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What would lowering Corporate taxes do?

Giggles_FunsworthGiggles_Funsworth ParanoiacBay Area SprawlRegistered User regular
edited March 2012 in Debate and/or Discourse
I read a piece on a blog a RON PAUL friend linked the other day on Facebook. Don't remember offhand what it was, and it's not really worth linking, but it got the wheels turning a little bit and I know there's a lot of people on this forum that know a lot more about economic theory than me and I wanted to see what you all had to say about this.

Entirely possible there's something I've overlooked here and this is a really dumb idea, but if we were to lower Corporate taxes, drastically even, wouldn't it be good for attracting business to the US? This is something I'd heard Republicans and Randians bitch about before and I never gave it much thought, but this time I put it together with higher taxes in general, and especially fixing the tax code for the "1%", taxing capital gains properly, etc. The money the Corporations make has to go somewhere, be it Executive salaries or further growth or WHATEVER, and if we taxed individuals more, while taxing Corporations less, wouldn't it make it easier for them to do business without necessarily crippling tax revenue, and possibly even spread the pain a little more fairly with a progressive tax code?

Thoughts? This has been nagging me for a few days now and I haven't been able to see a flaw with this on my own.

Giggles_Funsworth on
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  • CantidoCantido Registered User regular
    What would lowering Corporate taxes do?

    Create more jobs in China and India.

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  • MalkorMalkor Registered User regular
    edited March 2012
    It depends on what those corporations do with the cash saved from taxes.

    The most immediate effect would probably be padding the bottom line so that the executives could raid it because they have so much cash (they must be doing an awesome job!) But there might be some investment in plant and property, or even in other companies or their employees. And the tax burden on corporations isn't crippling or making it so the ones that make the most profit can't make even more the next year...

    But its not like they'd hire more people because they have more money. They'd only higher more people if there was more demand.

    Malkor on
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  • KageraKagera Imitating the worst people. Since 2004Registered User regular
    Obama offered to lower the corporate tax rate in exchange for closing the loopholes that allow corporations to pay less than the rate they are expected to now.

    My neck, my back, my FUPA and my crack.
  • YodhrinYodhrin Registered User
    This is something Hayek-fans never seem to grasp; until you(collectively) are willing to sleep eight-to-a-room in a corporation-owned dorm, be payed a dollar a day, endure 36-hour long shifts, and abandon all worker safety legislation, you will never be a more attractive prospect for corporations than China. You could have a corporate tax rate of 1%, and it would still be cheaper for them to operate elsewhere. Manufacturing, call centres, even tech manufacturing; you are not going to get those industries back unless you're willing to work harder, longer, for less money, and abandon all worker protections, and if you don't move fast and fix your education system(protip: start by shipping all the cretins who're undermining your scientific research capabilities with their mumbo-jumbo to darkest Alaska or somewhere else nice and out of the way), you're going to lose R&D to the developing world as well.

    The developed world tried to function as a service-based economy, and it worked great for a while, but such models are only sustainable with substantial regulatory intervention, which Hayek-fans also reject outright. But look at what's happened over the last thirty years; growth, growth, growth, until the crash, and we finally see in stark terms that there was little real growth, just a massive transfer of wealth from upper-working-class through centre-middle-class to the most well-off. And what happened over those thirty years? A steady trend of deregulation, tax cuts or the creation of new loopholes for the wealthiest to exploit, and the steady withering of the economic-left in the face of what turned out to be a completely fictional period of growth and prosperity.

    No doubt at this point some spluttering neo-liberal will be along to brand me a rabid socialist(bitch please; my political views are so heterodox that I've passed through "hipster" and come all the way back around :P), but any honest examination of the facts leads to an inevitable conclusion; neo-liberalism has failed. It failed from the moment it was implemented, those who were benefiting from it simply hid that fact from most people until the whole edifice collapsed under its own weight in 2006-8, and it continues to fail today in its new guise of "deficit reduction" or "austerity economics".

    But that won't stop Hayek-fans, because they don't see the economy as a tool to improve the lives of the citizenry, they see it as a god that we must worship and offer-up sacrifices to in the hopes that it will bless us with good fortune; they are the modern-day equivalent of shamen burying skulls filled with shit and herbs in the fields, so that Gumbomumbo Lord of Fertility will grant a bountiful harvest.

