which we own, are treated as if they are immediately transferred to us, the owners. But not like payments to employees; we already got those and they’re treated very differently. The company can hold onto those assets, but we’re still paying taxes on them. Generally it’s a good idea to transfer to our personal accounts enough money to cover those taxes. And if you and I are smart, we probably drafted an agreement to do just that.
If our company is a C corp, we still own those profits, but we have more flexibility in transferring them to our personal accounts. We still get paid our wages, however we have that set up. After payroll, our immediate profits get taxed at the corporate rate. Then, if we choose distribute any of our remaining profits to ourselves, that money is taxed as dividends. The profits, which were ours from the start, were taxed twice. The overall effective rate may be more or less than our individual tax rates, depending on several factors.
Most US companies are S corps. Most US companies pay no federal income taxes themselves, by design. But the owners individually pay those taxes.
I forgot that foreign shareholders are subject to branch profits tax. That could still be kept in place if corporate taxes were eliminated, although I’m not immediately certain what an appropriate level would be.
Which part is drivel? The part about the S corp? Or the part about he C corp? I come here to have my ignorance fought, and I’d like to know where my misconceptions are.
