> "Raising the income tax rate has by far the least negative effect on GDP. In the long run, the simulation shows that the economy pretty much returns to baseline levels, with a slight increase in potential output.
The opposite is true for corporation taxes. A rise in the corporation tax rate leads to a severe and negative initial fall in GDP. Potential output also decreases. This leads to lower productivity, higher inflationary pressures and deteriorating economic circumstances in the long run.
A rise in indirect taxes (such as VAT) does not affect GDP quite as badly as a rise in corporation taxes, but it does affect GDP more substantially than a rise in income taxes. Indirect taxes operate largely through the price channel, increasing the prices of goods. By artificially raising prices, demand is curtailed."
Who cares what the GDP is if the country is unpleasant or impractical to live in? Income tax is extremely retarded and our country was started by shooting people who suggested significantly less extreme taxes.
I think the idea is that corporations are the most efficient entities in the economy in terms of allocating capital. They have to be, or they go under. And when they have extra cash, investors tend to demand that it be deployed or paid back to them as dividends. So the natural incentive is for companies to run with the leanest possible capitalization and generate the biggest possible profits.
So when you take cash away from companies and allocate it to the government, you're reducing the overall capital efficiency of the economy a lot.
If you set corporate taxes to 0%, you can still keep the same size government budget if you then tax dividends and executive salaries, except you'll take the money away from less efficient entities (individuals). By the way, this also removes the incentive to deduct all sorts of personal expenses from your business tax, because there isn't any.
And if the government wants to reign in this or that monopoly or incentivize certain activities, it can do so via regulation rather than tax breaks / increases.
Same level of government budget & control, higher economic growth.
The annual Global Wealth Report from UBS [0] usually shows a very wide base of millionaires in the rich countries (there are 23 million millionaires in the US) and a rapidly rising crop of new rich people all over the world, especially the rapidly growing countries like India and China.
Even for those at the very tip of the pyramid, the 0.01%, there's a ton of turnover. Who was the richest family 0, 10, 25, 50, 100, 150, 200 years ago? The answers are all very different.
You are also assuming the tax incidence of corporation tax will fall mostly upon shareholders. For example if the incidence was 70% on workers and 30% on shareholders then this should not be a progressive form of taxation. I think most economists believe the tax incidence is shared between parts of the corporation (workers, consumers, and shareholders) but I don't think there is much consensus on the proportions.
It seems to me that the capitalist economics mostly end up in capitalisms favor because it simply ignores a lot of variables.
1) Capital is allocated according to the wishes of the capital owner, generally to gain more capital and buy luxury goods. My question then is what does the people who have no capital get out of this system!
They are of course free to sell their labour, which is different part of the equation all together.
You may trade the few chips you have made from selling your labor for capital, but the chips you will receive will be of extremely low values, compared to the vast fortunes accumulated by wealthy families over generations.
Often these capital owners are descendants from feudal lords and others who gained their capital via dubious means.
I don't think the studies account for a 0% tax rate and $0 government subsidy. If you're running a large deficit then adding in a tax rate is like having a fire that you're pouring lighter fluid on. Of course when you take away the lighter fluid the fire gets smaller. However, how are you getting that lighter fluid in the first place?
It also doesn't mean that 0% is the correct tax rate. This gives pretty strong evidence that during boom (bull) years you should increase the corporate tax rate to prevent the formation of bubbles and then during bane (bear) years you should decrease it to stimulate growth.
I think the easy way to think about this is that individuals tend not to spend all of their income especially at the higher income brackets. While companies are not as severe in that effect. So if you increase taxes on a business in order for the government to pay back debt to an individual who then saves the money instead of consumes it, you're going to decrease overall consumption.
> I really need a good explanation for the assertion about corporate taxes, as it makes no real sense. Frankly, it sounds like corporate propaganda.
Corporations have many tax avoidance strategies available, and the incentives to activate them based on tax changes, so basically because capital is much freer to move than labour (in most places) one would see the effects suggested in the linked article.
That being said I'm sceptical of this research, does anyone have more detailed links to the simulations on which the analysis is based?
He's something like 96, and has been working on replacing himself for at least 10 years, maybe longer. He announced his retirement a few months ago. It would be irresponsible to not plan for his succession; training your replacement is arguably the first responsibility of a leader, especially when your timeline is long-term.
Buffet still has 30% of the voting rights which makes him pretty hard to replace in the theoretical situation where someone would have wanted to. He's retiring at the end of the year and remaining chairman of the board.
Imagine if a household was only taxed on the money they managed to put away in savings and could count housing expenses, food expenses, education costs, healthcare, entertainment, vacations, vehicle purchases, etc. 100% against their income.
That's what the standard/itemized deduction is supposed to represent. The problem is that we obviously can't let you deduct everything, because if you can deduct everything there would be nothing to tax, aside from savings. And you really don't want to tax savings because savings (also known as "investment") is what makes the modern economy possible.
I most certainly cannot deduct housing, food, entertainment, vacations, or large purchases.
> The problem is that we obviously can't let you deduct everything, because if you can deduct everything there would be nothing to tax, aside from savings.
This is the point the parent poster is making. We say that it's ok for corporations to deduct everything, but not the people? Why are we ok with that?
>This is the point the parent poster is making. We say that it's ok for corporations to deduct everything, but not the people? Why are we ok with that?
Because companies, to some approximation, are pass-through entities, so it doesn't make sense to tax them. Most of the stuff you buy are for own use/consumption. Food is an obvious one, but so are movie tickets TV and last year's European vacation. Companies don't do any of that. It doesn't need food, movie tickets, or European vacations. It might buy flight tickets for its employees to go on sales trips or whatever, but it's not for the company itself. Moreover if you're buying stuff for business purposes (eg. you're a contractor and need a flight ticket to go meet your client), you can deduct it too.
More practically, taxing revenue or not allowing companies to deduct expenses would heavily encourage vertical integration. A vertically integrated widget factory will only have to pay such a tax once, but a widget factory that buys its sheet metal from a foundry, which gets its ores from a miner will have to pay the tax 3 times. That's bad for the economy because it discourages specialization and division of labor, which is basically the other pillar of the modern economy.
> Companies don't do any of that. It doesn't need food, movie tickets, or European vacations.
And yet they sure seem to cater a lot of lunches and dinners, pick up the costs for large corporate events, pay for suites at event venues, and fly executives around the world in private jets.
>pay for suites at event venues, and fly executives around the world in private jets.
If it's for legitimate corporate purposes, I don't see the issue, because as a contractor you can do the same deduction. And while I'm sure there's some non-zero amount of improper expensing going on, the amount relative to income taxes paid by the employee makes this a non-issue in practicality. The IRS has better things to worry about than grilling a company on whether some executive's 1 week stay at a $500/night hotel (tax value: $3500) was a proper expense or not, when the executive makes $500k+ TC.
> That's what the standard/itemized deduction is supposed to represent.
If they wanted you to deduct housing costs they'd just let you deduct housing costs. Instead they play games about mortgage interest deductions because they want to incentivize certain kinds of living arrangements over others and give handouts to some voters but not others.
I agree the idea of only having households pay taxes on savings is pretty much untenable with existing revenue structures and would be disencentivizing things we want to incentivize. Just pointing out how corporate taxes just seem pretty absurd from what households pay in comparison.
Let's imagine two groups of people. One group gets a bonus and takes that money to go on a cruise. Easily 30%+ of that money gets taken by income taxes (including FICA). The other group gets their company to just pay for them to go on that cruise as a team building exercise/corporate summit/planning meeting/whatever you want to call it. That's negative taxes in the end, the cost of the business operating, it's a cost that offsets revenues. Good luck getting that audited and declared taxable.
> Instead they play games about mortgage interest deductions because they want to incentivize certain kinds of living arrangements over others and give handouts to some voters but not others.
Your "they" is doing a lot of work here.
In reality, this system isn't top-down; it's bottom-up. Influential groups of voters (corporations, sure, but also just various stripes of "rich people" — and even upper-middle-class people at the municipal level) go out and lobby their local and regional representatives to get exceptions carved out for them (and, mostly coincidentally, people like them.)
