I actually don't get why corporation should pay taxes.
When the profit of the company is distributed, or paying the employees, the employees/shareholders will be taxed on that money.
Corporate taxes allow governments some level over control over corporate policy by incentivizing certain behaviors through deductions/credits etc. Also, dropping the corporate tax rate to 0 would probably be politically impossible, even an identical amount was then taxed on the individuals who benefit.
On the other hand, corporate taxes advantage large multi-national corporations over smaller companies because they have the resources and capability to manoeuvre around the rules and pay a lower relative tax rate.
A government should be able to achieve control through Pigovian taxation, regulations and fines. I'm not convinced that a blanket corporate tax (which does indeed facilitate targeted tax breaks) is necessary beyond the other tools that already exist.
Corporate taxes should be structured more like usage fees instead of being a tax on profits. Want to emit carbon? It costs $X/ton. You shouldn't get away with doing bad stuff for free just because you did it unprofitably.
>Corporate taxes allow governments some level over control over corporate policy by incentivizing certain behaviors through deductions/credits etc.
Money is fungible. From an accounting perspective $1 given via tax credits is identical to $1 check given by the government. That said, your point is still valid because the former is much more politically palatable than the latter.
Why not just tax any sale of a stock or a divident payout in the country of the company, - not the country of owner of said stock? These operations have to go through country of company anyway...
They don’t. Suppose I incorporate a company in Grand Bahama “Shell” and fund it with $10,000. The company turns around and buys $10,000 worth of Apple stock. A year later, Apple has doubled and I sell my company Shell to my friend John. If John and I are both non-Americans then the US taxing authority will never hear about this transfer or be able to tax the capital gain.
So you and your friend John are foreigners investing foreign capital in the U.S. company Apple. Why do we want to use the tax system to discourage this?
To realize that gain you actually need to sell the Apple stock. It would be perfectly possible (as I am proposing) and viable to make that transaction be forced to go through US. You could still sell the "Shell" to someone without US knowing about it, but once you actually would want to do something with that gained money - you would need to sell the underlying stock and deal with IRS.
Well, one problem is this just encourages companies to collect and never disburse funds to employers or shareholders. Companies in some cases are holding onto hundreds of billions in cash offshore.
Your idea would make that money free to keep out of the economy and out of employee's hands.
The whole point is for stakeholders to eventually get paid in a taxable event; either shareholders through a capital gains taxable event or employees through an income taxable event.
Some tech companies are hoarding cash but I don't believe this is due to incentives created by taxation, although I could be mistaken.
What share price is higher? The lemonade stand, or the identical lemonade stand with a huge bag of money kept beneath the table? If you are a shareholder you only care about one thing.
If the first lemonade stand did a stock buyback it would be worth just as much as the second lemonade stand. If the first lemonade stand issues a dividend and holders of the stock automatically buy more stock, then the share price will also be exactly the same as the second lemonade stand.
Why do companies do dividends or stock buybacks? Because they think investors can do better investments elsewhere with the money.
What about a third lemonade stand that took their huge sack of cash and instead paid their employees six figures? This would be the stand that is worth less to the shareholder, as that money in the sack has left the lemonade stand entirely and is now being spent by the employee elsewhere in the economy with a portion of it used for different taxes. This is also the stand that is worth the most to the public, as this sack of cash is no longer kept under a lemonade stand and is instead being used to pay sales taxes, property taxes, and income taxes. The fallacy is that many believe corporations are like this third stand, when really they are much more like the first or the second, where it is better for the shareholder and worse for the public to keep as high of a portion of money out of taxable pockets as possible and to pay as little as possible for labor.
Greed, son, greed. That is why 5 people in the US have more money than the bottom 100 million. They didn't work hard to become that rich, they stole it by not paying wages, health care, benefits, or sharing the wealth. Because they do not have to, nothing prevents them from keeping it and paying low wages in an economy where the ONLY jobs are working for them. (Look at the most recent jobs reports, delivery and couriers grew by double digits, most everything else fell: what do you do when there literally are no other jobs except delivering goods to people and peeing in bottles because you don't get a break?)
Apple has paid hundreds of billions of dividends to shareholders the last few years. It's borrowed money to do it because it would be taxed if it repatriated funds to pay dividends with.
If the corporate tax rate was reduced to zero it would have zero reason to keep foreign profits offshore, it would just repatriate them and pay dividends directly.
>Apple has paid hundreds of billions of dividends to shareholders the last few years. It's borrowed money to do it because it would be taxed if it repatriated funds to pay dividends with.
Yeah, the reason why this strategy works is because Apple can pay dividends today and just wait for the inevitable tax holiday that comes when a republican president enters the white house. Similar schemes work with cryptocurrency in Germany. Holding onto Bitcoin for one year grants you tax exemption from capital gains. So you just borrow against your Bitcoin for one year.
Corporate taxes have been gamed so much they are purely cosmetic at this point, with some harm done to smaller companies. A better tax code is needed.
I'd argue no tax code is needed, just treat C corps like S corps and LLCs.
1) Increase the incentives to save and invest in the U.S/
2) Restore progressivity to the tax code by taxing profits when paid to investors on a progressive rate based on their tax brackets.
