[mynameishere]

end loopholes that allow companies like exxon to pay no federal taxes

Corporate taxes are idiotic. They should tax them at zero and replace the lost revenue with a new upper-margin tax. Reasons:

1. Corporate taxes are effectively a sales tax.

2. Corporations, unlike individuals, can hire armies of lawyers, accountants, and lobbyists to get around the taxes.

3. Those same professionals are more often deployed by large, rather than small, companies.

4. Those same professionals are intelligent people wasting their intelligence on tax avoidance. They could just as easily be useful to society. Engineers, doctors, teachers, etc.

[cperciva]

Eliminating corporate taxes isn't exactly what you want: It would turn corporations into tax shelters, allowing investments to compound at a faster rate. (You'd be effectively giving everybody an unlimited Roth IRA.)

What you really want is an integrated tax system like Canada and many other countries have: Corporations pay income taxes, but when they pay out their profits as dividends, the individuals receiving those dividends pay tax on their share of the corporation's pre-tax income, but get a tax credit equal to the amount of taxes the corporation paid. (Sounds complicated? It is -- but it works.)

As a side benefit, this fixes the "Buffett pays less tax" problem, since the taxes paid on corporate taxes (in the end, once they've been paid out as dividends) are based on the same progressive system of increasing marginal rates as any other income.

[3pt14159]

It is better in Canada, but we have loop holes like the rest of them. Certain countries have tax treaties with Canada that effectively allow a massive decrease in dividend taxes provided that you have "management fees" in those countries. Although you wouldn't qualify for other benefits of being a Canadian company, such as the one time 750k tax free capital gains allowance, or SR&ED or research grants.

[cperciva]

Oh, I'm not saying that the Canadian tax system is perfect. Far from it. Just that this specific property -- integration of corporate and personal income taxes -- is a very good thing.

[3pt14159]

Definitely, in this we are in agreement.

[hugh3]

It would turn corporations into tax shelters, allowing investments to compound at a faster rate

Is that so bad? Is it bad if we encourage people to invest in businesses rather than term deposits (or CDs as I think they're called in the US)?

[cperciva]

That depends on what the businesses are doing. If people set up corporations which do nothing other than hold term deposits, I don't see how that's any better than people directly holding term deposits.

[anigbrowl]

Your first point contradicts your second one. If they could be passed onto customers so easily, corporations wouldn't spend money on avoiding them, the cost of which also has to be passed onto customers. In reality, the fraction of corporate taxes passed on to the customer is inversely proportional to the elasticity of demand for the good.

[majika]

You make a good case.

However, I think it's important to acknowledge that corporate taxes are useful for providing an incentive for corporations to do something a certain way. That is, they can avoid the tax if they change their behaviour. (see: equal-opportunities employment, regional commercialisation incentives, emissions control, recycling, etc)

[njharman]

Greed is the most powerful force in the world. If you tie regulation to money, it will be exploited and corrupted. It also shifts accountability from the individual violators to "the corporation". Instead enforce criminal laws against people. Doing the "right thing" doesn't deserve reward. Doing the "wrong thing" does deserve punishment.

[majika]

You want to criminalise failure to recycle, or failure to provide a work environment that's unreceptive to disabled persons? How's that going to work?

At what point does pollution or energy usage become criminal?

[njharman]

> At what point does pollution or energy usage become criminal?

At the point it harms society as a whole.

[Jach]

"There is no heaven, but if you do bad you are going to hell."

[SkyMarshal]

Corporate taxes also incentivize corporations to outsource or relocate operations overseas, and disincentivize them from repatriating profits made overseas.

I would be willing to consider giving up the ability of the government to micromanage corporate behavior in return for recapitalization of the US manufacturing base and repatriation of profits.

[harryh]

Dear god yes. The army of people out there that seem to think that more corporate taxes will somehow mean that people won't have to pay taxes amazes me.

Like Romney said “Corporations are people, my friend."

[artsrc]

Corporations are not 100% owned by American people. And they are certainly not mostly owned by the bottom quintile.

[guimarin]

You cannot replace a corporate tax with a personal tax, all persons will simply become corporations.

[harryh]

There are already laws against that that are very strictly enforced. Try incorporating yourself and deducting the cost of your mortgage or car payment and see how long it will take for you to end up in tax court.

[gujk]

You gave two working-class examples. When the corporation is a REIT with milions of dollars in invested assets, or an independent contractor consulting firm, that is a different story.

[guimarin]

When people bring up this argument, I feel like I'm screaming in a room full of people and everyone is ignoring me.

You cannot make it easy for people and corporations to be interchangeable and then have differing tax rates for each. They MUST have the SAME rate.

eg. I 'own' all my rental properties through LLCs which are themselves 'owned' by a corporation of which I am the sole benefactor. Travel? expensed. Living in my house for free? No problem, house owned by LLC, rent waived by my own corporation. Any living expense whatsoever? No problem, benefits of running/owning the corporation. What then is the point of being an individual on your tax return? Oh yes, I pay my fair share on my income of $1 per year.

Honestly, sometimes I think people like you who bring up these arguments are completely uneducated.

[harryh]

If you are actually doing what you describe then you are breaking the law and will eventually be caught and hit with a gigantic bill for back taxes plus a hefty fine.

[kb101]

Not at all. Setting up trusts like this is what family offices do for wealthy people. The goal is to legally structure everything so that the total tax bill is minimized. High net worth individuals never just have a big fat bank account and a stock portfolio, there is always an array of trusts typically set up as LLC's to minimize tax exposure. It's unfortunate that he's being downvoted into invisibility (presumably due to the irritated tone of his post) but the fact is that he is correct in his assertion.

[mdda]

Your living expenses and rent are a benefit you receive as an individual from the company, with a direct monetary equivalent : You should be declaring it, and paying tax on it.

[brc]

You're right, of course.

The top marginal tax rate and corporate tax rate should be equalised.

That way there is no tax benefit to putting revenue through corporations or individually.

Yes, the tax offices can catch abuses like this, but it would be much simpler if there was no tax advantage to doing it one way or the other.

The amount of tax accountants and lawyers that do no productive work because they are moving stuff around in entities makes me want to cry. It's a giant churning game that does nobody any good. The govt doesn't get the money, because they can always be outsmarted. The armies of people doing the outsmarting don't contribute to society.

Just equalise the top tax rates for individual and corporations and loopholes disappear by the bucket load.

[cperciva]

I can't speak to the US tax system, but people absolutely don't get away with doing that in Canada. People try it, of course; but the Canada Revenue Agency is very good at catching "benefit conferred on a shareholder" and taxing them as deemed dividends.

And, of course, throwing people in jail who deliberately fail to report such benefits.

[guimarin]

thus the army of lawyers, accountants and golden shares. It's good to live in a globalized world.

[noahc]

It seems plausible to make it so that people can't become corporations.

1. The IRS already does this with certain classes of businesses in which they make it illegal to form them purely for tax avoidance purposes.

2.You set the corporate income tax to 0, but personal income tax to whatever. You then make all corporate profits flow through to individuals, and make corporate write offs and deductions rare/impossible/non-existant.

Under our current tax environment, you're right. But there is nothing inherent in reality that makes this impossible.