The voters who don't get handouts are the ones who have no political influence.
(Fun fact: our current situation with capital-gains taxes, was an attempt to "rationalize" a system that was previously similarly cronyist in shape. It used to be that there were particular exceptions carved out for investment classes A and B and C that rich-and-influential people invested in, and none carved out for your regular Joe. People got mad, and the government's solution — rather than removing the carve-outs — was to just make them equally accessible to everyone.)
>That's negative taxes in the end, the cost of the business operating, it's a cost that offsets revenues. Good luck getting that audited and declared taxable.
How is that negative taxes? At best it's tax free, but calling it negative tax (because it's lower than the alternative?) is double-counting. Moreover AFAIK this sort of tax evasion mostly happens at the small business level (eg. a plumber buying a pickup truck and then using it to go to the grocery store and pick up his kids from soccer practice), but it doesn't really happen at the corporate level because 1) such spending will almost be in contravention of corporate governance policies and be flagged by auditors and 2) you need so many people in on the conspiracy that it's impossible to keep a lid on it. Plenty of companies get flak for their subsidiaries in tax havens, but I'm not aware of any serious allegations of corporate tax evasion by the way of fringe benefits.
Unironically yes. The reason people want taxes on profits is they think large, powerful companies are a threat... but if you think that, why tax money that large, powerful companies don't waste?
The other reason is to tax the rich, but you can do that by simply taxing the rich directly. If we fear powerful companies, we can put some sort of scaling size tax on the largest ones.
Yes! That's the VC funded model - money injection while you burn cash and run on losses until you're big enough for a huge return. Which incentivises all sorts of bad behaviours. Same with Hollywood accounting. Just tax a bit less on revenue.
Most of my health expenses, sure. Not necessarily all of them, unless I play games and live within allowed limits of tax advantaged savings accounts which might just eat my money at the end of the year.
My vacations, car payments, food expenses, and housing expenses are absolutely not able to be written off. One part of my housing expenses may be able to be written off, but not anywhere near all of them. Some education expenses, but not nearly all. I get $5k of untaxed income for childcare for the year. How many weeks do you think $5k covers for two kids?
Pareto optimality would be ideal, but across an entire economy, that's almost impossible to measure.
In reality, there is no objective definition of "a fair share", there is only the intent expressed in the tax code (and people of course argue over what the intent "really is"). If people and/or corps. are paying taxes following that intent, then for all practical purposes, they are paying their "fair share".
A realistic fair share is probably some colloquial measure of people and corporations being equally angry about their taxes and equally angry about others not paying their fair share. It's my personal opinion that corporations have it way too good in the current system, specifically because they've spent millions to find ways to save billions, which people cannot reasonably do, and because they've also spent millions buying our political processes off to ensure tax laws don't meaningfully change.
Yes, and in fact the entire purpose of a progressive marginal tax system is that "everyone feels the pain of taxation" equally. It recognizes that a fixed percentage, even with a threshold, feels very different if you earn poverty-level wages than if you earn 10000 times that.
And that's what our tax system is designed around.
Corporations, and specifically their status (or otherwise) as "persons" complicates the picture quite a bit.
What counts as a loophole though? IRA, almost by design is a way to shelter your investments from taxes. Is it a loophole to put your investments in an IRA to avoid taxes? What about when Peter Thiel puts his paypal stock in an IRA, and paid no taxes on his paypal exit?
"intended use-case" is just more fuzzy language. They probably thought everyone would buy mutual funds, rather than 3X leveraged Nvidia ETFs. Does that mean buying such ETFs (and making bank) mean you're not paying "your fair share"? Or for something more down to earth, what about meme stocks and bitcoin treasury companies, both of which are technically companies, but are definitely not what the authors of the bill had in mind.
The purpose of IRAs is clear from the name - Individual Retirement Account. It was intended to allow individuals to save more effectively for their own retirement, and the justification for it centered around providing incentives for people who might not otherwise save enough.
At least, that was the publicly delivered account.
For a billionare who can already retire in comfort few will ever know to be using any kind of IRA for any purpose is outside of the publicly given justification for their existence.
>For a billionare who can already retire in comfort few will ever know to be using any kind of IRA for any purpose is outside of the publicly given justification for their existence.
So if you're sufficiently rich (by some arbitrary amount), you're now a "tax evader" and "not paying your fair share"? Can we say the same about other deductions, like the standard deduction? I doubt you'll be able to find a politician that answer "yes" to "do you think bill gates' first $14.6k in income should be tax-free?", does that mean that's "tax evasion" too?
The authors of the Roth IRA, which initially had a $2,000 annual contribution cap were not intending it to be used by someone with $21,800,000,000 to avoid taxes on $5,000,000,000.
I really don't know how this is difficult unless you're trying to be a troll or somehow miraculously don't comprehend how numbers work.
Can you say why employees of large and well funded businesses get to save $23k+ per year in 401k, but employees of small and less well funded businesses can only save $7k per year in an IRA?
You don't have to be large and well funded. You do have to have your own SEP-IRA, rather than a regular IRA, and almost any self-employed person could do that. I am self-employed, my business is essentially a sole proprietorship, and I get the higher limits because of the type of IRA.
So the question is really: why do some people only get to save $7k a year in an IRA and others get to save much, much more?
>employees of small and less well funded businesses
For example, a startup without the funds or time to do all the HR to allow for 401ks is disadvantaged because their employees cannot contribute as much to a retirement account as someone who works for a business that offers a 401k (or for themselves).
A person has the following choices:
1) work for a business offering a 401k (usually larger, well funded, etc)
2) work for themselves
3) work for a small, upstart business (usually smaller, not as well funded, etc)
Why does working for #3 disallow you from saving as much for retirement? Why are tax advantaged retirement savings a function of your employer at all?
Same for paying for health insurance with pre-tax income.
Well I can pull up exactly what proponents of The Taxpayer Relief Act of 1997, which introduced the Roth IRA, stated their intentions were since this is very easy to find and widely documented but I strongly suspect you don't actually give a fuck about reality.
> Food conglomerate Archer Daniels Midland enjoyed $438 million of U.S. pretax income last year and received a federal tax rebate of $164 million.
> The delivery giant FedEx zeroed out its federal income tax on $1.2 billion of U.S. pretax income in 2020 and received a rebate of $230 million.
> The shoe manufacturer Nike didn’t pay a dime of federal income tax on almost $2.9 billion of U.S. pretax income last year, instead enjoying a $109 million tax rebate.
If you think this is the same as someone putting $7k into a 401k then you are acting in bad faith and we have nothing productive to discuss.
Some loopholes are an accident. Some are intentionally put in place by parties interested in traveling through the loophole, benefiting from doing that, and then claiming they would be stupid not to do so.
Those cases are different, even though the legal status of them may be the same.
Fair means the same playing field, the same rules, the same consistent outcomes from all the corporations subject to these laws and regulations, and not just one of them who does the right thing. Exercizing loopholes is the opposite of fair. It puts those with the best cheating strategies ahead of those who play by the rules. Because you can catch the ref with his back turned doesn't make you a fair player.
"A way of avoiding or escaping a cost or legal burden that would otherwise apply by means of an omission or ambiguity in the wording of a contract or law." - The American Heritage® Dictionary of the English Language, 5th Edition.
What they're describing is corporations using legal strategies to mitigate their tax burdens that you or I cannot do. Lobbying is legal, but you or I cannot lobby to any useful degree. Big-box store companies build their stores to be short-lived buildings, then will only sell them with a contract that says the next occupant cannot be a big-box store, then argue that since value is determined by what someone else will pay and nobody will pay much for the end of life of a short-lived store intended to be a shop but which now cannot be a shop, so their stores are low value and comparable to empty stores, therefore they shouldn't pay much tax on them. "In Wisconsin, new Gov. Tony Evers says his budget proposal will close the dark stores loophole in the state"[1].
> "Legally avoiding taxes isn't cheating."
Try arguing that you would only sell your houses with a stipulation that nobody can live in it, therefore you should pay the same taxes and rates that an empty lot would pay, and see if you still think that "legal is the same as right and fair".
