[impostervt]

The bit about TCI (a cable company with a lot of debt in the 70s) is super interesting. I've read before about how companies don't always see debt as a bad thing, and how they can move money around, but it always seems like magic. From the article - "And indeed, Malone’s strategy required TCI to show a loss for pretty much forever; for the next 25 years, it was never in the black". As the article mentions, Amazon followed a similar strategy for a long time.

It reminds me of a quote by the WWI French field marshal Foch - "My center is giving way, my right is retreating, situation excellent, I am attacking."

[thaumasiotes]

This sort of thing is one reason you might want to tax revenues over profits.

Compare https://en.wikipedia.org/wiki/Hollywood_accounting , in which all movies show a formal loss and the concept of "profit" as opposed to revenue exists only to scam parties who agree to be paid out of profits.

[valuearb]

Or you might prefer not to tax corporations at all, only distributions to shareholders. “Profits” or “cash flow” kept in the corporation is reinvested capital. It’s creating jobs and growing businesses, even if it’s kept in an interest bearing bank account.

[hpoe]

So I've always been confused by this argument of just start taxing the money that goes to shareholders because the business will reinvest it and create jobs and what not.

What keeps the company from reinvesting in the form of company luxury cars for the executives, a company home that they let the CEO live in, and executive compensation. Essentially redirecting the money that would've at least gone to index holders to the shareholders that we felt were getting too much of the pie to begin with.

Can someone explain this to me?

EDIT: just to clarify I don't mean they actually sign over the deed to the house to the ceo but rather the company maintains the house as an "executive" hq that the CEO just happens to live in, and the company doesn't give the execs luxury cars they have company cars that the executive just happen to have they keys to and only the execs. Things like that, the company claiming as corporate assets that are really only used by execs. And I am sure there are baskc laws to try and prevent something like this but there are also highly motivated CFOs to find loopholes.

[herge]

> company luxury cars for the executives, a company home that they let the CEO live in, and executive compensation

All those should be taxed like the equivalent of income for those executives, which is a higher rate than the corporate tax rate. If these benefits in kind are not taxed as income, then it is fraud.

[pingpongchef]

Barring fraud, lavish expenditures that you describe would be counted as compensation not investment and thus the picture changes dramatically.

[nthj]

Lodging must meet specific rules, or the fair market value of the lodging must be declared as W2 income.

https://smallbusiness.chron.com/taxability-employerprovided-...

[thaumasiotes]

It's not so easy to establish the fair market value of something that never goes on the market.

[gwright]

True, but I don't think that lodging is "something that never goes on the market". In this example, the mortgage or rental payments for an equivalent property would be pretty straightforward to determine.

[coldcode]

Until the business just uses the cash flow to buy back their stock, making everything look great until the day a pandemic hits and they need government bailouts.

[aidenn0]

We need to tax capital gains as income as well then, because stock-buybacks become a tax-loophole otherwise.

[valuearb]

I’m a big fan of taxing both capital gains and dividends at ordinary income rates to help restore fairness and progressivist to the tax code.

But to do this you absolutely need to index capital gains for inflation. That’s the reason they get special tax rates in the first place, because when inflation is high a significant part of capital gains are illusionary and you don’t want effective rates to reach over 100% in real use.

So don’t tax profits if reinvested. Task them as income if returned to shareholders (or used as excess compensation).

[aidenn0]

I'm actually fine with effective rates approaching 100% in higher brackets in real use. Inflation is a sunk-cost. If the investor were instead to put their money under their mattress, they have negative real returns, so effective tax rates of 100% would still incentivize investments to offset inflation.

Other than that, I completely agree with you.

[valuearb]

You are right about the sink cost, but ignoring a very real risk. Taxing capital gains to the point where the investor has negative returns drives capital offshore to places where it will be taxed far less or not at all. It turns honest citizens into tax cheats, and we already have too many of those.

