My opinion. No. Businesses should be taxed at very low rates because businesses simply pass their taxes down to the consumer anyway - and businesses taxed at high rates creates a non-competitive environment for keeping those businesses in the state or country taxing them.
(I’m a pro-tax liberal, btw. But I think business taxes and capital gains taxes should both be kept low relative to top tier income tax).
I am talking about individuals - individuals own stock. I don’t own stock in UPS myself, but I do own some other transportation heavy stocks whose profits rely on that infrastructure.
While we’re at it, take a 2nd thought experiment. Assume a 2 earner family with an accountant and physical therapist netting $80,000 per year. Compare them to a hard working movie star, derivatives trader, corporate lawyer or even entrepreneur earning $400,000. The expenses of the latter might be somewhat higher, but surely they can kick in a little more to support the combination pension plan/army that is the federal government. Look what happens in practice. It’s a marginal tax schedule so each is taxed the same, rewarded the same, for their first $80,000 of income. Or actually, the richer group is taxed less on that, because of their greater propensity to chase loopholes, empirically speaking. The only question is whether to tax the remaining $320,000 at a somewhat higher rate.
Let’s assume a bad scenario: instead of paying 30% marginal, the middling movie star pays 50%. So the rewards of chasing ambulances vs earning $80,000 are reduced from $224,000 to $160,000. I don’t shed many tears for well-healed group, and my degree of respect is proportional to my judgment of the consequences of their endeavors. Don’t get me wrong: incentives may matter so I’m setting them aside in this post. But again, that’s an empirical issue – one which conservatives typically avoid discussing in any sort of detail because of the apparent awkwardness of the underlying reality.
(bolding mine)
Well, sure, I guess the could, but the issue is why? Other than the fact that they have it, why should they be asked to kick in a little more? Couldn’t instead the army be a little smaller?
I think one of the problems is that we have a tendency to think in terms of percentages. Ratios like the size government or the size of the army all relative to GDP. Which implies that if I work hard and cause the GDP to go up, for what ever reason we should have a larger military.
What I’m getting at is percentage system really the most appropriate method for assigning taxes? If I work harder, or society values me more, why does my tax burden go up? What would the military do if I decided not to work harder?
To be clear, the federal government is a pension plan that happens to have an army. The latter is a smaller component of the whole.
But taxes on business are just indirect taxes on individuals. Ultimately all taxes are on individuals. And taxing a business tends to reduce incentives for investment to some extent. This US ultra-liberal would actually favor lower (but nonzero) profit taxes on corporations. That would be combined with higher taxes on externalities such as pollution and sharply higher taxes on the upper incomes. (The latter would compensate for the fact that pollution taxes tend to hit the poor and middle class harder.)
Could you say that again, I’m not sure I follow. It sounds like you’re saying that rich people make poor people feel bad, so to compensate rich people should pay more in taxes.
I’ll agree that taxing business profits makes as little sense as taxing individual profit (ie income).
But the fact that the tax on a business gets passed to the consumer shouldn’t matter, since the individual will have more disposable income.
I like the idea of taxing based on usage. A business that uses ports should pay for the dredging and icebreaking, those that use highways pay for road work and snow clearance. These costs will be passed to the consumer, who can then decide if they would rather pay for something that travels by boat, or something that travels by highway. If a business can’t make profit, the government won’t have to provide that service.
The current system creates too many subsidies either direct or indirect. Pirating in the Gulf of Aden had several business solutions: cruise faster (way more gas), pay ransoms, or increase insurance, all drive up prices which have to be passed to the consumer. If the consumer won’t pay, businesses won’t use that passage.
An alternative solution is to have the the military police the waters. That costs money, but currently the military is funded by income tax. So it seems like the price of goods would stay the same, but only because our income tax should go up.
We end up subsidizing the cost of travel through the Gulf of Adan, so the price of goods through there looks like it costs less than going around South Africa.
My two cents.
Well, it’s more like the $400,000 family makes the $300,000 family feel bad…
Here’s the detailed argument: Positional good - Wikipedia
You don’t have to buy it, but I wouldn’t dismiss it outright.
Well, no: these are empirical issues. My reading of the literature indicates that taxes on labor don’t distort behavior all that much, with one possible exception. Higher taxes may discourage 2nd earners, typically female, from joining the workforce. The effect on hours worked, in contrast, is pretty small. But if you change the return on equity, you risk changing hurdle rates, so that investment projects that should be financed are not. So it may make sense to tax people directly, rather than through a profits tax.
Moreover and separately, it’s better to tax “Bads” rather than “Goods”. I’m thinking of pollution. Putting the damages of pollution into the cost of final products would encourage both greater efforts at pollution control and discourage purchases of intrinsically dirty end goods.
While there has been a lot of chatter on both sides about taxing based on usage or benefits, might I remind everyone that doing this is eminently impractical. What is the use of a road worth to someone? It is hard to measure even if we had perfect information, and I suspect that neither side wants to record our road usage during the year in order to figure out a tax. Ditto for everything else. If we tax on expected benefits, it gets even worse.
Income is easy to measure, more is better than less, and dollars make a convenient common measure. If we are going to justify, or dispute, the progressive tax, we should do it on some grounds that we can act on.
I certainly wouldn’t dismiss it, I’m just not sure how to put a positional tax into practice.
As a side story, a friend spent a few weeks in Syria, a country I knew nothing about at the time. When asked about the weirdest differences, he described how all the houses looked, “unfinished.” You’d see re-bar hanging off the side, building material in the yard, all the houses looked like they reached 90% and gave up.
