Imagine if someone reduced in the United States the Federal and State (and city if applicable) corporate income tax to 0% or near 0%. I’d say 0.5% so that there’d be a precedent to have and raise it in case of an emergency like World War 3 or somesuch. You also created subsidies such that companies of sufficient size who moved to the U.S. would get a fat sack of cash proportionate to their company size for the first two years for no reason other than setting up shop within the borders.
However, to make up for this lost revenue you increased capital gains and personal income tax enough among the top 1% to make up for this lost amount.
The idea being is that it makes the corporations’ internal profits bigger. With the tax cuts they could afford more research, more advertising, more officers, more employees, more whatnot. However when people tried to pull money out for themselves they got less than before. This is so that people are encouraged to keep money into the company and try to grow the profit books because that would be the only way they’d get the revenue that they were accustomed to back.
So, what would the net effect be if this was implemented?
it’s all numbers. first, are you proposing a reduction in the national government’s revenues or not? not? (large) corporations as a group pay much more than individuals so increasing taxes on individuals is not likely cover the shortfall. i don’t have much of an idea as to how capital gains compare with income but i have a feeling taxable income far outstrips taxable cap gains so there’s not much compensation either. then, you estimate how much new value (and eventually new taxes) can be created by your proposal to cut corporate income tax. if not much, what’s the point?
This would be a huge boon for businesses. When shareholders sell, the capital gains taxes do not reduce the money in the corporations coffers by one penny. This accumulation of unlimited resources would be inefficient in itself, since they would inefficiently invest the extra money once it got past a certain point, and it would also distort the economy by giving businesses control over a majority of the dollars in the economy.
Plus there’s the fact that there are a lot of ways you can get around capital gains taxes, (for instance, by dying at the right moment,) so the ones who least deserve their wealth, (heirs,) would be taxed on it the least. Whereas small business owners and hard everyday workers would get it in the shorts.
sorry. i had that upper 1% individuals in mind. total individual collections is around 42% while corporates is only 12%. so if the upper 1% of individuals would be paying, say 10 times higher than other income classes, it wouldn’t go past 4.3%
I can’t say I’d be unhappy with a system that increased capital gains tax and held cash reserves, but dropped the corporate income tax to zero. The current system seems like double-taxing income and has a lot of perverse incentives.
On the other hand, I can’t think of a practical way to do that without introducing an equally large number of perverse incentives.
60 Minutes (IIRC) recently had a segment on this very subject and used the same figure. The result was more US businesses setting up offices in countries with a more competitive tax rate, taking the jobs with them.