[sokoloff]

Long-term capital gains and qualified dividends (most of them) are taxed the same. The closest alternative to share buybacks is declaring dividends IMO, so share buybacks are not a loophole otherwise.

[aidenn0]

That's always been my conflict with the deficit the US government runs.

- I believe we are approaching unsustainable levels of public debt

- If a CEO were offered debt on the terms that the US Government gets, they would be fired for not taking it

- If a CEO allocated funds the way the US Government does they would probably also be fired.

- Using debt for growth capital is great

- Using debt to get better terms from suppliers can be good too; particularly when you have access to more favorable credit than your suppliers do.

If the US were investing in infrastructure, I would be much less worried about how much of it is debt financing. However (and this is partly a function of it being a democracy), there's not much rhyme or reason to how the capital is allocated with regards to plans for actually growing the tax base to a point where the US will be able to service the future debt.

The cynic in me wants to say that the government acting like this is merely democracy reflecting a public that finances their lifestyles with debt, without plans for increasing future income to service said debt.

[CPLX]

People always compare government finance with business finance or household finances. It's an analogy everyone seems to just love.

Problem is government finances work completely differently in ways that are so fundamental as to make the analogies completely useless.

It would take more than an HN comment to enumerate every subtlety of why that's the case, but if you were to start you could probably begin with the fact that a government can print money and extract any resource it wants from any entity it wants to at any time at the barrel of a gun, and you and your CEO friend can't.

[natmaka]

A government can print money, however the very value of it will decrease because there will be more money for the same amount of products to buy, and inflation will quickly offset the effect of this newly printed money. Moreover many citizens, especially those who have savings, hate inflation and will fight against such a trend. Taxes and various other "resource extraction" also are limited because more and more citizens will fight against such measures, up to deliberately reducing their income or living the country.

A business can in a way "print money" and "extract resources" by raising its prices. In many trades their customers will remain customers because switching would be more expensive. But there is also an obvious limit there: the amount of prospects will decline and at a given point more and more customers will depart.

[aidenn0]

> ...that a government can print money and extract any resource it wants from any entity it wants to at any time at the barrel of a gun, and you and your CEO friend can't.

This is just factually false. The French government can't extract any resource it wants from California. The US government cannot extract any resource it wants from China.

The ultimate limit of what a government can extract value from is the land it owns, whatever fraction it can extract from its residents without starting a revolution, and whatever land and residents it can conquer of its neighbors.

That's why I suggested debt financing to fund infrastructure makes sense; infrastructure investments can increase the wealth of the residents, which is the ultimate limiting factor in the future revenues.

[CPLX]

Yes that’s correct, governments and sovereign states cover specific regions. I’m fairly confident all that information was contained already in the word government.

[aidenn0]

And a business covers specific private properties. The difference in power and size is quantitative, not qualitative.

[CPLX]

That's just utterly false. The ability to print currency and the maintenance of a monopoly on the legal use of violence are extremely qualitative differences between the powers of businesses and sovereign states.

It's like comparing apples and oranges. Or accounts receivable departments and nuclear weapons.

[count]

Literal millennia of warfare says otherwise. Traditionally it's one of the key roles of the state!

[aidenn0]

I'm not sure how millennia of warfare contradicts "...whatever land and residents it can conquer of its neighbors."

[birdsbirdsbirds]

Where do people store their money but in government bonds? There is just a finite amount of gold and company shares and commodity available. If you want people to save money for the last part of their life, they need something to buy.

[sokoloff]

It is (unfortunately) more efficient for those of limited means to buy lifetime annuities than hold Treasuries. (Those will, in turn invest in bonds, but typically not exclusively government bonds.)

It is much more efficient for those who will leave an inheritance to invest primarily in equities (meaning they will invest relatively little, perhaps 0-30% in government/municipal bonds).

[birdsbirdsbirds]

The problem with equity is that if everybody does that, a company is not worth 15 times their profits but 150 times. That would turn company shares into a form of fiat based money.

Or if everybody is starting companies, competition would be so fierce that nobody would be making a profit.