Let’s walk through this. Let’s say that they have 1000 customers, each of who has a $100,000 term life insurance policy. That means they would have to have $100M in assets ready. Assume that the customers are evenly distributed from 25-65 years old. That means there would have been 9,840 total ((sum of 1 to 40) * 12) monthly payments made. Assuming no investment by the insurance companies, the monthly payments would have had to be over $10,000. Let’s assume that on average the money received in premiums has doubled in value. That makes the monthly payments $5,000 which is off by an order of magnitude.
Very often the lack of environmental regulation is the biggest factor in moving jobs. I don’t delude myself that American labor is something special. I also know American management is the same. But when we moved our companies ,we gave them brand new modern plants, access to our patents and intellectual property and our developments in manufacturing systems. Gave them. The advantages we had ,were simply given away so the top corporate types could make more money. If we didn’t hand super fast computers and design systems to China ,they would have had to spend time and money catching up. It is not just labor costs. It was a blow to the American worker and American technology.
That is not how term life insurance works. I just bought a million dollar insurance policy for $75/month. When I paid my first premium, the insurance company didn’t put aside a million dollars. It groups me with thousands other guys my age who don’t smoke or have any serious risk factors and using the law of large numbers, they can predict with amazing accuracy the percentage of us that will die this year, next year and every year for the duration of the term. They also know that many of us are actually going to outlive the term on our term insurance policy so they will ultimately pay out FAR less than that 100 million you mention. The insurance company holds reserves equal to the present value of its expected payouts adjusted by the present value of its expected premiums, its obligations are fully funded.
The closest insurance comparison to ss would be a deferred annuity with a death and disability benefit and insurance companies are REQUIRED by state regulators to maintain reserves that will comfortably allow them to pay claims when they become due.
Back to the OP. The repubs cut taxes to the rich. They cut estate taxes. They gave tax breaks to corporations that sent their work abroad.
The result, the biggest maldistribution of wealth since the golden years of Rockerfeller and Getty. Wealth is being accumulated rapidly at the top. The middleclass is getting gutted. We have a permanent class of unemployment and those with a lack of opportunities.
Cutting corporation taxes will just exacerbate the problem. To most Americans, it would be terrible. Large corporations have been making incredible profits. They have cut jobs. The idea that cutting them more will cause them to hire more people is sophistry. Corporations have not been creating jobs for a long time.
Yeah, back to the OP:
I’ll state my bias upfront. I’m a liberal who prefers lower budget deficits in times of prosperity, higher deficits during recession, and tax reform that would lower the US corporate tax rate to, say, 16%.
Increase taxes on corporations, and the burden will be shouldered by a) the shareholders, b) the customers and c) the workers. Ultimately, tax burdens are borne by human beings. But it’s my understanding that all serious efforts to put numbers on a) vs. b) vs. c) have ended in frustration.
According to Joel Slemrod, a US taxation expert, cutting the corporate tax to zero would be a bad idea, though there is scope for lowering it from existing rates. Eliminating corporate tax altogether would be an invitation to creating abusive tax shelters. “As a practical matter, an income tax system such as ours requires some form of corporate tax to serve as a backstop to the personal taxation of capital income.” Cite: Taxing Ourselves: A Citizen’s Guide to the Great Debate over Tax Reform
But as you said before, based on statistical and demographic models. Pepole dieing early are paid for by the premiums of other current customers. This seems ro be the same as SS, They have enough money set aside to pay current claims with the “premiums” paid by current workers. They have the added benefit of knowing that workers can not drop out of the system, so they have a reliable model of revenue and future liabilities. Like SS, insurance companies can not point to vault someplace with the payments of Mr Jone’s put aside for him.
Is there any reason to believe that we will ever once again achieve a “position of financial strength” with regards to reducing or eliminating our unbelievably monstrous deficit?
No you could elminate the corporate taxes as long as you passed through income immediately.
Well if the economy gets humming again and our politicians are not deathly afraid of arising taxes and cutting spending in a time of plenty, then yes, of course.
Well let me put it this way. If a term life insurance company stopped selling policies, the insurance company would still be able to pay its expected obligations. If the social security system decided to stop taking new beneficiaries it would not be able to fund its obligations after a few years. This is the difference between a fully funded benefit (which SS was never intended to be) and a transfer payment system (which is exactly what SS was always intended to be.
Like I said annuities are a much better analogy to SS than term life insurance and in the case of term life insurance there is in fact an account that holds a bunch of money that can fund the annuity benefit, the annuity company does not rely on new annuity purchasers to pay its current annuity beneficiaries.
I am amazed that people think what happened to our economy was some kind of cosmic accident. Grover Nordquist said the aim was to cut the government down to a size where they could flush social programs down the toilet. So the Repubs cut taxes to the rich ,twice. Gutted estate taxes. Allowed corporations free reign to avoid paying their share of the tax burden. Then started 2 wars without funding them. Wow, America went broke. How did that happen?
So now they can cut the “entitlement programs”. We can not afford them anymore. They deliberately did it for specific aims . Yet they convince people that the problem is tax load and social spending. How stupid are you guys? The rich want to gut medicare ,medicade and welfare and everything that does not benefit the rich. Could they cut the "entitlement programs’ with a surplus? Of course not, they had to make it logical. Giving all the money to the rich worked very well. Where’s the money? Those damn poor people took it. Believe that and you have bought the farm. The rich are taking the country over.