  • tyrannustyrannus Registered User regular
    Despite decades of tax research, little is known about firms’ ability to avoid income taxes over long periods of time. The purpose of this study is to shed some initial evidence on this
    question. We find a significant fraction of firms that appear to be able to successfully avoid large portions of the corporate income tax over sustained periods of time. Using a ten-year measure of tax avoidance, 546 firms, comprising 26.3 percent of our sample, are able to maintain a cash effective tax rate of 20 percent or less. The mean firm has a ten-year cash effective tax rate of
    approximately 29.6 percent. This suggests that tax avoidance is concentrated in a subset of firms. Examining the relation between annual cash effective tax rates and long-run cash effective tax
    rates, the evidence is not consistent with annual cash effective tax rates being good predictors of long-run cash effective tax rates. Thus, the use of an annual rate to examine tax avoidance
    behavior could lead to erroneous inferences about the long-term behavior of firms.
    link to the study

    an interesting study

  • MalkorMalkor Registered User regular
    One of the funny things is that the focus of the argument will shift to "small-businesses" but none of the benefits (like repatriating off-shore accounts and such) would likely affect them. I originally thought a small business was the local mom 'n pop store on the corner or the guy with five coffee shops spread out across a few towns, or a fabrication shop or something. Those are small businesses, but so is the law firm with 500 lawyers.
    Only 4.1 percent of the self-employed were in the
    marginal tax bracket of 33 percent or more.
    If I remember correctly, the the way taxing works, you pay one percentage of the first $50,000 and then another percentage on next $100k or so (the amount is probably off) I'd like to think that these are the people we all have in mind and are looking out for, but that doesn't ever seem to be the way it ends up.

    The breakdown on cost for compliance with federal regulation is pretty telling though. It can make or break a business with ~20 employees, but costs less when you have more people...

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  • nexuscrawlernexuscrawler Registered User regular
    The far higher bar of entry for smaller businesses is cost of healthcare. it's gotten virtually impossible for a starting company of a handful of people to offer health insurance without astronomical costs.

  • Casually HardcoreCasually Hardcore Once an Asshole. Trying to be better. Registered User regular
    One thing I hear constantly is that rich people don't swim in their money in a giant money vault. They're constantly doing investments and stuff, which kinds of give money convection.

    Is this true? I don't know.

  • MalkorMalkor Registered User regular
    If you're not wasting your money struggling to survive, you're probably going to want to more with it than "save for a rainy day". The taxes private citizens face from investing in companies or whatever is different from the types of taxes corporations have when investing in equipment or even other companies.

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  • Giggles_FunsworthGiggles_Funsworth Paranoiac Bay Area SprawlRegistered User regular
    Yodhrin wrote: »
    This is something Hayek-fans never seem to grasp; until you(collectively) are willing to sleep eight-to-a-room in a corporation-owned dorm, be payed a dollar a day, endure 36-hour long shifts, and abandon all worker safety legislation, you will never be a more attractive prospect for corporations than China. You could have a corporate tax rate of 1%, and it would still be cheaper for them to operate elsewhere. Manufacturing, call centres, even tech manufacturing; you are not going to get those industries back unless you're willing to work harder, longer, for less money, and abandon all worker protections, and if you don't move fast and fix your education system(protip: start by shipping all the cretins who're undermining your scientific research capabilities with their mumbo-jumbo to darkest Alaska or somewhere else nice and out of the way), you're going to lose R&D to the developing world as well.

    I strongly believe that having an intertwined global economy will gradually sort this out. China is already starting to find it more beneficial to manufacture products for Chinese markets instead of shipping them overseas, and manufactured goods for Western markets is starting to shift to Southeast Asia. Eventually you run out of developing nations to manufacture in that are stable enough to set up shop there.

    I also failed to mention it in the original post, but I am assuming that in addition to lowering the tax rates you would close the loopholes and end bullshit like GE paying little to no tax by getting all lawyered. That shit is ridiculous.
    One thing I hear constantly is that rich people don't swim in their money in a giant money vault. They're constantly doing investments and stuff, which kinds of give money convection.

    Is this true? I don't know.

    I am not sure I understand what you mean by convection. Like it does more than just sit in place, it goes and does other things too? I know they certainly spend it on more expensive things in addition to investments.