This bothered him so much that he eventually started asking about it, and turns out it was taxed based. You pay a very low property tax on an unfinished house, which makes a certain sense. So people would leave their house unfinished to avoid paying the full tax.
Looking back, what this did was tax a positional good. To finish your house was a sign of wealth and prosperity. People that wanted to flaunt their wealth would finish their house, and thus pay the extra tax.
At first I thought this was crazy, and then I realized the same thing happened where I grew up. I never understood why certain homes didn’t have front steps, just a door 4 feet off the ground. Turns out part of the tax code for a finished house was that the front steps were finished. Sort of the last thing you do. If you want to save money, use the back door and avoid the taxes. If you want to flaunt your wealth, put the stairs on and pay the tax.
I agree, taxing income is easy, but that isn’t a justification because it has to relation to usage.
The alternative isn’t that hard either. Taxing vehicle registration, driver’s licenses, or auto insurance is one way of having a user fee, but not a good one. Taxing gasoline/diesel is a pretty direct way of charging a person a per mile fee. A tax on plane tickets can fund airports, FAA, security, and air traffic control. And also has the added perk of making people in first class subsidize those in cattle class.
Yes, I do. But I also think we should have a way for people like that to fulfill their obligation to society that is non monetary. As I’ve offered elsewhere, let’s give those below a certain threshold the option to pay with labor. Help paint the high school bleachers, clean up a park, shovel snow off the sidewalks downtown, etc. The important point is that we are all equal in the eyes of the government and we all must see to our obligation to the common good.
I think that should be covered by business taxes. A company like UPS uses the roads a lot. A company doing investments, not nearly so much. So, the “costs” of a company go to it’s bottom line which is reflected in the stock price.
And then passed to the consumer, who can choose how much they value a product that travel hundreds of miles vs one that is closer.
Businesses already pass their costs on to the consumer, this is nothing new. A company operating in the north has to pay for snow removal on their property. If they also had to chip in to pay for local snow clearing that would also get passed to the consumer. If they had to pay for highways to be cleared it would also be passed on. The point being, all of that would then be funded directly by those who use it.
But here is the deal.
The company I work for just unincorporated in the U.S. and reincorporated overseas to a better tax base. They’ll pull all U.S. operations - I’d guess over the next five years. They won’t be a U.S. business anymore. There are a variety of reasons for this, but taxes is one of them - and with them will go U.S. jobs.
Years ago I helped relocate a U.S. business to Northern Ireland - including doing the analysis - the tax rate was what made us choose Northern Ireland.
The amount a nation charges a business to be located there - in terms of taxes - is a competitive variable when deciding where to do business. And that comes with jobs.
You can tax U.S. businesses right out of the U.S. - we’ve been doing it for years. And with it goes the U.S. jobs…and then who do you tax? The unemployed? The wealthy? - they just leave the country never to return.
Which is valid.
Two points to consider. I recently helped a business move because it’s rent was too high. As a result one county just lost tax revenue to another, for a reason they couldn’t control.
Second, what you showed was proof we shouldn’t tax profits, either on businesses or people, as they are likely to move. And the more we encourage rich people to relocate, the more we’ll need to increase taxes at the top end to make up for the shortfall.
The businesses that move to Ireland (or Canada or Mexico) will still sell products in the US, which means they are still making their profit in the US and using resources like ports and highways. So tax them on what they use, and let them pass that to the consumer. If their product is still desirable people will pay and they’ll make profit. If it’s undesirable at that price the government won’t have to provide those services.
I fully agree taxing profit is a bad idea.
Or do a VAT.
I do think you can tax the wealthy too much. I do not think that the approximately 40% traditional top tax bracket is so high as to encourage many people to pack up and move to the Bahamas, never to return to the U.S. Wealthy people want to return to this country - go shopping, visit their grandkids (and we make it very difficult to do so if you move and don’t continue to pay U.S. income taxes). People have ties to places. Some people will, of course - some people will if its 15%. But most won’t. The marginal utility of those dollars for the wealthy isn’t that huge. But get above 50%, and I think the psychological factor kicks in and you’d see movement.
And I disagree! Earlier I argued for sharply reduced US corporate profits taxes. But set a zero tax rate on US corp earnings and you create opportunities for abusive tax shelters. So a little double taxation of earnings can be a good thing. Just not a lot.
(h/t Tax policy expert Joel Slemrod. )
There are also some nice things you can do with a low corporate tax rate in terms of incentivizing behavior. Because with large corporations even a little bit of tax means a lot of money, you can get a lot of capital investment by accelerating depreciation tables (for instance). Take it down to zero and you lose the carrot. Leave it small and you reduce the abusive tax shelter and create opportunities to stimulate the economy (or slow it down) through tax policy.
That’s also part of why you wouldn’t want a zero income tax policy on individuals. No one like income taxes, but we haven’t gotten pretty good on getting them to influence behavior. Not always as successful or with as much impact as we hoped, but at least we have the tool in the tool belt.
Can you explain this further? Do you mean have an income tax and then offer deductions for good behavior?
Offering an income tax credit for energy efficient appliances is the same thing as increasing the tax on inefficient appliances.
Pretty much. Another example is the home mortgage deduction which encourages home ownership - it also encourages the flow of money in general (I paid off my house, then took out a mortgage on it because the money was cheap and came with a tax benefit - then I bought a second house with it - exactly what the fed wanted me to do with my money right now.) Or the tax rebates we give to encourage spending (another example - and a better one in terms of getting the economy stimulated because its set up to be very temporary.)