Loopholes are the definition of playing by the rules.
Laws are not enacted in spirit, they are drafted, voted on, and enacted in text. What the law says is what matters, not what people assume it wants to achieve.
To claim that complying with the law exactly as it is written is unfair is, quite frankly, undemocratic and an outright rejection of the rule of law.
No, criticising the laws for being written in such a way that allow loophole behavior is not undemocratic. In any reasonable democracy you're allowed to criticise laws however much you please
It’s very easy. If I think I pay a lot then I’m paying more than my fair share. If I think you’re not paying enough then you’re not paying your fair share.
> On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article.
Hard to imagine someone who invests would have no indirect positions in BRK. Any broad-market ETF would have substantial exposure.
I think that's still fair, market following ETF/mutual funds are kind of the gold standard for avoiding conflict of interest issues. It's what my job forces me into to make avoiding insider training easier.
In any case, corporations benefit from airports / roads / ports / law enforcement / defense / education / etc... which are funded by local / federal governments. So corporations have a moral duty for to contribute to these expenses by paying taxes.
(But it is only a moral duty, and not a legal obligation. So corporations end up paying nothing, or next to nothing.)
But why not just tax the owners of the corporation more to accomplish those same goals?
Why doesn’t the moral obligation rest with the owners of the company, rather than this legal construct that was created on paper?
Corporations aren’t rich people - they are machines that allocate capital and eventually return the money with profit to the owners. They can be owned by rich people, and we can tax them.
When we add taxes on corporations, we introduce compliance issues, accounting and forecasting requirements - all complications that take away money from the actual good things we can get from corporations - jobs in the community, better product development, etc.
Because rich people can reduce their income to 0 or close to 0 via different legal ways like LLCs, funneling through other corps, certain investments(which are basically tax-money laundering schemes), being tax residents of tax havens, etc. It depends on the country what you can do. In Germany, it's basically 0.
The rationale for a low or zero corporate tax is that corporate profits eventually become personal income of the shareholders and employees, and can be taxed there. Nobody builds a for-profit corporation for zero salary or personal profit.
Hypothetically with zero corporate tax, if the corporation paid zero salary, zero dividends, and shareholders never sold anything, the corporation could amass ridiculous amounts of untaxed wealth. But this never seems to happen.
I mean personal income taxes, plus capital gains taxes, taxes on the individual -- I am in favor of; not on the corporate entity.
I think because they don't get any dividend to trigger income tax, instead they get a loan against their shares and spend that and roll over the debt to infinity.
I feel like this is a myth people share without ever looking into. You service the debt with income that you make and pay tax on the income you service the debt with
They do not need to service debt using taxable income, they can roll it over indefinitely or until death, at which point the tax obligation disappears due to the stepped-up basis (capital gains reset on death)
I wish you were kidding but I doubt it given how much taxes are loved on HN. Income taxes are too high as they are. Taxed when you earn, tax when you spend, taxed on property, taxed to use your car, to fill your car or EV, taxed on inheritance, taxed on capital gains, etc. It’s out of control and is making the income division worse. Corporations R posting massive profits, dodging fair tax payments through creative loopholes, and then our lawmakers mis-spend the taxes they do taken. The entire system is broken.
And I really don’t think the EU is a model for tax sanity. Look at eliminating loopholes, not squeezing the average Joe even more than they already are. Their shit salary isn’t even keeping up with inflation. But their taxes sure do.
For the hundredth time, it is not double taxation.
Money is taxed (generally) whenever it moves between parties. You paid tax on your income; you give (some of) it to someone else for goods or services - they pay taxes on it again. That's not double taxation, that's how tax works.
Money flows to the corporation. They pay some to employees, who pay tax on their income. They (might) pay some to shareholders, who (might) pay tax on dividends or capital gains. What is left (very simply speaking), the corporation pays tax on as its income.
It definitely is double taxation. (1st level: corporation, 2nd level: shareholders).
But the point is that the owners accept double taxation in exchange for the protections of the corporate form, like a legal liability shield, treatment of ownership interests as capital assets subject to lower tax rates on sale, deferral of taxation of shareholders' allocable shares of the business' income (as represented by dividends), etc.
A corporate tax rate is good policy. The answer to how high that tax rate should be has split families and friends for decades. Higher corporate tax rates drive substantially increased R&D spending and capital investments (and it's not even close; its easily 4x-5x the amount invested when corporate tax rates are low). This apparent paradox is quite easy to explain: when corporate tax rates are high, corporations will increase their spending on deductible categories to reduce their taxable income, and thus the tax they pay. When tax rates are low, there's little to no incentive to due that.
Why would I want taxes to paid every single time it moves from entity A to entity B? All you do is decrease economic activity, in the aggregate, in a negative compounding loop
It very much is double taxation and to state otherwise seems disingenuous.
Taxing corporate profits is layering an additional (hefty) tax on its beneficiaries - people.
Search 'double taxation' and you will see this term is generally accepted by financial professionals in many jurisdictions to describe the above scenario where a corporation makes a profit, is taxed at the corporate level and then additional taxes must also be paid by the receiver of the already taxed funds (ex. shareholder, bondholder).
It is generally accepted by financial professionals with a particular political and ideological outlook on the tax system.
You do some work, you earn income, which presumably (or hopefully) exceeds your perception of the cost of doing the work to you. You pay taxes on that. You then give the money to some third party, as a gift, for goods & services, to repay a debt, or whatever reason. Subject to the stipulations of the tax code, the recipient pays taxes on whatever they receive (e.g. for gifts there is a threshold, for debts they will pay tax only on the interest received etc. etc.). Nobody calls this double taxation.
A corporation does what it does, earns income, which hopefully exceeds the cost of doing whatever it is that it does. They pay taxes on that. They then give the money to some third party, as a dividend or bond repayment or whatever other reason. Subject to the stipulations of the tax code, the recipient pays taxes on whatever they receive. Some people try to call this double taxation.
Trying to dress this up with concepts like "the shareholders receive the profit, but taxes have already been paid on that" is just missing the point entirely: our tax system taxes money when it moves, not based on how it is labelled (at least when it works as intended).
Actually it's a quadruple tax system since when you give your income to a plumber the plumber pays tax and when the plumber gives the income to his landlord the landlord pays tax.
If shareholders are the same legal person as the corporation, what is the purpose of the corporation?
If the corporation shields the shareholds from many forms of liability, why should the shareholders be able to claim the same personhood when it comes to income and taxation?
If corporations are said to be able to have moral and religious beliefs (thanks, SCOTUS), and yet their shareholders are free to have other, different beliefs, how can they considered the same person?
no. shareholders are not usually the same legal person.
a corporation is a distinct "legal person" because it goes through "incorporation" which breathes a legal life into a concept.
a person does, a corporation has legally perpetual existence because the shareholders can endlessly transfer their shares to other persons and on death the shares are given as inheritance.
I'm no expert, but corporations act as their own legal entities with protected speech. We would have to remove other legal entitlements that benefit them more. They can't have cake and eat it too as they say. I would also like to pay zero tax.
I think this can make sense theoretically and what about cases where companies just horde wealth like Apple or spend it on stock buybacks (like Apple)? I'd want to see some sort of impetus for them to either reinvest or pass it along to their employees.
> I think this can make sense theoretically and what about cases where companies just horde wealth like Apple or spend it on stock buybacks (like Apple)?
Eventually that money is going to come back though - no shareholder wants a company to sit on a massive cash pile for decades.
If a company can’t find a use for the money, then investors will want that cash returned so that they can find a use for it elsewhere.
Apple itself set a goal in 2018 to be net cash neutral:
And when the money comes back to investors, that’s when taxes can be paid and everyone benefits.
Stock buybacks also result in capital gains taxes eventually - it just takes a long time because investors get to choose when to take the gain. If we wanted to fix that, we could just make stock buybacks illegal again like they were before 1982.
Then investors would get dividends again, which results in immediate revenue for the federal government.