Norquist is one of the the main reasons you can’t take Libertarians seriously when they claim that they aren’t Republican.
Good to see you aren’t making the classic debating error of extrapolating a single instance to the whole. Sort of like referencing Alan Greenspan as a libertarian, when the very notion that he controlled a fiat money supply for two decades already places him well afield of any basic libertarian principles.
Gonzomax doesn’t understand basic analysis. He supports Obama. Therefore, Bill Bradley and Larry Summers don’t know the first thing about basic analysis, either, since they supported Obama.
On a note slightly back towards the OP, here was an interesting editorial from yesterday that deals with the subject matter at hand. It’s from Steve Forbes, whom I’m sure is anethema to most people on this board, and I haven’t validated any of the figures in it. So take that for what it’s worth. It also deals with personal rates and not corporate rates.
But it highlights a classic case of a left-wing politician confusing the total tax take with marginal rates, and assuming raising the latter gets more of the former.
How convenient that it ignores corporate tax rates:
Oh and Forbes left out this:
But other than that Mr Forbes, how was the play?
Well, maybe I should restate it as saying that “you can’t take Libertarians seriously when they claim that the Republicans don’t represent them.” Libertarian ideology is VERY WELL represented in the Republican party by folks like Norquist. It just gets silly to hear Libertarians have one “True Scottsman” argument after another why all the free market Libertarian policies that result in catastrophe are not really adhering to Libertarian philosophy. If you need that much philosophical purity in policy, I would propose that your philosophy is worthless in a democracy (or at least this democracy).
Well, that’s what happens to libertarians when they confront real world situations, the theories crumble. The problem is that instead of recognizing that their libertarian theories are little more than theories they try to make themselves right by trying to ensure the success of their more libertarian policies and that is what leads to the sort of monetary behaviour that created the housing bubble.
This is a pretty one sided presentation of the facts and history. For example:
Brazil’s higher tax revenue is not the result of lower tax rates it is the result of higher effective tax rates, IOW there are fewer deductions for the rich, there is no 15% capital gains rate or dividend rate, etc.
The notion that tax cuts results in higher tax revenue has been abandoned (if it was even ever subscribed to) by all but the most uninformed. Here is a Pro-Laffer curve type of guy basically accusing mainstream economists of straw-manning supply siders by pretending that supply siders believe that cutting tax rates will increase the tax revenue, the problem is that the people who cite the supply side economists always present the argument exactly that way.
http://www.cato.org/pub_display.php?pub_id=6432
I know a lot of conservative tax policy folks here in DC and while they won’t jump in front of anyone saying that tax cuts will increase tax revenue, they all admit that at current tax rates, cutting taxes WILL NOT increase tax revenue. Their contention (which everyone I know agrees with) is that taxes distort economic behaviour and cutting taxes will stimulate more economic activity but at current tax rates we are pretty clearly on the left hand side of the Laffer curve and any tax cut will reduce tax revenue.
Yeah I forgot about payroll taxes.
Er – but most corporations (other than REITs) retain a portion of earnings, for entirely legitimate purposes. And REITs don’t pay taxes anyway AFAIK.
Sure there is. first - it’s happened at least twice before, in which we’ve recovered from deficit levels that were higher than our current one. Second - while our deficit is big right now, it may not technically qualify as unbelievably monstrous. In fact, if we look at our entire debt, we are below the worldwide average in terms of debt as a % of GDP.
The bottom line is that debt and deficit spending are not always bad things. Nobody, to my knowledge, is arguing that we don’t have to address these - just that now might not be the best time.
As an aside - I’ll point out the 5 countries in the world with the lowest total debtas a % of their GDP:
- Mozambique
- Libya
- Oman
- Equatorial Guinea
- Azerbaijan
Hopefully you see my point - deficits and debt sound scary. But sometime they are necessary. The above 5 countries have low debt relative to their GDP - but I don’t think we should be striving to emulate any of them, economically. We just don’t need to kill the patient with our cure for the disease.
REITs must “distribute” earnings, you can “pass through” income like a partnership or LLC while allowing the corporation to retain those earnings.
REITs don’t pay taxes because they operate under a special regime that allows them to escape taxation if they distribute 90% of their income.
What we are trying to prevent after a repeal of the corporate tax is the deferral (and eventual avoidance) or taxation. The answer is to tax that income immediately.
The existence of LLCs makes a lot of this argument moot unless you in fact want to allow people to defer and eventually avoid the taxation of income.
Damuri Ajashi: With respect, your responses are not especially clear to me. I think what you’re saying is that the government could permit a special type of limited liability corporation where shareholders would be taxed on something like the company’s net income, rather than dividends paid out to the individual. Under that scenario, you could drop the tax rate to zero on that type of company.
Q1) Have I got that right?
Q2) Has this been tried anywhere?
Q3) Has anyone advocated this in a publication?
Q4) I concede that I’m on shakier ground here, but I would think that there would still be scope for abuse in the form of cost over-estimation and accounting shenanigans. But perhaps the IRS is clever enough to ID firms that are artificially postponing net income for many years through long term contracting and the like. I am unsure and am frankly out of my depth.
At any rate, this sort of corporation would have a rather different tax structure than ones in operation today.