    True story, the other day I was complaining about having to pay taxes for the first time even though I'd had my company withhold my income tax the entire year on Facebook. First response was from a friend's mom, went "Welcome to the adult world, be thankful its not 35%!" and I gotta say I was pretty flabbergasted. Even if I didn't receive any deductions at all, if I was being taxed at that level, after tax I would have roughly six times my current gross. I told her I'd be pretty okay with that as I'd be earning more than I ever expected to in my life, but it was a pretty huge eye opener as to how far removed the wealthy are from the mindset of us peons.

  • CantelopeCantelope Registered User regular
    Malkor wrote: »
    If you're not wasting your money struggling to survive, you're probably going to want to more with it than "save for a rainy day". The taxes private citizens face from investing in companies or whatever is different from the types of taxes corporations have when investing in equipment or even other companies.

    Your referring to sales tax right? Cause investing buying equipment would be categorized as an expense, and would lower your tax base. As far as investing in another company, what taxes are involved in doing that?

  • tbloxhamtbloxham Registered User regular
    I read a piece on a blog a RON PAUL friend linked the other day on Facebook. Don't remember offhand what it was, and it's not really worth linking, but it got the wheels turning a little bit and I know there's a lot of people on this forum that know a lot more about economic theory than me and I wanted to see what you all had to say about this.

    Entirely possible there's something I've overlooked here and this is a really dumb idea, but if we were to lower Corporate taxes, drastically even, wouldn't it be good for attracting business to the US? This is something I'd heard Republicans and Randians bitch about before and I never gave it much thought, but this time I put it together with higher taxes in general, and especially fixing the tax code for the "1%", taxing capital gains properly, etc. The money the Corporations make has to go somewhere, be it Executive salaries or further growth or WHATEVER, and if we taxed individuals more, while taxing Corporations less, wouldn't it make it easier for them to do business without necessarily crippling tax revenue, and possibly even spread the pain a little more fairly with a progressive tax code?

    Thoughts? This has been nagging me for a few days now and I haven't been able to see a flaw with this on my own.

    Corporate taxes are already low, and corporations are already sitting on VAST stockpiles of cash (the succesful ones, who are actually paying 'lots' of tax. Remember there is only tax on profits) Companies should be investing massively in infrastructure, but have (in my opinion at least) realized that if the economy is TOO succesful that it has some short term losses for them since it means they have to pay people more. As such they are twiddling their thumbs wondering what to do with their cash that will benefit them without benefitting their workers too much. The answer for a lot of them has been big payouts to executives and shipping the money overseas to china and india.

    So, no, we don't want lower corporate tax rates. What we want is to remove fixed barriers to entry (healthcare costs, constant licensing costs, patent costs etc) that prevent competition entering the market and strengthen the teeth of our anti-monopoly laws significantly. That way there is more chance for new businesses to enter the fray, which will lead to investment, better services to customers and more jobs.

    Big business can be good, but ONLY in an environment where they are forced to play fair. In current business culture the massive giants can crush the little guys at a whim.

    "That is cool" - Abraham Lincoln
  • MalkorMalkor Registered User regular
    Cantelope wrote: »
    Malkor wrote: »
    If you're not wasting your money struggling to survive, you're probably going to want to more with it than "save for a rainy day". The taxes private citizens face from investing in companies or whatever is different from the types of taxes corporations have when investing in equipment or even other companies.

    Your referring to sales tax right? Cause investing buying equipment would be categorized as an expense, and would lower your tax base. As far as investing in another company, what taxes are involved in doing that?

    I'm probably confusing a lot of things, but don't companies have to figure out and then pay tax on goodwill after they finish writing it off?

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  • EggyToastEggyToast Registered User regular
    Part of the main reason people support a reduction in corporate taxes mirror the reasons people give for reducing personal taxes. The idea is that if we have more of our own money, we'd be "richer" and be able to do more with it. If someone who earned 50k had all of it to spend, rather than only 42k, they'd be "8k richer." If a corporation was able to use all of its revenue for growth, it could create more jobs, create more products, grow its revenue more steadily, and invest in other companies/improvements.

    Ultimately, though, by eliminating taxes, we'd only be eliminating government, rather than changing the structure of the economy. But like tbloxham says, taxes are not a barrier because every company pays them. Well, should pay them. Taxes cover infrastructure that not every company directly supports, like unemployment, infrastructure, and more. Most companies don't pay much attention to the fact that the taxes they pay go towards the roads to access their facility, the power grid that supports their electricity, etc. They just see taxes as something they have to pay, and think "imagine the things we could do if we didn't have to pay that."