It seems strange to me that someone would want to punish a corporation for maintaining a larger reserve with which to handle economic downturns and the like, allowing them to continue to pay and employ those same employees instead of just letting them go.
"Hording cash" sounds like NOT spending on expenses and offsetting profits, and therefore likely involves that corporation being taxed. In addition it sounds a lot more sustainable than wall streets typical obsession with short term gains Uber alles.
Using that money to retain staff during a downturn instead of doing layoffs sounds great and would make sense as something to incentivize through the tax code. There's definitely a point where a company can have an unreasonable amount of cash on hand.
West Germany used huge (60%) corporate tax rates in the near post-war period to force companies to invest into their R&D and CAPEX, which helped Germany rebuild their industrial base much faster than other countries.
If the goal of the USA is to force companies to re-shore, wouldn't this be a better way [0] to proceed than inflating the costs of many goods for the consumer? Large corporations appear to have record cash on hand in recent decades, where as consumers hold record debt.
[0] By better, I mean more much likely to achieve the stated goal.
Yup, only three parties pay corporate taxes; employees with lower salaries, consumers with higher prices, or shareholder via dividends, and all three of those parties are you and me.
This isn’t how it works - for one, you’d be required to be paid a fair wage as an employee. Your employee “benefits” would be taxable income to you personally.
Then, your corporation would quickly be scrutinized on both its income (corporations don’t get W-2’s, you probably can’t just move your existing income to a corp) and its expenses (“reasonable and necessary” is very broadly interpreted, but is unlikely to support what you’re doing).
I've never had to report or been taxed on corporate benefits like free lunches, retreats, or any kind of company event. People very freely classify things as business expenses and not as benefits. Want a tax free corporate sponsored vacation? Make a 2 minute monetized youtube video about the beach you went to! Oh no, you only made 50¢ from youtube? I guess there's a $8,000 loss I can use to offset any tricky to avoid taxed income. Oh, and I need a top of the line MacBook and camera equipment to make those videos so the corp pays for those too.
>You'd never want other companies paying as much tax if they didn't have the profit to back it up. It would bankrupt them.
They do have the profit in that the money they make doing things exceeds the money they spend to do the thing, but though a series of tricks of varying legality and ethics they make it so on paper they do not have "profit" and therefore successfully avoid taxes.
Amazon reported losses for the first 10 years while growing to billions in yearly revenue.
>It would bankrupt them.
It really wouldn't have. While Amazon was growing to dominate retail and putting very many competitors out of business, they were paying 0 corporate taxes. Many companies play these tricks and many people want them to pay fair taxes. If you need to be tax free to break even, you should go bankrupt. Especially in the Fortune 500 region.
If you include the income tax of employees it is a lot higher.
Perhaps we need window dressing to make people happy. Stop doing "income" tax and convert it to "payroll" tax. Gov gets the same amount, people can stop complaining about companies not paying tax. But at the end of the day, it's all window dressing.
These are paid by customers on purchase of goods or services. Vat and gst or hst are examples.
For a service provider, or a seller, there is no way to avoid this tax. If you sell something, you HAVE TO COLLECT THIS TAX AND REMIT TO GOVERNMENT.
Direct taxes.
This is whats "income tax".
You sell something, you buy goods to sell, you earn a markup, you subtract expenses and your PBT (profit before tax) is subject to 15-25-30% income tax and you are left with Pat (profit after tax).
Now, usually this Pat is exempt from subsequent tax because the owner gets this money but many jurisdictions now charge taxes on this "income" as well for individuals or other owners
There are creative accounting ways to reduce this PBT but you cant just show $X on your financials and then say I dont owe any income tax..
Corporate tax paid by Berkshire Hathaway / Sum of Corp Tax paid by all US corps = 5/100 = 1:20
It's clear what it means, how they measure it would be another story, but I'm sure there is public budget information that clearly indicates what the 2024 taxation for that type of tax was.
Here's a short (2:46) video called Warren Buffett: No one would owe 'a dime' of federal taxes if other companies paid fair share.
https://www.youtube.com/watch?v=VJzTsTU1xL8
Here's some interesting thinking about different kinds of tax:
https://economicsobservatory.com/which-taxes-are-best-and-wo...
> "Raising the income tax rate has by far the least negative effect on GDP. In the long run, the simulation shows that the economy pretty much returns to baseline levels, with a slight increase in potential output.
The opposite is true for corporation taxes. A rise in the corporation tax rate leads to a severe and negative initial fall in GDP. Potential output also decreases. This leads to lower productivity, higher inflationary pressures and deteriorating economic circumstances in the long run.
A rise in indirect taxes (such as VAT) does not affect GDP quite as badly as a rise in corporation taxes, but it does affect GDP more substantially than a rise in income taxes. Indirect taxes operate largely through the price channel, increasing the prices of goods. By artificially raising prices, demand is curtailed."
Who cares what the GDP is if the country is unpleasant or impractical to live in? Income tax is extremely retarded and our country was started by shooting people who suggested significantly less extreme taxes.
I really need a good explanation for the assertion about corporate taxes, as it makes no real sense. Frankly, it sounds like corporate propaganda.
I think the idea is that corporations are the most efficient entities in the economy in terms of allocating capital. They have to be, or they go under. And when they have extra cash, investors tend to demand that it be deployed or paid back to them as dividends. So the natural incentive is for companies to run with the leanest possible capitalization and generate the biggest possible profits.
So when you take cash away from companies and allocate it to the government, you're reducing the overall capital efficiency of the economy a lot.
If you set corporate taxes to 0%, you can still keep the same size government budget if you then tax dividends and executive salaries, except you'll take the money away from less efficient entities (individuals). By the way, this also removes the incentive to deduct all sorts of personal expenses from your business tax, because there isn't any.
And if the government wants to reign in this or that monopoly or incentivize certain activities, it can do so via regulation rather than tax breaks / increases.
Same level of government budget & control, higher economic growth.
The problem of course is that capital is mostly concentrated to a few, well connected families.
How does that fit into the equation?
Numbers to back that up?
The annual Global Wealth Report from UBS [0] usually shows a very wide base of millionaires in the rich countries (there are 23 million millionaires in the US) and a rapidly rising crop of new rich people all over the world, especially the rapidly growing countries like India and China.
Even for those at the very tip of the pyramid, the 0.01%, there's a ton of turnover. Who was the richest family 0, 10, 25, 50, 100, 150, 200 years ago? The answers are all very different.
[0] https://www.ubs.com/global/en/wealthmanagement/insights/glob...
You are also assuming the tax incidence of corporation tax will fall mostly upon shareholders. For example if the incidence was 70% on workers and 30% on shareholders then this should not be a progressive form of taxation. I think most economists believe the tax incidence is shared between parts of the corporation (workers, consumers, and shareholders) but I don't think there is much consensus on the proportions.
> I think the idea is that corporations are the most efficient entities in the economy in terms of allocating capital.
Anyone who has had a job knows it's not true.
>> I think the idea is that corporations are the most efficient entities in the economy in terms of allocating capital.
> Anyone who has had a job knows it's not true.
In an 'absolute' sense they may not be as there is (always) some waste, but is there a more efficient way / entity?
I’m also sceptical of this claim.
It seems to me that the capitalist economics mostly end up in capitalisms favor because it simply ignores a lot of variables.
1) Capital is allocated according to the wishes of the capital owner, generally to gain more capital and buy luxury goods. My question then is what does the people who have no capital get out of this system!
They are of course free to sell their labour, which is different part of the equation all together.
You may trade the few chips you have made from selling your labor for capital, but the chips you will receive will be of extremely low values, compared to the vast fortunes accumulated by wealthy families over generations.
Often these capital owners are descendants from feudal lords and others who gained their capital via dubious means.
I don't think the studies account for a 0% tax rate and $0 government subsidy. If you're running a large deficit then adding in a tax rate is like having a fire that you're pouring lighter fluid on. Of course when you take away the lighter fluid the fire gets smaller. However, how are you getting that lighter fluid in the first place?
It also doesn't mean that 0% is the correct tax rate. This gives pretty strong evidence that during boom (bull) years you should increase the corporate tax rate to prevent the formation of bubbles and then during bane (bear) years you should decrease it to stimulate growth.
