[Fantastic_T]

If you take a dollar for every four dollars of corporate profits, corporations (meaning the compacts created between shareholders) will have less money to invest with. The shareholders will also have less incentive to reinvest their dividends. Capital stock (e.g. factories, restaurants, vending machines) is the basis of all productivity, and capital stock only increases through investment.

So taxing profits reduces the growth in productivity. Productivity growth is the main source of wage growth and indeed that slowdown in productivity growth is the source of most of the slowdown in wage growth that has been seen in the US over the last 40 years.

[josho]

> If you take a dollar for every four dollars of corporate profits, corporations (meaning the compacts created between shareholders) will have less money to invest with

Arguably that's not the case. If a company invests their excess cash then that money is spent and is no longer profit and no longer taxed. So, by increasing the tax rate you are encouraging a company to accumulate less profit, they can achieve that in any number of ways.

A company may invest into their business to increase profits later (e.g. Amazon's growth model), they may forego company profit by increasing dividends. Or, I could see a CEO try to bump up their decreased profit by reducing expenses elsewhere and cutting jobs or something equivalent. This is the area that economists focus on, but it strikes me as naive to think all businesses will choose this option whenever a corporate tax increase occurs.

[Fantastic_T]

>If a company invests their excess cash then that money is spent and is no longer profit and no longer taxed.

I was using a simplified example that ignores deductions. You're right of course.

But that doesn't change the fundamental relationship between taxing profit and investment.

Even if all reinvestment is made tax deductible, a tax on profits still reduces the incentive for individuals to invest in corporations, since all investment decisions are based on ROI projections, and with higher taxes on profits, ROI declines.

Moreover, sometimes it is more effective to sit on profits, and wait for a good opportunity to appear, and taxing all accumulated profits creates an incentive to not do that.

[crdoconnor]

>But that doesn't change the fundamental relationship between taxing profit and investment.

There is no fundamental relationship between taxing profit and investment. If a company makes 20 million a year after tax it is not going to drop everything and stop making a profit at all if it starts making 15 million a year after tax.

There is a fundamental relationship between demand and investment, which is why raising "profit taxes" (corp tax, dividend tax) and spending the money will lead to increased investment (to service increased demand).

>reduces the incentive for individuals to invest in corporations, since all investment decisions are based on ROI projections

Reducing profit across the entire economy reduces the ROI projection at the same time as reducing alternative opportunities which the investor can switch to.

>Moreover, sometimes it is more effective to sit on profits

For the company. The economy as a whole suffers immensely when the corporate sector does this.

[Fantastic_T]

>There is no fundamental relationship between taxing profit and investment.

The sole motivation for investment is profit. As profit declines, fewer investments are justified by the projected ROI.

>If a company makes 20 million a year after tax it is not going to drop everything and stop making a profit at all if it starts making 15 million a year after tax.

There's no way a party can know beforehand how much profit, if any, there will be. The estimated possibility of profit is adjusted for the estimated risk of loss, to get the projected ROI. Higher taxes reduce the projected ROI, because they reduce the size of the possible profit.

[crdoconnor]

>If you take a dollar from every four dollars of corporate profits, corporations (meaning the compact created between shareholders) will have less money to invest with.

But since they're currently sitting on record high stacks of cash (Apple alone has ~1/4 of a trillion dollars), I wouldn't be too worried about that.

>The shareholders will also have less incentive to reinvest their dividends

They're currently sitting on record high stacks of cash because they have little incentive to reinvest. It's not about tax though, it's about a lack of demand (see original points one and two for how to fix that).

[Fantastic_T]

Corporations also have record high corporate debt levels right now. Cash reserves are vitally important as cushions to provide stability in a volatile economy that crashes every few years. Companies correctly became more conservative post-financial-crisis and built up their financial reserves, and that makes the economy as a whole less fragile and likely to suffer a cascading debt default crisis.

The attitude of wanting to violate other parties' property rights invariably comes down to a sort of arrogance in believing that the way the market works and the way people manage our own property is incorrect and that you have a better idea on how they should be using their property.

[crdoconnor]

>Corporations also have record high corporate debt levels right now.

Strangely enough Apple is one of those companies taking advantage of near zero interest rates despite having 1/4 a trillion in cash.

If you make debt cheap enough it makes sense to do all kinds of crazy stuff.

>The attitude of wanting to violate other parties' property rights invariably comes down to a sort of arrogance in believing that the way the market works and the way people manage our own property is incorrect and that you have a better idea on how they should be using their property.

Some people believe that property rights should be configured to serve society's best interests. Other people believe that society should be configured to serve the interests of people with property (or, the market as you put it). One example of this type of person was Southern US slaveowners.

[Fantastic_T]

Right, but who knows how property is best configured to serve society. Given the market's profit loss system aligns the interests of private investors with the interests of society, private investors do. Not only do they have the right incentives, they have the local knowledge about a particular segment of the economy, that big picture politicians have no hope of acquiring when creating their clumsy plans.

A spending plan that's imposed with a stroke of a pen, and that recklessly interferes with hundreds of millions of people, and forces them into economic relationships with people based on crude categorisations, like income levels, and simplistic formulas, like those that determine eligibility for government assistance programs, is no substitute for the intelligently formed personal relationships and market transactions that spontaneously emerge when property and contracting rights are respected and protected. The latter is based on the unique knowledge of hundreds of millions of people, that is aware of local conditions and opportunities for optimisation.

As for slaveowners, what they have in common with socialists is a belief that they have a right to forcibly confine those who refuse to surrender their rights to them.

[mcguire]

https://news.ycombinator.com/item?id=13724541