If we raise the corporate taxes won’t the corporations just pass this on to the consumers? Don’t corporations just right taxes off as a loss?
How can raising corporate taxes help individuals?
Or write them off as a loss
Someone with more knowledge will be able to answer this in greater detail, but here goes…
Corporations treat taxes as just another cost of doing business; who actually pays the taxes varies. There are three parties that may be in a position to cough it up:
- stockholders (in the form of decreased profits)
- employees (lower wages)
- customers (higher prices)
In a nutshell, yes. It’s a shell game. Most people think of corporations as some disembodied entity that has no connection to the real world. And most people probably think corporate profits go to the top executives, or that CEOs “own” corporations. And of course the guys at ENRON, Tyco, etc. haven’t done the business world any favors in terms of fighting this type of ignorance.
Only individuals can ultimately pay taxes since corporations only exist as a collection of individuals. It might make more sense to charge corporations “user fees” that could be tied directly to specific gov’t services they are receiving. But taxing profits directly is just a tax on the individuals who own shares in the corporation, and those taxes are passed on to the consumers as part of the cost of doing business.
When you plan your investments and spending, do you make decisions based on before tax or after tax income? Corporations act the same way.
Yes…by Kramer’s definition of a “write off” as something companies just “write off”.
A “write off” is an expense companies record on the ballance sheet in order to show lower earnings (really EBIT). Lower earnings means lower taxes (which are a % of earnings).
As for passing the cost onto the consumer, that depends on how elastic demand for the product is. i.e. a gasoline tax could be passed onto the consumer more than a tax on music CDs.
All things being equal, raising corporate taxes does not benefit consumers.
Well . . . yes, but only with the caveat that it doesn’t necessarily hurt consumers.
It depends on how it is done.
As it stands, I see corporate tax as the fee for enjoying the benefits of a corporate strucutre. Insulation of investors, being able to make contracts in a corporate name, etc, etc. As soon as the fee gets too high, people will move on to other structures (e.g., partnerships)
That being said, corporate welfare is a very bad thing. Giving a couple of million dollars to BOTH the republicans and the democrats directly results in lower tax rates for YOUR corporation, a free ride in anti-trust suits, limited liability in consumer actions, and other creative protections.
Therefore, you should be careful to distinguish proposals that simply say “the base rate is X, lets make it Y” and proposals that result in increasing tax revenues from corporations by eliminating certain deductions.
I guess I subscribe to the notion that corporations don’t pay taxes, just pass them on.
The only benefit I see of corporate taxes is the ability to decentralize the tax base. As an example, it is possible for a company to build all their products for sale out of State. The State would lose all the sales tax. There are infinite ways to collect money. The more varied it is, the greater the spread.
Well…yes but only with the caveat this it is more likely to hurt than to help comsumers.
Sure, but by this standard, almost any tax will hurt people. On the other hand, government services will tend to benefit people. Alas, you can’t have the services without the taxes so the question becomes what is the best and most painless way to raise the money necessary to provide the services.
Reality check: ALL taxes hurt people, directly or indirectly.
Sure, corporate taxes may hurt consumers… but compared to what? Does an increase in corporate taxes hurt consumers more than an increase in marginal rates for income taxes? What about running large deficits, and the associated rise in interest rates?
The OP seems to imply that raising corporate taxes is a decision that may be made in a vacuum. Not so. Such a decision would typically involve either: 1) raising corporate taxes, 2) raising other taxes, or 3) letting deficits increase/surpluses decline.
The corporate tax rate is currently approx 45%. The shell game is this; Raise prices, have sales drop, lose customers, make less money, pay less taxes.
What many people do not realize is the corporations keep two sets of books, their reported or GAAP books, and their tax books. This allows the company to show less income to the IRS, and more to potential investors. The difference relates to things like loss carryforwards, and other “perm” differences.
The corporate tax rate is currently approx 45%. The shell game is this; Raise prices, have sales drop, lose customers, make less money, pay less taxes.
What many people do not realize is the corporations keep two sets of books, their reported or GAAP books, and their tax books. This allows the company to show less income to the IRS, and more to potential investors. The difference relates to things like loss carryforwards, and other “perm” differences.
In any case, most high level managers only look at the pre-tax results anyway. Taxes are considered unavoidable, and therefore not something to hold management accountable for.:dubious:
Or more to the IRS and less to potential investors. Non-deductible goodwill comes to mind here. But yeah, mostly more, if for no other reason than the taxable depreciation schedule for much equipment is shorter than its GAAP useful life and certain small items are able to be capitalized for book purposes and expensed for tax purposes.
Your first assertion, well, let’s say we’ll be looking for a cite. Companies use many strategies to lower their tax burden, but I’m unaware of a single one that uses a strategy of “selling less product.”
Finally, the top federal corporate tax rate is 34%. According to KPMG, the combined federal and average state rate is 40% (cite downloadable from here ).
How embarrassing. Forgot to add:
This (mostly) GQ aside is brought to you by Morgan Stanley’s EETC department. Creating massive depreciation for asset-poor companies since 1991.