I think the easy way to think about this is that individuals tend not to spend all of their income especially at the higher income brackets. While companies are not as severe in that effect. So if you increase taxes on a business in order for the government to pay back debt to an individual who then saves the money instead of consumes it, you're going to decrease overall consumption.
> I really need a good explanation for the assertion about corporate taxes, as it makes no real sense. Frankly, it sounds like corporate propaganda.
Corporations have many tax avoidance strategies available, and the incentives to activate them based on tax changes, so basically because capital is much freer to move than labour (in most places) one would see the effects suggested in the linked article.
That being said I'm sceptical of this research, does anyone have more detailed links to the simulations on which the analysis is based?
What a PR powerhouse.
Publicly saying "we paid lots of tax" would be career suicide for a tech CEO.
I'm trying to imagine what would happen to the random Berkshire board member who floats the idea of replacing Buffett.
He's something like 96, and has been working on replacing himself for at least 10 years, maybe longer. He announced his retirement a few months ago. It would be irresponsible to not plan for his succession; training your replacement is arguably the first responsibility of a leader, especially when your timeline is long-term.
Buffet still has 30% of the voting rights which makes him pretty hard to replace in the theoretical situation where someone would have wanted to. He's retiring at the end of the year and remaining chairman of the board.
Wow and they still make money despite paying their fair share. Who would have ever thought.
But corporate taxes are on profit, not revenue, so almost by definition any company that "paying their fair share" is "still makes money".
> But corporate taxes are on profit, not revenue
They are taxes on revenue, but with a set of allowed deductions (e.g. labor costs, R&D, capital expenditure, etc. etc.)
Whether you call that a tax on profit or a tax on revenue with business related deductions is really just a matter of perspective.
Imagine if a household was only taxed on the money they managed to put away in savings and could count housing expenses, food expenses, education costs, healthcare, entertainment, vacations, vehicle purchases, etc. 100% against their income.
>could count housing expenses, food expenses, education costs, healthcare, entertainment, vacations, vehicle purchases
That's what the standard/itemized deduction is supposed to represent. The problem is that we obviously can't let you deduct everything, because if you can deduct everything there would be nothing to tax, aside from savings. And you really don't want to tax savings because savings (also known as "investment") is what makes the modern economy possible.
I most certainly cannot deduct housing, food, entertainment, vacations, or large purchases.
> The problem is that we obviously can't let you deduct everything, because if you can deduct everything there would be nothing to tax, aside from savings.
This is the point the parent poster is making. We say that it's ok for corporations to deduct everything, but not the people? Why are we ok with that?
>This is the point the parent poster is making. We say that it's ok for corporations to deduct everything, but not the people? Why are we ok with that?
Because companies, to some approximation, are pass-through entities, so it doesn't make sense to tax them. Most of the stuff you buy are for own use/consumption. Food is an obvious one, but so are movie tickets TV and last year's European vacation. Companies don't do any of that. It doesn't need food, movie tickets, or European vacations. It might buy flight tickets for its employees to go on sales trips or whatever, but it's not for the company itself. Moreover if you're buying stuff for business purposes (eg. you're a contractor and need a flight ticket to go meet your client), you can deduct it too.
More practically, taxing revenue or not allowing companies to deduct expenses would heavily encourage vertical integration. A vertically integrated widget factory will only have to pay such a tax once, but a widget factory that buys its sheet metal from a foundry, which gets its ores from a miner will have to pay the tax 3 times. That's bad for the economy because it discourages specialization and division of labor, which is basically the other pillar of the modern economy.
> Companies don't do any of that. It doesn't need food, movie tickets, or European vacations.
And yet they sure seem to cater a lot of lunches and dinners, pick up the costs for large corporate events, pay for suites at event venues, and fly executives around the world in private jets.
>And yet they sure seem to cater a lot of lunches and dinners,
Those are taxed at 50% rate, specifically for this reason
https://www.irs.gov/publications/p15b#en_US_2025_publink1000...
>pick up the costs for large corporate events
define "costs"?
>pay for suites at event venues, and fly executives around the world in private jets.
If it's for legitimate corporate purposes, I don't see the issue, because as a contractor you can do the same deduction. And while I'm sure there's some non-zero amount of improper expensing going on, the amount relative to income taxes paid by the employee makes this a non-issue in practicality. The IRS has better things to worry about than grilling a company on whether some executive's 1 week stay at a $500/night hotel (tax value: $3500) was a proper expense or not, when the executive makes $500k+ TC.
because they force you to open bussiness
> That's what the standard/itemized deduction is supposed to represent.
If they wanted you to deduct housing costs they'd just let you deduct housing costs. Instead they play games about mortgage interest deductions because they want to incentivize certain kinds of living arrangements over others and give handouts to some voters but not others.
I agree the idea of only having households pay taxes on savings is pretty much untenable with existing revenue structures and would be disencentivizing things we want to incentivize. Just pointing out how corporate taxes just seem pretty absurd from what households pay in comparison.
Let's imagine two groups of people. One group gets a bonus and takes that money to go on a cruise. Easily 30%+ of that money gets taken by income taxes (including FICA). The other group gets their company to just pay for them to go on that cruise as a team building exercise/corporate summit/planning meeting/whatever you want to call it. That's negative taxes in the end, the cost of the business operating, it's a cost that offsets revenues. Good luck getting that audited and declared taxable.
Totally seems fair.
> Instead they play games about mortgage interest deductions because they want to incentivize certain kinds of living arrangements over others and give handouts to some voters but not others.
Your "they" is doing a lot of work here.
In reality, this system isn't top-down; it's bottom-up. Influential groups of voters (corporations, sure, but also just various stripes of "rich people" — and even upper-middle-class people at the municipal level) go out and lobby their local and regional representatives to get exceptions carved out for them (and, mostly coincidentally, people like them.)
The voters who don't get handouts are the ones who have no political influence.
(Fun fact: our current situation with capital-gains taxes, was an attempt to "rationalize" a system that was previously similarly cronyist in shape. It used to be that there were particular exceptions carved out for investment classes A and B and C that rich-and-influential people invested in, and none carved out for your regular Joe. People got mad, and the government's solution — rather than removing the carve-outs — was to just make them equally accessible to everyone.)
>That's negative taxes in the end, the cost of the business operating, it's a cost that offsets revenues. Good luck getting that audited and declared taxable.
How is that negative taxes? At best it's tax free, but calling it negative tax (because it's lower than the alternative?) is double-counting. Moreover AFAIK this sort of tax evasion mostly happens at the small business level (eg. a plumber buying a pickup truck and then using it to go to the grocery store and pick up his kids from soccer practice), but it doesn't really happen at the corporate level because 1) such spending will almost be in contravention of corporate governance policies and be flagged by auditors and 2) you need so many people in on the conspiracy that it's impossible to keep a lid on it. Plenty of companies get flak for their subsidiaries in tax havens, but I'm not aware of any serious allegations of corporate tax evasion by the way of fringe benefits.
nobody would ever put anything into savings under such a scheme.
are you agitating to tax companies that lose money?
Unironically yes. The reason people want taxes on profits is they think large, powerful companies are a threat... but if you think that, why tax money that large, powerful companies don't waste?
The other reason is to tax the rich, but you can do that by simply taxing the rich directly. If we fear powerful companies, we can put some sort of scaling size tax on the largest ones.
> Unironically yes.
Do you realize that won't produce more revenue, it will just bankrupt companies and produce less revenue?
Companies are already incentivized not to waste by competition. That's the whole point of capitalism. You don't need taxes for that.
[dead]
Yes! That's the VC funded model - money injection while you burn cash and run on losses until you're big enough for a huge return. Which incentivises all sorts of bad behaviours. Same with Hollywood accounting. Just tax a bit less on revenue.
Why not? We tax people that lose money.
Is this a joke? That’s mostly how it works already.
Most of my health expenses, sure. Not necessarily all of them, unless I play games and live within allowed limits of tax advantaged savings accounts which might just eat my money at the end of the year.
