[aauchter]

Correct. Corporate income tax is really a tax on shareholders (alternative to paying tax is paying shareholders a dividend). The corporate tax rate hits all owners regardless of income/wealth. That includes pension funds, 401ks, small investors, etc. Proponents of progressive taxes should be against corporate tax and in favor of income tax, property tax, etc.

[FredPret]

It also takes money away from the corporation, when they should be doing one of these:

- spend their profits to try and grow, but fail; thus spreading their capital into the rest of the economy

- spend their profits to try and grow, and succeed; not only spreading capital but creating new wealth that will eventually work its way around to the shareholders

- return it to shareholders, where it gets taxed

[what]

Isn’t that how it already works? They can spend all of their profits or pay taxes on profit and sit on the rest?

[FredPret]

Depends on what it gets spent on - capital purchases dont reduce net income. You can write it off, but there are rules limiting how much.

So you could have a situation where you have $1m in profit, and you want to buy a $1m machine, but the machine goes on your balance sheet and not your income statement, so your books still show $1m in profit, even though you now have no cash. And now you still have to pay tax on the $1m.

Now, in the next year, the rules allow you to write off say $200k of that machine, reducing your profit by that much. Eventually, you get to write off much / all of the machine.

But cash is king, and on a cash basis, the tax man is doing very much better than the business in this scenario.

Better to dispense with all the accounting intrigues, tax corporations at 0%, and just tax dividends, buybacks, and salaries.

[eightysixfour]

Yes, it reduces the amount paid out to shareholders, but that doesn't mean it is bad for the economy as a whole. When corporate taxes are higher, companies spend more - wages, r&d, etc - because they'd rather do that and squeeze some value out of it then have it taxed.

There isn't a "right" answer, there are trade offs between incentives that drive the flows into different places.

[FredPret]

This is a good counterpoint, but forcing companies’ hand with investment will at best distort the economy, and slow it down long term.

Companies are single-purpose wealth creation machines, let them find their optimal investment mix. Taxing only dividends, buybacks, and salaries will bias the taxation to mature companies that aren’t growing so fast anymore, minimizing the damage.

[eightysixfour]

There's no such thing as an "undistorted economy," there is only different configurations which are more or less efficient in different areas. Taxation isn't "damage," it is the fee you pay for the stability of the system you are operating in and the services that system provides.

> Taxing only dividends, buybacks, and salaries will bias the taxation to mature companies that aren’t growing so fast anymore, minimizing the damage.

This is a reactionary policy to the existing system, not a sustainable new one. At the minimum, it incentivizes:

1. Hoarding cash

2. The acquisition of assets unrelated to the core business (real estate for example)

3. Increased corporate debt (no tax on interest payments)

4. Shifts from salary to stock options

5. Acquisitions over investments in new product lines or R&D

Functionally, you and I probably disagree on some things though - I would want to encourage companies to spend their money on salaries, pushing the money towards the broad consumer base.

[subarctic]

> alternative to paying tax is paying shareholders a dividend

I thought corporate income tax was a tax on profits, and if a company pays a dividend that doesn't lower profits so wouldn't that be after taxes?

[1123581321]

A higher corporate tax rate leaves less available to issue to shareholders from net income.

[subarctic]

Exactly