I’m not necessarily in favor of this, I’m just curious about what people think would happen if we abolished corporate taxes and made up for it by raising income taxes. Make sure you read the next few sentences before you post that I’m an anti-worker, pro-business capitalist pig.
In my somewhat naive view this would free up some money for the company which would then have to decide what to do with it. Some would be plowed back into growing the business or making it more efficient (a good thing). Some would go to the workers as pay and the rest (presumably) to the stock holders. I can imagine that some might also go into “rainy-day” investments to help the company through some hard times.
Some would counter that most of the money will go to the executives but so what? The executives are likely paying a higher percentage in taxes than the company so the net result would be similar tax revenue.
The advantage of this is that with no corporate taxes a company might stay in the US because it is more profitable. (I should make it clear that I am not against off-shoring. I’m just trying to understand the ramifications of tax policy.) This seems like a win for workers (more jobs).
Where are the flaws in my thinking? I’m sure there are some.
It would be a damn good idea. Among the pros:
[ul][li]It would make it easier to get rid of the free speech/entity rights of corporations. Companies are not people, and not citizens, and they should not have a say in elections! YMMV.[/li][li] It gets rid of all the double taxation arguments of business owners, and makes it possible to tax capital gains as income. This is much fairer IMHO.[/li][li] It makes the market freer, i.e. closer to a true capitalist system.[/li][li] Did I mention the thing about corporate contributions to political campaigns? Oh yeah.[/li][/ul]
There are other positives that are more nuanced, but really these are the high points in my opinion. I really see no downsides, not even with lost revenues as we could make them all up by increasing capital gains taxes. It would probably be a wash for all the business / stock owners if done correctly.
I like the idea, but there are some issues. Small corporations would be tempted to buy things for the owners out of the corporate account: computers and office supplies for the home, business dinners, etc. That would all be pre-tax dollars. That is illegal, but tough to catch unless audited.
But in the end, I’d rather see taxes paid at the rate of the individuals when income is distributed to them as dividends, salary, disbursements, etc. than having corporations pay it themselves. Let’s get rid of the lower rates for capital gains tax while we are at it.
Not sure why it would be illegal stateside but on this side of the puddle you’d see cost shifting on a monumental scale. Housing, education, medicine and discretionary expenditure etc would be provided by the corportation and salaries/wages would fall dramatically, being replaced with fringe benefits packages. Individuals would self incorporate as private/family companies or contractors.
Eventually, and probably quite quickly, the tax system would collapse as people moved their income to non-taxable entities.
Corporations are awash in cash right now, but becuase demand is low, they are not investing in new capacity and new employees. Giving them more cash by eliminating taxes is just a give-away to stockholders and executives.
Tax cuts do not create jobs. Did we learn nothing from the Bush tax cuts?
I don’t think job creation is a good reason to get rid of corporate taxes, but in the end corporate profits get distributed to someone, and that someone probably has a higher tax rate than the corporation. Corporate taxes also lead to all kinds of shenanigans shifting around income to other countries and doing things that are not optimal from an economic sense just to reduce taxes.
Corporate taxes were 30 percent of the tax income in the 1950s. Now it is under 8 . As their load dropped, ours had to compensate. After we go broke, services have to be removed. Welcome to the new America.
I think it would have some fairly complicated effects that it’s too late for me to feel like discussing right now (maybe I’ll come back later). But I want to mention this: all taxes are paid by humans (eventually); the issue is whether the taxes are paid in proportion to their income, or wages, or stockholdings, or realpropertyholdings, or consumption, or whatever. So at its most basic level this proposal would simply shake-up in what proportion humans pay the U.S. federal income tax.
I don’t think that (large) corporations pay a lot of (federal) tax anyway, so it probably wouldn’t have much effect on large companies. Small companies do pay quite a bit of corporate tax (of all kinds) so on that score it would probably have a pretty profound effect on small companies.
I think it would be a net positive, though overall not that much would change.
I always considered the “double taxation” aspect of corporate earnings to be the fee for allowing the owners to limit their liability. But I haven’t really thought about it too hard, so I could be convinced either way. There’s so much tax sheltering going on now anyway, who knows what kind of effect it would have.
I suppose from the government’s perspective, one issue would be how they would be able to get their pound of flesh from a primarily foreign corporation doing business domestically.
As a point of reference, according to my dad, his company pays over 50% of their total earnings in taxes of various kinds (federal, state and local)…IIRC when discussing this with my dad and his partners and their tax guru it was something like 56% of their total earnings (profit) go to taxes. They are always looking for ways to get out of paying taxes, and they have found a number of such ways in the past.
My dad’s company is small…less than 100 people and making, perhaps, $30 million per year total. That’s not their profit, obviously, but the gross.
I’m not dismissing anything, conveniently or otherwise. If we have the type of no corporate tax regime that L.G. Butts referred to, the government could tax capital gains at a higher rate and increase top marginal rates to make up the loss, hypothetically.
Crossing from another thread, I’d call this political mental onanism.
Corporations do not exist in reality. If they make money they should be taxed. The primarily conservative principle that has driven US politics in this respect, is to let corps make as much money as they want and not be taxed because the beneficiaries of this situation are upper class whites who want to keep their superiority in this country as long as possible.
Dude, I get it, the corporations are fucking everything up. That doesn’t mean I’m going to condemn them in every post in this thread.
Or we could just tax the shareholders more. Or those making executive-level incomes. Or only the janitors. Whatever. The point is that the individual owners and employees of the corporation are deriving income from the operations of the corporation that can be taxed.
Talking here about existing or hypothesized tax codes is meaningless.
Corps have the upper hand in the current tax code because of conservative politics that want to give the advantage to the existing wealth holders, rather than allow a free market.
That’s the reality of conservative ideals – the rich should become richer.
Assuming this plan is revenue neutral, it doesn’t seem to accomplish much. You eliminate corporate taxes you’re going to have to raise other taxes (most likely income taxes). And the supposed benefit from eliminating corporate taxes will be that some people might get some of the money. But will they get an amount equal to their increased income tax? Doubtful.
This just seems like a plan to redistribute money to people that own corporations. Which I don’t see as a high priority.
But surely the whole point if such a change were made would be for it not to be revenue neutral. Corporations would not be taxed in the US so, in theory, would stop sending their money to currently more favorable tax regimes overseas. The profits still get taxed - but when earned as dividends or capital gains.
Most likely capital gains taxes and taxes on dividends, so the increases will be borne by the people who benefit directly from the tax change. These taxes can be raised to ordinary income tax rates.
The supposed benefit is that it becomes more profitable for companies to keep work in the US, thereby benefiting the economy and bringing more jobs to the US. So extra workers get indirect benefit and the economy as a whole improves. That’s the theory, anyway.