My vacations, car payments, food expenses, and housing expenses are absolutely not able to be written off. One part of my housing expenses may be able to be written off, but not anywhere near all of them. Some education expenses, but not nearly all. I get $5k of untaxed income for childcare for the year. How many weeks do you think $5k covers for two kids?
HSAs carry over from year to year. The only limit is contribution amount.
https://www.fidelity.com/learning-center/smart-money/hsa-con...
FSAs don't.
https://www.healthcare.gov/have-job-based-coverage/flexible-...
I always find "fair share" to be an odd argument. Who decides what's a fair share?
That the line is hard to perfectly define does not mean “none is fine”.
What about someone that's very low income, is "none is fine" then?
Yes.
As is the case for an unprofitable company.
Pareto optimality would be ideal, but across an entire economy, that's almost impossible to measure.
In reality, there is no objective definition of "a fair share", there is only the intent expressed in the tax code (and people of course argue over what the intent "really is"). If people and/or corps. are paying taxes following that intent, then for all practical purposes, they are paying their "fair share".
A realistic fair share is probably some colloquial measure of people and corporations being equally angry about their taxes and equally angry about others not paying their fair share. It's my personal opinion that corporations have it way too good in the current system, specifically because they've spent millions to find ways to save billions, which people cannot reasonably do, and because they've also spent millions buying our political processes off to ensure tax laws don't meaningfully change.
Yes, and in fact the entire purpose of a progressive marginal tax system is that "everyone feels the pain of taxation" equally. It recognizes that a fixed percentage, even with a threshold, feels very different if you earn poverty-level wages than if you earn 10000 times that.
And that's what our tax system is designed around.
Corporations, and specifically their status (or otherwise) as "persons" complicates the picture quite a bit.
It means they're not exercising loopholes and legal sleight of hand to pay less.
What counts as a loophole though? IRA, almost by design is a way to shelter your investments from taxes. Is it a loophole to put your investments in an IRA to avoid taxes? What about when Peter Thiel puts his paypal stock in an IRA, and paid no taxes on his paypal exit?
And what about using the “back door Roth IRA” to get around the Roth IRA’s income test? What about when the IRS says the back door Roth is allowed?
https://www.currentfederaltaxdevelopments.com/blog/2018/7/12...
Can you honestly say when the people were drafting how IRAs would work they were thinking this as an intended use-case?
"intended use-case" is just more fuzzy language. They probably thought everyone would buy mutual funds, rather than 3X leveraged Nvidia ETFs. Does that mean buying such ETFs (and making bank) mean you're not paying "your fair share"? Or for something more down to earth, what about meme stocks and bitcoin treasury companies, both of which are technically companies, but are definitely not what the authors of the bill had in mind.
The purpose of IRAs is clear from the name - Individual Retirement Account. It was intended to allow individuals to save more effectively for their own retirement, and the justification for it centered around providing incentives for people who might not otherwise save enough.
At least, that was the publicly delivered account.
For a billionare who can already retire in comfort few will ever know to be using any kind of IRA for any purpose is outside of the publicly given justification for their existence.
>For a billionare who can already retire in comfort few will ever know to be using any kind of IRA for any purpose is outside of the publicly given justification for their existence.
So if you're sufficiently rich (by some arbitrary amount), you're now a "tax evader" and "not paying your fair share"? Can we say the same about other deductions, like the standard deduction? I doubt you'll be able to find a politician that answer "yes" to "do you think bill gates' first $14.6k in income should be tax-free?", does that mean that's "tax evasion" too?
The authors of the Roth IRA, which initially had a $2,000 annual contribution cap were not intending it to be used by someone with $21,800,000,000 to avoid taxes on $5,000,000,000.
I really don't know how this is difficult unless you're trying to be a troll or somehow miraculously don't comprehend how numbers work.
Not at all.
The standard deduction has an entirely different purpose which is not negated by extremely high income and/or wealth.
IRA's, however, were set up for a specific purpose for which Thiel is not the target.
Can you say why employees of large and well funded businesses get to save $23k+ per year in 401k, but employees of small and less well funded businesses can only save $7k per year in an IRA?
You don't have to be large and well funded. You do have to have your own SEP-IRA, rather than a regular IRA, and almost any self-employed person could do that. I am self-employed, my business is essentially a sole proprietorship, and I get the higher limits because of the type of IRA.
So the question is really: why do some people only get to save $7k a year in an IRA and others get to save much, much more?
I never wrote about self employed, I wrote
>employees of small and less well funded businesses
For example, a startup without the funds or time to do all the HR to allow for 401ks is disadvantaged because their employees cannot contribute as much to a retirement account as someone who works for a business that offers a 401k (or for themselves).
A person has the following choices:
1) work for a business offering a 401k (usually larger, well funded, etc)
2) work for themselves
3) work for a small, upstart business (usually smaller, not as well funded, etc)
Why does working for #3 disallow you from saving as much for retirement? Why are tax advantaged retirement savings a function of your employer at all?
Same for paying for health insurance with pre-tax income.
[dead]
The rule of law, and the democratic lawmaking process is based on text, not mind reading.
Well I can pull up exactly what proponents of The Taxpayer Relief Act of 1997, which introduced the Roth IRA, stated their intentions were since this is very easy to find and widely documented but I strongly suspect you don't actually give a fuck about reality.
So my time spent on this ends now.
The intentions of lawmakers when making laws do not matter; the thing that is voted on and passed is the text of the law, not their intentions.
*sleight
Damn, people who pay into their 401Ks are fucking evil.
https://itep.org/55-profitable-corporations-zero-corporate-t...
Some examples:
> Food conglomerate Archer Daniels Midland enjoyed $438 million of U.S. pretax income last year and received a federal tax rebate of $164 million.
> The delivery giant FedEx zeroed out its federal income tax on $1.2 billion of U.S. pretax income in 2020 and received a rebate of $230 million.
> The shoe manufacturer Nike didn’t pay a dime of federal income tax on almost $2.9 billion of U.S. pretax income last year, instead enjoying a $109 million tax rebate.
If you think this is the same as someone putting $7k into a 401k then you are acting in bad faith and we have nothing productive to discuss.
How is it a loophole when it was literally legally allowed, not even as a slight of hand.
Some loopholes are an accident. Some are intentionally put in place by parties interested in traveling through the loophole, benefiting from doing that, and then claiming they would be stupid not to do so.
Those cases are different, even though the legal status of them may be the same.
Loopholes are by definition legally allowed.
Fair means the same playing field, the same rules, the same consistent outcomes from all the corporations subject to these laws and regulations, and not just one of them who does the right thing. Exercizing loopholes is the opposite of fair. It puts those with the best cheating strategies ahead of those who play by the rules. Because you can catch the ref with his back turned doesn't make you a fair player.
What is a loophole? Legally avoiding taxes isn't cheating.
What you're describing is tax fraud, and that's different from corporations using legal strategies to mitigate their tax burdens.
> "What is a loophole?"
"A way of avoiding or escaping a cost or legal burden that would otherwise apply by means of an omission or ambiguity in the wording of a contract or law." - The American Heritage® Dictionary of the English Language, 5th Edition.
What they're describing is corporations using legal strategies to mitigate their tax burdens that you or I cannot do. Lobbying is legal, but you or I cannot lobby to any useful degree. Big-box store companies build their stores to be short-lived buildings, then will only sell them with a contract that says the next occupant cannot be a big-box store, then argue that since value is determined by what someone else will pay and nobody will pay much for the end of life of a short-lived store intended to be a shop but which now cannot be a shop, so their stores are low value and comparable to empty stores, therefore they shouldn't pay much tax on them. "In Wisconsin, new Gov. Tony Evers says his budget proposal will close the dark stores loophole in the state"[1].
> "Legally avoiding taxes isn't cheating."
Try arguing that you would only sell your houses with a stipulation that nobody can live in it, therefore you should pay the same taxes and rates that an empty lot would pay, and see if you still think that "legal is the same as right and fair".
[1] https://slate.com/business/2019/02/dark-store-theory-big-box...
So is using cheat codes in a game also not cheating? It's part of the game after all.
