A company doesn’t “keep” anything. It eventually uses all of its money to either pay dividends (or stock buybacks, their financial equivalent), salaries, business expenses.
We tax corporate profits, not income. That takes out of the dividend stream, so we tax capital gains (the tax the investors pay on dividends/stock appreciation) correspondingly lower.
You could in theory get rid of the corporate tax and just tax capital gains at the same rate as income. It would fix a lot of problems. But you would upset a lot of people who don’t understand finance and taxation, like the people seeing red in this thread, who have some moral gripe with these corporations (who are mostly just doing what the law incentivized them to).
It would have one small effect though. Since the US taxes the worldwide income of its citizens and permanent residents, it would probably overtax them, making them pay the higher capital gains rate for profits made in countries that do retain the corporate tax. The most obvious ways to fix that would just reintroduce the problem of sorting out where the profit was “made”, which is where we are now. Ideally, you’d get all of the western countries to sign up to end this stupid corporate tax at the same time. That’s difficult because a few important countries have used low corporate tax rates as a way to attract business that would otherwise have no reason to be there.
The problem you do not address, which is already big and would become huge if corporate tax is abolished, is the deferral aspect:
All companies will hoard all cash waiting (perhaps decades) until the tax rates are lower, and then pay it out as salaries/dividends with a lower rate; it’s already happening with overseas profit and “tax holiday” years, but so far only Apple/Google size companies can participate.
Once you enable this for domestic companies, every employee making >$80K will incorporate, keep money in company and draw minimal salary actually needed for everyday life, waiting for favorable tax day or needing the money. The tax base would be reduced by 10-50% if not more (due to progressive taxation) and though it may even out in the end, it would make tax receipts unpredictable and likely somewhat lower overall.
I don’t see the issue with corporate taxation - it’s a liability shield, and it has a cost. Those who don’t like it can do a tax pass-through and risk the liability. Almost no one wants to do that.
> A company doesn’t “keep” anything. It eventually uses all of its money to either pay dividends (or stock buybacks, their financial equivalent), salaries, business expenses.
Companies certainly do keep cash balances. That cash balance directly adds to the company’s valuation. They’re not obligated to pay it out or spend it. The owners of the company can sell the company, including cash balance, as an asset.
Suggesting that a company’s cash balance somehow doesn’t count because it’s inside a company structure is disingenuous.
anonunivgrad|5 years ago
We tax corporate profits, not income. That takes out of the dividend stream, so we tax capital gains (the tax the investors pay on dividends/stock appreciation) correspondingly lower.
You could in theory get rid of the corporate tax and just tax capital gains at the same rate as income. It would fix a lot of problems. But you would upset a lot of people who don’t understand finance and taxation, like the people seeing red in this thread, who have some moral gripe with these corporations (who are mostly just doing what the law incentivized them to).
It would have one small effect though. Since the US taxes the worldwide income of its citizens and permanent residents, it would probably overtax them, making them pay the higher capital gains rate for profits made in countries that do retain the corporate tax. The most obvious ways to fix that would just reintroduce the problem of sorting out where the profit was “made”, which is where we are now. Ideally, you’d get all of the western countries to sign up to end this stupid corporate tax at the same time. That’s difficult because a few important countries have used low corporate tax rates as a way to attract business that would otherwise have no reason to be there.
beagle3|5 years ago
All companies will hoard all cash waiting (perhaps decades) until the tax rates are lower, and then pay it out as salaries/dividends with a lower rate; it’s already happening with overseas profit and “tax holiday” years, but so far only Apple/Google size companies can participate.
Once you enable this for domestic companies, every employee making >$80K will incorporate, keep money in company and draw minimal salary actually needed for everyday life, waiting for favorable tax day or needing the money. The tax base would be reduced by 10-50% if not more (due to progressive taxation) and though it may even out in the end, it would make tax receipts unpredictable and likely somewhat lower overall.
I don’t see the issue with corporate taxation - it’s a liability shield, and it has a cost. Those who don’t like it can do a tax pass-through and risk the liability. Almost no one wants to do that.
PragmaticPulp|5 years ago
Companies certainly do keep cash balances. That cash balance directly adds to the company’s valuation. They’re not obligated to pay it out or spend it. The owners of the company can sell the company, including cash balance, as an asset.
Suggesting that a company’s cash balance somehow doesn’t count because it’s inside a company structure is disingenuous.
emteycz|5 years ago
TheRealSteel|5 years ago