[phlo]

Stories like this make me question if corporate tax even makes sense. However well designed, a tax code with today's complexities is going to have holes. If a savings of even one per mill may mean millions, corporations are going to spend insane amounts of money to hire the best experts to use every last loophole.

Why don't we cut down everything to a couple of manageable groups that can be tightened down? I think the following set of taxes should capture mostly everything:

- Personal income including gifts, inheritances, capital gains, all on a set of progressive scales. This should include work benefits (like company cars) and probably include loans taken out.

- Use of public resources (property tax, vehicle registration tax, RF use...), taxed based on the specific usage (e.g. vehicle weight, or even kilometers driven).

- A consumption tax (VAT) could be added, although this doesn't seem necessary to me.

Thinking about this for a couple of minutes, I don't see any obvious problems. Applicability of the personal income tax would be a crucial point, and care would need to be taken to avoid loopholes. Why aren't tax systems as simple as that?

[legitster]

Someone put it best when they said "corporations may not have a heart, but they don't have a stomach either". Unlike people, corporations do not consume for the sake of consumption, instead they invest in assets. A tax on corporations is directly passed through to employees, customers, investors etc.

From what I understand, the actual proposed replacement for the corporate income tax is much simpler: eliminate it and replace it with a much more comprehensive capital gains tax. Then require companies to be much more forward with paying dividends.

[sbov]

Don't dividends get taxed at the residence of the person being paid the dividend?

The problem is that corporations use the infrastructure and resources of countries they operate in. So you would still have a situation of a multinational company using the resources of country X without necessarily paying any tax for using the resources of country X.

This is not sustainable.

[dennisgorelik]

Country can still tax usage of these resources.

For human resources: income tax on salaries, unemployment insurance, medical insurance etc.

For some materials: excise tax.

For real estate: property tax.

[jsprogrammer]

>Unlike people, corporations do not consume for the sake of consumption, instead they invest in assets.

Uh, what exactly is the difference between consuming and investing in assets? Most investment in assets is actually just a claim to consume some of the ROE.

Also, it's not clear to me how shifting cash flows into something makes an asset (or how a physical asset could directly benefit from increased cash flow [not sure how this is even possible; I can't pump FRN's into my car's gas tank]).

[bduerst]

What about the majority of companies that don't pay dividends? I agree that tax codes are complex and the international theater makes them hard to enforce, but most of the proposed replacements for corporate income tax are typically half-baked.

[phlo]

Either (as the parent comment proposes) force them to pay dividends. Or don't: in order to profit from the higher share price, investors either have to sell some of their shares (realizing their capital gains) or use them as collateral for a loan (which should be treated as a capital gains realization event).

[bduerst]

There are entire industries with thin margins (e.g. grocery, airline, blue collar services) that would be destroyed if you forced them to pay the same dividends as others.

Why are you fixating on share price? Now how are you going to tax LLC, LLP, etc.? Privately traded corps that don't have a market price?

[phlo]

As I said, forcing companies to pay dividends was the parent poster's idea. If anything like that were to be entertained, I'm sure the forced dividends would be in relation to the corporation's profit.

As for privately traded corps and partnerships: My proposal was to tax capital gains. This could be done at each realization event, and at that point your transaction will usually have a market price. If you are exchanging stock in two privately traded corps, some way to determine fair market value will have to be found, but that seems to be an edge case to me.

[bduerst]

That would be double-taxing capital gains, since individuals are already taxed on it, and would de-incentivize companies from giving corporate income to workers while incentivizing companies to hoard economic wealth. You want companies to spend money, not keep it.

Most limited liability organizations also don't have equity, which creates another loophole in your system. Now you're starting to get into why corporate income tax is complex.

[walshemj]

Companies make use of education roads and other infrastructure and in the UK not having to provide health benefits.

[Cookingboy]

This doesn't solve the globalization problem. Say..an American company such as Walmart goes to a country, kill all their local competition with lower price, and make a ton of profit and then distribute them amongst Walmart shareholders in the U.S.

Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished.

This is a great idea to increase the wealth gap between developed countries and the rest of the world, for good or bad. Considering how many international conglomerates are American, European or Japanese.

Developing countries wouldn't stand a chance this way.

[Tsagadai]

A much simpler tax system would be to tax everyone like hedge fund fees. You pay 2% tax on all assets and 20% on profits those assets generate. Regardless of asset type (if it is worth money and can be traded, it gets taxed). Ditch everything else (especially regressive taxes like VATs) and keep a progressive income tax. This 'everyone' is individuals because someone, somewhere owns the assets.