Yes, that’s correct.
But if I’m playing a multi-player game, there can be rules of that game that ban the use of cheat codes. Breaking those rules would be cheating.
Honestly with how it is in America, it feels more akin to slipping the ref a $50 instead of doing it when his back is turned
Loopholes are the definition of playing by the rules.
Laws are not enacted in spirit, they are drafted, voted on, and enacted in text. What the law says is what matters, not what people assume it wants to achieve.
To claim that complying with the law exactly as it is written is unfair is, quite frankly, undemocratic and an outright rejection of the rule of law.
No, criticising the laws for being written in such a way that allow loophole behavior is not undemocratic. In any reasonable democracy you're allowed to criticise laws however much you please
It’s very easy. If I think I pay a lot then I’m paying more than my fair share. If I think you’re not paying enough then you’re not paying your fair share.
Congress.
The bought-and-paid-for legislature and the military-industrial complex that both parties serve ceaselessly and unflinchingly.
Interesting.
Also, Apple reports paying more than this for the 12 months ending in September 2024: $29.749 billion.
https://www.apple.com/newsroom/pdfs/fy2024-q4/FY24_Q4_Consol...
Nit from the end-note:
> On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article.
Hard to imagine someone who invests would have no indirect positions in BRK. Any broad-market ETF would have substantial exposure.
If you click through to the fine print, it says, "THIS DISCLOSURE POLICY DOES NOT EXTEND TO BROAD-BASED ETFS / ETPS OR MUTUAL FUND HOLDINGS."
I think that's still fair, market following ETF/mutual funds are kind of the gold standard for avoiding conflict of interest issues. It's what my job forces me into to make avoiding insider training easier.
Ironically, owners of the Berkshire Hathaway stock pay no capital gains or dividends taxes while holding it, unlike almost every ETF or mutual fund.
Berkshire Hathaway can't change this.
Why is a corporate tax necessary? It would be simpler to increase the income tax. EU has low corporate taxes and higher income taxes i.i.r.c.
By income taxes do you mean personal income tax?
In any case, corporations benefit from airports / roads / ports / law enforcement / defense / education / etc... which are funded by local / federal governments. So corporations have a moral duty for to contribute to these expenses by paying taxes.
(But it is only a moral duty, and not a legal obligation. So corporations end up paying nothing, or next to nothing.)
But why not just tax the owners of the corporation more to accomplish those same goals?
Why doesn’t the moral obligation rest with the owners of the company, rather than this legal construct that was created on paper?
Corporations aren’t rich people - they are machines that allocate capital and eventually return the money with profit to the owners. They can be owned by rich people, and we can tax them.
When we add taxes on corporations, we introduce compliance issues, accounting and forecasting requirements - all complications that take away money from the actual good things we can get from corporations - jobs in the community, better product development, etc.
Because rich people can reduce their income to 0 or close to 0 via different legal ways like LLCs, funneling through other corps, certain investments(which are basically tax-money laundering schemes), being tax residents of tax havens, etc. It depends on the country what you can do. In Germany, it's basically 0.
The rationale for a low or zero corporate tax is that corporate profits eventually become personal income of the shareholders and employees, and can be taxed there. Nobody builds a for-profit corporation for zero salary or personal profit.
Hypothetically with zero corporate tax, if the corporation paid zero salary, zero dividends, and shareholders never sold anything, the corporation could amass ridiculous amounts of untaxed wealth. But this never seems to happen.
I mean personal income taxes, plus capital gains taxes, taxes on the individual -- I am in favor of; not on the corporate entity.
I think because they don't get any dividend to trigger income tax, instead they get a loan against their shares and spend that and roll over the debt to infinity.
I feel like this is a myth people share without ever looking into. You service the debt with income that you make and pay tax on the income you service the debt with
They do not need to service debt using taxable income, they can roll it over indefinitely or until death, at which point the tax obligation disappears due to the stepped-up basis (capital gains reset on death)
I wish you were kidding but I doubt it given how much taxes are loved on HN. Income taxes are too high as they are. Taxed when you earn, tax when you spend, taxed on property, taxed to use your car, to fill your car or EV, taxed on inheritance, taxed on capital gains, etc. It’s out of control and is making the income division worse. Corporations R posting massive profits, dodging fair tax payments through creative loopholes, and then our lawmakers mis-spend the taxes they do taken. The entire system is broken.
And I really don’t think the EU is a model for tax sanity. Look at eliminating loopholes, not squeezing the average Joe even more than they already are. Their shit salary isn’t even keeping up with inflation. But their taxes sure do.
This number is actually a shame in the sense that it shows how little taxes are paid by other big companies.
Do you ever stop to contemplate how much payroll tax is paid by Amazon and Apple?
[dead]
The correct corporate tax rate is zero, or the correct income tax rate is zero. Double taxation on employees of corporations is ludicrous and warping.
IMO corporate tax should be zero, and we tax individual people instead.
For the hundredth time, it is not double taxation.
Money is taxed (generally) whenever it moves between parties. You paid tax on your income; you give (some of) it to someone else for goods or services - they pay taxes on it again. That's not double taxation, that's how tax works.
Money flows to the corporation. They pay some to employees, who pay tax on their income. They (might) pay some to shareholders, who (might) pay tax on dividends or capital gains. What is left (very simply speaking), the corporation pays tax on as its income.
It definitely is double taxation. (1st level: corporation, 2nd level: shareholders).
But the point is that the owners accept double taxation in exchange for the protections of the corporate form, like a legal liability shield, treatment of ownership interests as capital assets subject to lower tax rates on sale, deferral of taxation of shareholders' allocable shares of the business' income (as represented by dividends), etc.
A corporate tax rate is good policy. The answer to how high that tax rate should be has split families and friends for decades. Higher corporate tax rates drive substantially increased R&D spending and capital investments (and it's not even close; its easily 4x-5x the amount invested when corporate tax rates are low). This apparent paradox is quite easy to explain: when corporate tax rates are high, corporations will increase their spending on deductible categories to reduce their taxable income, and thus the tax they pay. When tax rates are low, there's little to no incentive to due that.
The corporation and shareholders aren't the same entity. How is N entities paying N taxes double tax?
Why would I want taxes to paid every single time it moves from entity A to entity B? All you do is decrease economic activity, in the aggregate, in a negative compounding loop
Because if you don't pay taxes for infrastructure and public services, economic activity doesn't just decrease, it grinds to a halt.
Why would shifting the taxation burden to people rather than corporations eliminate infrastructure and public services?
It very much is double taxation and to state otherwise seems disingenuous.
Taxing corporate profits is layering an additional (hefty) tax on its beneficiaries - people.
Search 'double taxation' and you will see this term is generally accepted by financial professionals in many jurisdictions to describe the above scenario where a corporation makes a profit, is taxed at the corporate level and then additional taxes must also be paid by the receiver of the already taxed funds (ex. shareholder, bondholder).
It is generally accepted by financial professionals with a particular political and ideological outlook on the tax system.
You do some work, you earn income, which presumably (or hopefully) exceeds your perception of the cost of doing the work to you. You pay taxes on that. You then give the money to some third party, as a gift, for goods & services, to repay a debt, or whatever reason. Subject to the stipulations of the tax code, the recipient pays taxes on whatever they receive (e.g. for gifts there is a threshold, for debts they will pay tax only on the interest received etc. etc.). Nobody calls this double taxation.
A corporation does what it does, earns income, which hopefully exceeds the cost of doing whatever it is that it does. They pay taxes on that. They then give the money to some third party, as a dividend or bond repayment or whatever other reason. Subject to the stipulations of the tax code, the recipient pays taxes on whatever they receive. Some people try to call this double taxation.
Trying to dress this up with concepts like "the shareholders receive the profit, but taxes have already been paid on that" is just missing the point entirely: our tax system taxes money when it moves, not based on how it is labelled (at least when it works as intended).
Actually it's a quadruple tax system since when you give your income to a plumber the plumber pays tax and when the plumber gives the income to his landlord the landlord pays tax.
Yes because there are multiple people.
You.
Plumbler.