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  • GoumindongGoumindong Registered User regular
    edited March 2012
    Entirely possible there's something I've overlooked here and this is a really dumb idea, but if we were to lower Corporate taxes, drastically even, wouldn't it be good for attracting business to the US? This is something I'd heard Republicans and Randians bitch about before and I never gave it much thought, but this time I put it together with higher taxes in general, and especially fixing the tax code for the "1%", taxing capital gains properly, etc. The money the Corporations make has to go somewhere, be it Executive salaries or further growth or WHATEVER, and if we taxed individuals more, while taxing Corporations less, wouldn't it make it easier for them to do business without necessarily crippling tax revenue, and possibly even spread the pain a little more fairly with a progressive tax code?
    O.K. So you're probably also going to want a response from Ronya he probably knows more about this stuff that I do and I know quite a bit about this stuff.

    The "simple" answer is that in terms of pure "efficiency", it makes sense to not tax corporations and instead tax people. But the reason for this has nothing to do with job creation, attracting businesses to the United States, or Growth Rates.

    The complex answer basically says that corporations end up being pass through entities with regards to taxes because they largely operate in competitive markets. Every unit of tax levied upon them increases the raw amount of profit required to meet their economic zero profit conditions. I.E. If you tax a corporation 10% and they made $5m before the tax, in order to have the same amount of money to pay their cost of capital, they would need 5.5m.

    How do you get the extra .5m? You raise prices, and since everyone is raising prices (because the tax is on everyone) people don't substitute away from your good. The supporting logic for this basically says "If companies could increase their profits by reducing their costs after the taxes were implemented they could increase their profits by reducing their costs before the taxes were implemented so why didn't they reduce their prices then?"

    This still is consistent with corporations desperately trying to reduce their tax burden, because a lower tax burden is a marginal cost advantage over your competitor, which means you can reduce prices to increase your profit. But largely the effect is still seen in prices that the consumer pays.

    And if the consumer is going to pay the taxes why not just have it be a consumption tax? Well there isn't really a good reason, except that it may be politically easier to support a corporate rather than consumption tax(or income tax or capital tax or whathaveyou) and underfunding the govt is probably worse than funding it in an inefficient way by having the wrong mix of taxes. [Note: Even if the right mix of taxes are consumption taxes, if we expect corporations to spend more effort dodging corporate rather than consumption taxes we get less wasted activity, but it might not be the case that it is so]

    Now, this doesn't answer the question of "will companies come to the United States" and the answer there is "maybe. But probably not". The problem with answering such a question is that it often ignores what other nations do. If we lower our corporate taxes do other nations follow suit? If us lowering taxes will take businesses from them and give them to us then yes, we expect us lowering taxes will cause them to lower taxes in response. And we expect them to do so until, roughly, the same amount of business is left in each area.

    To give an example of this, we can look to corporate behavior. Back in the day there was a price war between Pepsi and Coke over the price of 2litre soda bottles. It was so fierce that at some point the price of the 2 litre was lower than the individual cans (actually might be true again now). This is basically because the entirety of the expense of soda is in the bottling, and cans are much more expensive than 2litre plastic bottles. Anyway, Pepsi and Coke were competing on price and were constantly lowering the price of their 2litre soda in an attempt to gain profit by stealing market share. And it worked at the margin, if they were charging $2 you could charge $1.90 and make more money. Until they responded and reduced their price to $1.90. Because the market for soda was more or less fixed, each time this happened they lost money compared to just selling at the higher price. Eventually when prices were very low one of the companies just said "screw it" and posted a high price until the other followed suit and both were back to making a lot of money on 2litre soda.