Note that those are the pre-2008 hedge fund fees and the fees are presently less than that.

[jos3000]

The big problem with this is that, under a simple tax system, if a government wants to increase it's tax revenue it is extremely easy for voters to understand what is happening. Governments prefer to make complicated tax laws because they are easier to spin.

[vtlynch]

Ah yes governments always trying to make things too complicated!! Argh! Why cant we replace the govt with the private sector! They never do anything that would obscure or needlessly complicate things.

[wereHamster]

Not only govt, but private companies as well. Remember when the company behind the most widespread US tax software (can't remember its name) lobbied against simpler tax code? Why? It's simple, because it would cut into their sales!

Everybody who has something to lose will vote against a simpler system, doesn't matter whether its a private company or government.

[mike_hearn]

Governments make complicated tax laws because of constant attempts to make the tax system 'fair', where fairness is a pretty vague concept and can be interpreted many ways by different people and parties.

There are lots of economic arguments for very simple tax systems that prioritise revenue collection over other things. But a lot of people would see them as "unfair" and therefore unjust.

[yuliyp]

Oh come on. The taxes that 90% of people pay are perfectly clear. The exceptions only affect a very small minority of people (namely those with enough income to make it worth their while to care about exploiting the exceptions).

[rootlocus]

Security through obscurity? xD

[brandonmenc]

> Why aren't tax systems as simple as that?

cruft + tax payers writing law + tax collectors writing law

[kuschku]

So, in your system, how would a corporations profits be taxed? You have shown nothing like that, really.

And a direct property tax is also not a good idea, as then you tax people for having property, not for using their property.

[rstupek]

You shouldn't tax corporations as it is simply an indirect tax on individuals. A good way to hide a persons total tax rate by making part of it be included in the goods they purchase.

[alextgordon]

But this is not true, is it? Corporation tax is on profits. Companies price things at the price that maximises revenue. Since corporation tax does not affect revenue, it is not a variable in their pricing calculation.

A low corporation tax is valuable because it attracts foreign businesses, but that is necessarily zero-sum.

[phlo]

Sorry, I might not have made that point clear: they wouldn't be taxed at all. Not at the corporate level, that is.

As far as I can tell, money will exit corporations in three ways: 1) salary, 2) shares and 3) payments for goods/services, mostly to other corporations. Income and capital gains taxes will take care of 1 and 2. The company won't owe taxes, but whichever natural person receives the money will. As for 3, my proposed system would be captive: because it doesn't charge corporate taxes, corporations won't have any motivation to try and move their earnings to other corporations (as they couldn't be taxed any lower).

[bduerst]

This type of tax plan will incentivize wealth aggregation in corporations, while increasing the cost of employees and goods/services.

You want companies to spend, to increase economic cash flow and generate jobs, which is why existing corporate taxes are on net income, not revenue or costs.

[twoodfin]

Why would shareholders want a corporation to aggregate wealth?

[bduerst]

Investors want a return, and this new tax plan makes it more expensive to move money out of a corporation, even for regular operational expenses.

Corporate income tax today allows for companies to pay employees and buy goods/services without increased tax cost. It incentivizes cash flow into the economy and job generation by taxing whatever is left over (net income) after doing business.

[kuschku]

And how do I tax a shareholder living in US if I’m the UK government? I have no ability to do so.

[phlo]

One possibility might be to charge capital gains whenever shares are traded. Then require shares to only be traded at exchanges with an agreement to report trades (or anonymously collect capital gains and send them your way, for privacy). Another (probably worse) alternative might be not to tax them. The US will, and in exchange you get to tax UK shareholders of US companies.

[mike_hearn]

You don't. But then again why would you - that shareholder gets no services from the UK government so there's no moral case for them to pay tax to a foreign country.

[sbov]

I disagree. The company which operates in the UK benefits, so the shareholder - who actually owns a part of the company - does too.

[Cookingboy]

This doesn't solve the globalization problem. Say..an American company such as Walmart goes to a country, kill all their local competition with lower price, and make a ton of profit and then distribute them amongst Walmart shareholders in the U.S.

Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished.

This is a great idea to increase the wealth gap between U.S. and the rest of the world, for good or bad. Considering how many international conglomerates are U.S. based.