Landlord.
Each person is a different person and pays income tax on "their income"
If shareholders are the same legal person as the corporation, what is the purpose of the corporation?
If the corporation shields the shareholds from many forms of liability, why should the shareholders be able to claim the same personhood when it comes to income and taxation?
If corporations are said to be able to have moral and religious beliefs (thanks, SCOTUS), and yet their shareholders are free to have other, different beliefs, how can they considered the same person?
no. shareholders are not usually the same legal person.
a corporation is a distinct "legal person" because it goes through "incorporation" which breathes a legal life into a concept.
a person does, a corporation has legally perpetual existence because the shareholders can endlessly transfer their shares to other persons and on death the shares are given as inheritance.
Are corporations people?
legal persons, yes edit: because they can sue and be sued in a court of law. you cannot sue "god" or "gravity" or "Pythagoras theorum"
I'm no expert, but corporations act as their own legal entities with protected speech. We would have to remove other legal entitlements that benefit them more. They can't have cake and eat it too as they say. I would also like to pay zero tax.
Limited liability needs to priced to reflect the enforcement costs. Sole props are "free".
I think this can make sense theoretically and what about cases where companies just horde wealth like Apple or spend it on stock buybacks (like Apple)? I'd want to see some sort of impetus for them to either reinvest or pass it along to their employees.
> I think this can make sense theoretically and what about cases where companies just horde wealth like Apple or spend it on stock buybacks (like Apple)?
Eventually that money is going to come back though - no shareholder wants a company to sit on a massive cash pile for decades.
If a company can’t find a use for the money, then investors will want that cash returned so that they can find a use for it elsewhere.
Apple itself set a goal in 2018 to be net cash neutral:
https://www.morningstar.com/markets/what-apples-cash-problem...
And when the money comes back to investors, that’s when taxes can be paid and everyone benefits.
Stock buybacks also result in capital gains taxes eventually - it just takes a long time because investors get to choose when to take the gain. If we wanted to fix that, we could just make stock buybacks illegal again like they were before 1982.
Then investors would get dividends again, which results in immediate revenue for the federal government.
It seems strange to me that someone would want to punish a corporation for maintaining a larger reserve with which to handle economic downturns and the like, allowing them to continue to pay and employ those same employees instead of just letting them go.
"Hording cash" sounds like NOT spending on expenses and offsetting profits, and therefore likely involves that corporation being taxed. In addition it sounds a lot more sustainable than wall streets typical obsession with short term gains Uber alles.
Using that money to retain staff during a downturn instead of doing layoffs sounds great and would make sense as something to incentivize through the tax code. There's definitely a point where a company can have an unreasonable amount of cash on hand.
You just can’t win this argument.
“Company ABC made a billion last quarter and still had layoffs. Why are they so stupid? Can’t they save for a rainy day?”
“Company XYZ made a billion for the last 12 quarters. Why aren’t they giving it to their employees, or paying a wealth tax?”
West Germany used huge (60%) corporate tax rates in the near post-war period to force companies to invest into their R&D and CAPEX, which helped Germany rebuild their industrial base much faster than other countries.
If the goal of the USA is to force companies to re-shore, wouldn't this be a better way [0] to proceed than inflating the costs of many goods for the consumer? Large corporations appear to have record cash on hand in recent decades, where as consumers hold record debt.
[0] By better, I mean more much likely to achieve the stated goal.
Yup, only three parties pay corporate taxes; employees with lower salaries, consumers with higher prices, or shareholder via dividends, and all three of those parties are you and me.
[flagged]
This isn’t how it works - for one, you’d be required to be paid a fair wage as an employee. Your employee “benefits” would be taxable income to you personally.
Then, your corporation would quickly be scrutinized on both its income (corporations don’t get W-2’s, you probably can’t just move your existing income to a corp) and its expenses (“reasonable and necessary” is very broadly interpreted, but is unlikely to support what you’re doing).
Those benefits are taxed ad income under existing rules. It's not even close to being that easy to abuse.
I've never had to report or been taxed on corporate benefits like free lunches, retreats, or any kind of company event. People very freely classify things as business expenses and not as benefits. Want a tax free corporate sponsored vacation? Make a 2 minute monetized youtube video about the beach you went to! Oh no, you only made 50¢ from youtube? I guess there's a $8,000 loss I can use to offset any tricky to avoid taxed income. Oh, and I need a top of the line MacBook and camera equipment to make those videos so the corp pays for those too.
No it's not. It shows how much more profitable Berkshire Hathaway has been than other big companies. Which is what it's known for.
You'd never want other companies paying as much tax if they didn't have the profit to back it up. It would bankrupt them.
Now apply that same logic to people.
40% of US households pay no federal income tax.
https://taxpolicycenter.org/taxvox/tpc-number-those-who-dont...
[flagged]
I also think the industries that Berkshire is generally in can't take advantage of some tax advantages that other companies are able to. Right?
>You'd never want other companies paying as much tax if they didn't have the profit to back it up. It would bankrupt them.
They do have the profit in that the money they make doing things exceeds the money they spend to do the thing, but though a series of tricks of varying legality and ethics they make it so on paper they do not have "profit" and therefore successfully avoid taxes.
Amazon reported losses for the first 10 years while growing to billions in yearly revenue.
>It would bankrupt them.
It really wouldn't have. While Amazon was growing to dominate retail and putting very many competitors out of business, they were paying 0 corporate taxes. Many companies play these tricks and many people want them to pay fair taxes. If you need to be tax free to break even, you should go bankrupt. Especially in the Fortune 500 region.
If you include the income tax of employees it is a lot higher.
Perhaps we need window dressing to make people happy. Stop doing "income" tax and convert it to "payroll" tax. Gov gets the same amount, people can stop complaining about companies not paying tax. But at the end of the day, it's all window dressing.
Don't forget sales tax. There are many forms of taxation. How fascinating.
But that's not paid by the corp, it's paid by the employee.
its window dressing - either way it's going to be paid. no one is going to win out either way if its moved, the gov still gets its money.
Let me explain:
Direct taxes and indirect taxes.
Indirect taxes.
These are paid by customers on purchase of goods or services. Vat and gst or hst are examples.
For a service provider, or a seller, there is no way to avoid this tax. If you sell something, you HAVE TO COLLECT THIS TAX AND REMIT TO GOVERNMENT.
Direct taxes.
This is whats "income tax".
You sell something, you buy goods to sell, you earn a markup, you subtract expenses and your PBT (profit before tax) is subject to 15-25-30% income tax and you are left with Pat (profit after tax).
Now, usually this Pat is exempt from subsequent tax because the owner gets this money but many jurisdictions now charge taxes on this "income" as well for individuals or other owners
There are creative accounting ways to reduce this PBT but you cant just show $X on your financials and then say I dont owe any income tax..
Income tax is usually calculated on PBT
It appears that Berkshire Hathaway accounts for ~ 0.002% of income.
The corporate tax system is so complex it seems impossible to actually figure out what that 5% means though.
e.g. They could be highly concentrated in industries where tax accounting tricks are too hard to do effectively.
Corp income tax means the tax (30%) on profit(income-expenses) retained (not withdrawn to shareholders) year over year.
Berkshire hathaway is famous for not paying dividends and keeping profits and never selling shares, so this makes sense.
Most companies withdraw or reinvest as much profit as possible to reduce this tax.
How does this relate to my comment?
The 5% is a relative measure against all other corporations in the USA.
Oh that would be pretty clear to me:
Corporate tax paid by Berkshire Hathaway / Sum of Corp Tax paid by all US corps = 5/100 = 1:20
It's clear what it means, how they measure it would be another story, but I'm sure there is public budget information that clearly indicates what the 2024 taxation for that type of tax was.
Insurance. It’s pure inflow vs. outflow margin. There’s not a lot of capital or operating expense to invest in relative to the massive cash flows.
And Amazon pays 0%
If you're going to lie at least make it believable.
> Amazon annual income taxes for 2024 were $9.265B, a 30.13% increase from 2023. > > https://m.macrotrends.net/stocks/charts/AMZN/amazon/total-pr...