> Now imagine that corporate tax rate was 40% instead. It completely changes the decision-making process.
Seems more like a question of degree. Dividends are also taxed as income so ~36% is already paid in tax depoending on the income of the shareholder. Increasing the corporate tax rate to 40% brings the effective tax rate to ~52%.
In my experience there's a more fundamental problem with large companies. In a small company, the best way to succeed as an individual (whatever position you have) is for the company as a whole to succeed. At a very large company, the best way to succeed is to be promoted up the ladder, whatever the cost. This effect is the worst at the levels just below the top: you have everything to lose and nothing to gain by the company being successful. It's far more effective to sabotage your peers and elevate yourself rather than work hard and increase the value of the company by a couple of percentage points.
The thing is, the people that have been there since the beginning still have the mindset of helping the company as a whole succeed, but after enough time and enough people have been rotated out, you're left with people at the top who only care about the politics. To them the company is simply a fixture - it existed before them and will continue to exist regardless of what they do.
You're alluding to the double taxation problem with dividends. This is a problem and has had a bunch of bad solutions (eg the passthrough tax break from 2017) when in fact the solution is incredibly simple.
In Australia, dividends come with what are called "franking credits". Imagine a company has a $1 billion profit and wants to pay that out as a dividend. The corporate tax rate is 30%. $700M is paid to shareholders. It comes wiht $300m (30%) in franking credits.
Let's say you own 1% of this company. When you do your taxes, you've made $10M in gross income (1% of $1B), been paid $7M and have $3M in tax credits. If your tax rate is 40% then you owe $4M on that $10M but you have already effectively paid $3M on that already.
The point is, the net tax rate on your $10M gross payout is still whatever your marginal tax rate is. There is no double taxaation.
That being said, dividends have largely fallen out of favor in favor of share buybacks. Some of those reasons are:
1. It's discretionary. Not every shareholders wants the income. Selling on the open market lets you choose if you want money or not;
2. Share buybacks are capital gains and generally enjoy lower tax rates than income;
3. Reducing the pool of available shares puts upward pressure on the share price; and
4. Double taxation of dividends.
There are some who demonize share buybacks specifically. I'm not one of them. It's simply a vehicle for returning money to shareholders, functionally very similar to dividends. My problem is doing either to the point of destroying the business.
Good points but AFAIK bank loans from 2008 were paid back with interests, those were definitely not some free money. I would focus on root causes instead of populists shallow statements like that - too few regulations and oversight that allowed creation of securities that should never have existed in first place.
No industry will self-regulate, as you write the lure of short term bonuses for execs is too high and punishment for failures are non existent. I expect current US admin will make this even worse, greed and short term profit seems to be the only focus.
I'm all for root cause analysis. A big part of that is that large companies become extremely risk-tolerant because history has shown there is little to no downside to their actions. If the government always bails you out, what incentive is there to be prudent? You may as well fly close to the Sun and pay out big bonuses now. Insolvency is a "next quarter" problem.
I'm aware that TARP funds were repaid. Still, a bunch of that money went straight into bonuses [1]. Honestly, I'd rather the company be seized, restructured and sold.
You know who ends up making sacrifices to keep a company afloat? The labor force. After 2008, auto workers took voluntary pay cuts, gave up benefits and otherwise did what they could to keep the company afloat, benefits it took them ~15 years to fight to get back. In a just world, executive compensation would go down to $1 until such a time that labor sacrifices are repaid.
On #6, that's an individual income tax (or capital gain tax, depends on how you define things). Corporate income tax is the one that is applied independently of the money being invested on the corporation or distributed.
I'm don't think you should subsidize reinvesting in huge companies anyway. What do you expect to gain from them becoming larger?
It's much better (for society) to let them send the money back to shareholders so they can invest on something else.
Reinvesting in the company is the one thing we should absolutely subsidize. That goes to wages, capital expenditure and other measures to sustain and grow the company.
Paying out dividends and doing share buybacks just strips the company for cash until there's nothing of value left. It's why entshittification is a thing.
Treating all wages as expenses seems fine to me. But have you noticed that large companies just stop growing at some point and it doesn't matter how much money you pour at them?
That is, unless they use the extra capital to buy legally-enforced monopolies, or bribe regulators out of their way.
And no, enshitification is a thing because people want those companies to grow and grow, and keep growing. Some times even after they have the majority of humanity as customers.
Seems more like a question of degree. Dividends are also taxed as income so ~36% is already paid in tax depoending on the income of the shareholder. Increasing the corporate tax rate to 40% brings the effective tax rate to ~52%.
In my experience there's a more fundamental problem with large companies. In a small company, the best way to succeed as an individual (whatever position you have) is for the company as a whole to succeed. At a very large company, the best way to succeed is to be promoted up the ladder, whatever the cost. This effect is the worst at the levels just below the top: you have everything to lose and nothing to gain by the company being successful. It's far more effective to sabotage your peers and elevate yourself rather than work hard and increase the value of the company by a couple of percentage points.
The thing is, the people that have been there since the beginning still have the mindset of helping the company as a whole succeed, but after enough time and enough people have been rotated out, you're left with people at the top who only care about the politics. To them the company is simply a fixture - it existed before them and will continue to exist regardless of what they do.