3) Repurpose hundreds of thousands of accountants into doing actual business finance and development of wasting their efforts reconciling the differences between GAAP & a super convoluted Tax code accounting (and searching for loopholes)
4) Simplify business decisions and reward honest management based solely on GAAP accounting with no more "angles" to take advantage of tax code loopholes.
Right. That's great: the richest employees of apple get richer, and the people doing the worst labor live in dorms and work 18 hour days.
> If the corporate tax rate was reduced to zero it would have zero reason to keep foreign profits offshore,
Again, you seem to be ignoring the abundant evidence. Trickle down has never worked. Corporate tax rates are the lowest they've EVER been (down from >80% in the early 80's) and money still flows out of the US.
The vast majority of Apple dividends are paid to investors, not employees.
The "worst labor" are jobs that are so much better than typically brutal Chinese rural labor jobs that thousands of applicants stand in line for hours to get them. And Apple audits its labor practices, unlike solely owned Chinese companies.
And the corporate tax rate has never been 80% in the U.S. it was 40-46% in the 1980s and highest ever was 53% in late 1960s. And corporate tax rates were lower than todays rates for the first 163 years of U.S. history, they were first raised above 20% in 1940 to help fund the war.
And even though the current corporate tax rate is historically low, it's still an impediment to returning foreign profits. Repatriating foreign profits costs a minimum of 21%, more with state taxes. For companies it's still cheaper (and legal) to keep the profits in their foreign subsidiaries and wait for a repatriation window, or borrow against some of the deposits to pay dividends.
I don't think the argument is trickle down economics. The argument is that there is a race to the bottom and simply opting out from the race is the only way to win.
Trickle down doesn't work because republicans love pumping the supply side of the economy even when it is fully saturated. The days of a weak US economy are long gone. The real problem is that savings exceed investments. You either let the government create viable investments for the private market, or you just let the government invest directly.
No-no doubts the incentive of rich people wanting to be richer but I don't see how greed answers the question. What would the incentive be to just let the money sit in the company forever? Greed would be to maximize the outtake.
If I'm a greedy shareholder, then I want dividends and cap gains, which are both taxable outside of company tax.
How does hoarding cash inside a company, which is out of my personal reach, help me to satisfy my greed? I can't buy a yacht with it until I get the money out.
First of all, that money is never "out of the economy" whether its in a bank-account or a dividend it's circulating in the economy, either here or overseas.
Second, the main reason U.S. companies keep foreign profits offshore is they would be taxed if brought back to the U.S.
Your understanding of the problem is exactly backwards.
Is the problem the current tax code, or the fact that companies know they can pay politicians to change the tax code in their future to favor them, and they just need to wait it out?
If companies knew they were going to pay the tax one way or the other, there would be no point in hoarding overseas.
We should penalize companies for the behavior until it makes more sense for them to repatriate it immediately.
From the perspective of the US this is an argument against corporate taxes. There is a global corporate tax race to the bottom and some European countries are taking advantage of that.
The easy ( yeah right ) fix would be single universal sales tax. You buy something - you pay. Does not matter corporation or person. No expense claims on that either. This will also eliminate need to count assets as the taxes has already been paid on those. Tax can be progressive with the possibility of rate going negative for low income people.
The easy fix would be to have a land value tax that pays for everything. You can trivially dodge sales taxes by not declaring them. There are legal ways and illegal ways to not declare them.
Meanwhile with land value taxes, you either own the land and you pay, or you don't own the land and you don't pay. The only way you can dodge this is by not owning assets in the US and by not living in the US. Landlords pass the land value taxes onto renters (individuals and companies) who then end up paying their fair share of the US taxes.
I used to think this was a good idea but it ends up really, really favoring big corporations.
Startup A wants to get into a market and it buys Zoom licenses, GSuite, AWS servers, etc and pays a hefty tax bill.
Microsoft wants to get into that market? They don't have to buy any of that stuff, they already own everything. No tax dollars, lower cost to the incumbent.
I am a startup among the other things. So far I feed myself and was for the last 20 years ( startup of course is not that old ). I host my own servers and also rent dedicated servers elsewhere. I have no need for GSuite and Zoom. I talk using Skype which is free. I use vertical scalability and my servers are C++ so this infrastructure serves thousands requests per second without breaking sweat from a single server. In the end my current app serves tens of thousands of clients with very little monthly costs.
Microsoft and other do own their infrastructure but if they're not renting it to clients it wastes money as it has ongoing costs so not, them using their own infra is anything but free.
You're missing the point. You still need to buy servers, right? You still pay for electricity to power those servers, right? You buy hard drives, right? Those would all be taxed transactions. Whereas Microsoft's startup would use Microsoft's existing infrastructure. Even Microsoft's hardware costs are pennies on the dollar compared to yours, so their sales tax revenue would be also.
That's if you faithfully operate your corporation. You can set yourself up a corporation and pay yourself from that a very small salary on paper, while enjoying the funds through other means. Trump can't be on the board of any charities in the State of New York anymore after similar misuse of funds with his Trump Foundation nonprofit.