First off, I like to think of myself as liberal when it comes to personal taxation; ie. I believe the high income people should pay handsomely into the public coffers.
But corporations exist for the benefit of stockholders. If the corporations aren’t taxed, some of the money could go to higher dividends which can then be taxed at the individuals tax rate. This seems fairer to me, since a high income stockholder pays more for his piece of corporate profit, and the lower tax bracket stockholder will pay less for his piece of corporate profit. That is fair isn’t it?
On the other hand, the corporation might decide to use the extra cash for the benefit of its employees, or invest to generate more jobs, which is what we all want isn’t it?
Think of all the administration costs in government and the private sector that can be saved if we just dropped corporate taxation !
This seems so simply to make sense to me that I’m afraid that I’m missing an important economic reality in my conclusion that corporate taxes are simply counter productive to everyone. Any comments?
I think you could easily make the case that Corporations actually put a larger strain on the nations infastructure than average JQ Citizen. (Examples being: transportation/roads, envoirmental cleanup, power).
Also business entities are treated with the same rights as JQ Citizen, so I think yo can make the case that elimanating taxes on business would be unequal treatment againt JQ Citizen.
Dopers feel free to pick apart this flimsy arguement. It just my initial thoughts.
Ok, grienspace, but what about the loss of revenue?
If you just increase the tax rates on the people that get the increased corporate dividends, such that the pound of flesh the IRS takes is the same, then you’ve just shifted where the tax gets paid. If the IRS gets the same cut, everyone ends up with the same amount of money they had before.
If the corporation invests the money and doesn’t give increased dividends, then the tax rates on individuals will have to increase to make up the shortfall. How much of a shortfall? Sadly, all the stats on the IRS page are in Excel and I’m on a school computer at the moment.
grienspace, your argument makes great economic sense, but the primary problem with it is equity. Personal tax rates would have to go up, most likely, as Maximino pointed out,* and there is a substantial minority in this country who don’t own any shares, directly or indirectly. These people wouldn’t gain any benefit from higher corporate profits, but would share in the cost.
Solve this problem, and you will have gained a follower, oh Master.
*Maximino, I think you are right in general, but I differ on a detail. If a corporation invests the money rather than paying dividends, it is going to create more jobs, which means more people to tax, thus making up at least some of the shortfall. Dunno if it would be enough, but just wanted to point that out.
If you ask an economist he or shee will probabky answer that “No, Corporations should not be taxed.” And the reason is simple, it is double taxation. AC orporatin is just a bunch of shareholders, the corporations porift is the shareholders money. When it is paid in dividends it is simply the handing over of the shareholders money to them. So if you tax the income at the corporate level and then again as dividneds it is taxing the same income twice. This is not the same as taxing a dollar twice when it is earned andt hen when you buy something because that is an economic activity. Paying out dividends is not, it is simply the transfer of funds.
And seeing the coporate income as simply the income of the individual shareholders important in assessing equity concerns. If you believe in progressive taxation then you should be offended by corporate taxation because it makes no distinction on ability-to-pay for the shareholders. And contrary to popular belief not all shareholders are rich, in fact may retireee rely on dividends to get by. Not just the wealthy have Pension funds, either. Yet, all corporate income is treated the same, hence all shareholders are treated the same.
Not really, because high income stockholders will be paying more being in a high income bracket, and low income stockholders will be paying less if corporate profits are taxed at the individual tax return. Also, the cost of government, that is tax administration costs ,are saved as well as administrative costs within the corporation, if this tax scheme is dropped saving everyone money.
Of course if profits are invested, as is the case presently, I believe (write-offs), jobs are maintained and/or generated, relieving the government support programs and expanding the tax base.
One other thing that occurs to me is that under the present corporate tax arrangement, corporations can not save liquid assets for a rainy day, as these assets are immediately taxed. The result is that corporations are much less secure than the could be. At present corporation rely heavily on borrowings to get through the economic lows and disperse cash as soon as they can. That means the need for banks in our society has been artificially increased, and that affects the cost of borrowing from rich for the rest of us.
As for** stuffinb**, I would suggest that the strain on the infastructure is to the benefit of us all, and I would like to see the rich people who benefit most, pay the most.
Throughout history governments have taxed what they could as much as they could. Taxing many things at a lower rate than few things at a higher rate means avoidance or evasion are more difficult and less profitable. You pay sales tax, property tax, income tax, corporate taxes etc. the government is everywhere taking a little money at a time. If you could have a system where only physical persons paid taxes once a year then cheating would be easier and much more profitable.
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I guess you could have a system similar to the Value Added Tax where taxes are paid all along the process and deducted in the next step, except the last step where the individual is stuck… hmmm… this makes interesting food for thought.
This is a good theoretical argument. Note that corporations are taxed on profit, but stockholders only pay taxes on dividends, which are generally only a portion of profits. A modification of grienspace’s idea would be to do away with corporate income tax, but to tax the stockholders on their proportionate share of the full earnings, not just the dividends.
This system might encourage corporations to pay higher dividends.
I am by no means going to climb into this debate, since my grasp of macroeconomics doesn’t reach to balancing my checkbook, but I notice that everyone is treating corporations as though they’re on the market. What about sole-owned corporations, partnerships, etc. i.e. anything not offered on the NYSE?
Does my former boss get off scot-free because he has no actual income and all his living expenses are paid by the corporation (which has one stockholder)?
This isn’t quite true, december. If corporate profits aren’t paid out as dividends, they may be used for various and sundry activities (investment, increase of market share, etc.) that would have the effect of causing the stock price to increase. The stockholder would then pay the tazes on that as capital gains taxes when they sold their shares.
I guess I don’t understand. Anything your former boss gets from the corporation is considered taxable benefits. If they pay for his house then he needs to report that, if they pay for his car he needs to report that, if they pay for his food he needs to report that. If he gets all his expenses paid the corporation can write it off as an expense, but the individual must declare it as if it were income
Unfortunately, some small business owners cheat by unfairly putting their personal expenses against the business. Even if they obey the law, there are legal ways to take advantage. stofsky’s boss may have owned a Subchapter S corporation.
I would like to focus on a basic point for a moment: Corporations don’t really pay taxes. Corporations shift costs from one place to the next. By that I mean that all costs borne by a (for profit) corporation are passed to its customers. That means that, eventually, consumers pay for the tax anyway as a component of the cost of goods/services. Now, some of those costs are borne by consumers in other countries, but we also bear taxes of other countries in some of the goods we buy. One of the many sources of multiple taxation within our economy occurs when the goverment levies a sales or use tax on those goods or services. That is one reason why eliminating corporate tax is a good idea because it would eliminate one more source of multiple taxation.