    Nations competing for businesses aren't any different, they have various amounts of social advantages to which the tax rate can be figured into after which businesses decide where they're going to locate and operate. Tax rate changes will cause some firms to move if no one else changes their tax rates in response. But if they do(and they're likely to) then the net effect is expected to be zero. Lowering corporate taxes probably doesn't change the amount of businesses in the United States it just increases

    Now you might say "wait a second, that view that companies will actually relocate at all hinges on the first idea being false because moving to an area with a lower tax burden does not create a competitive advantage because all the firms already there have that same tax rate" and that may be true (it could also be the case that businesses are not that good at making these kinds of decisions, but that could also throw off the other metrics and I am not familiar enough with the literature in this area to give a confident answer)

    So that leads us to ask "what if the market isn't more or less fixed" to get to the last part of the evaluation and the short answer is that "the market is more or less fixed" at least its fixed in the sense that we can't find ways to show that taxes reduce growth and we can't find ways to say that one tax over another makes people worse off. (Note: So long as our models are reasonable with regards to the effect of government spending and personal budget conditions, bad assumptions can certainly make it look like this effect appears)

    edit: So the long answer is a big long "maybe" with a huge side helping of "it depends on what you believe about who should pay taxes, and how effectively we can make them pay taxes"

    Goumindong on
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  • mrt144mrt144 King of the Numbernames Registered User regular
    One thing I hear constantly is that rich people don't swim in their money in a giant money vault. They're constantly doing investments and stuff, which kinds of give money convection.

    Is this true? I don't know.

    It's not entirely true. Buying stocks doesn't mean cash has entered into the pocket of the business. Putting money in the hands of an investment firm doesn't mean that investment firm is doing anything outside of buying Treasuries with that money.

    While the extremely wealth are not hoarding money, they also aren't making it available to other people, either directly or through their investment advisers.

  • CantelopeCantelope Registered User regular
    Malkor wrote: »
    Cantelope wrote: »
    Malkor wrote: »
    If you're not wasting your money struggling to survive, you're probably going to want to more with it than "save for a rainy day". The taxes private citizens face from investing in companies or whatever is different from the types of taxes corporations have when investing in equipment or even other companies.

    Your referring to sales tax right? Cause investing buying equipment would be categorized as an expense, and would lower your tax base. As far as investing in another company, what taxes are involved in doing that?

    I'm probably confusing a lot of things, but don't companies have to figure out and then pay tax on goodwill after they finish writing it off?

    I'm not sure about Goodwill. You only gain goodwill when you buy a business and pay more for it than it's book value. I don't see how you would end up paying taxes on that. Isn't it amortized as an expense over the period that it's useful?

  • AtomikaAtomika not a robot. does not eat bugs!Registered User regular
    We need to get a few things clear in this thread.

    A common refrain from the GOP these days is that lowering corporate taxes and lowing capital gains taxes will in turn boost employment and economic recovery because corporations will have more money to sink into new hires, new projects, and growth. This is analogous to someone saying that if you give more money to a morbidly obese person with a food addiction, they will now buy healthier food.

    Simple rule of Economics 101: Corporate income does not drive hiring practices; corporate income (or a dearth of it) can only limit hiring practices. A corporation will always seek peak efficiency, using a formula that will seek to maximize profits for the barest minimum allowable production. Cost of resources being equal, if you can sell 100 widgets for 10 dollars or 1000 widgets for 1 dollar, you will sell the 100 widgets because it takes fewer resources (material, employees, logistics) to do so and you have a better chance of maximizing your net potential income.

    Some important facts:
    - Income disparity between labor and executives has never been greater. Executives have more cash on-hand than ever before in our lifetimes.
    - Corporate profits have never been higher, even adjusting for inflation. Companies have more wherewithal now to invest, grow, and hire than they ever have in our lifetimes.
    - US corporate tax rates, while still one of the highest in the developed world, have (again) never been lower in our lifetime. Likewise, the proportion of total corporate tax revenues as part of the GPD has never been lower.


    Simple rule of Economics 102: Employment demand is a product of output demand. Right now we're in a period of significantly reduced demand, and much of what is in demand (manufacturing, raw materials, textiles) cannot be produced in the US for what we're paying for it to come from overseas. It just can't. What will decreasing corporate taxes do at this point? Well, for starters, it'll give more money to the corporations, which they like. Then, because of economies of scale, local and smaller-sized competition will dry up because the mega-corporations can flood the market with goods at prices that cannot be reasonably competed against. In effect, the US will be out of the manufacturing game for good, with only few exceptions (domestic cars, domestic energy). But will this in any way increase employment?

    No.

    It won't touch employment because demand isn't going up. Demand drives growth and production. Growth and production drive employment. But why isn't demand going up? For starters, 90% of all US laborers haven't seen a significant growth in their income. Adjusted for inflation since 1995, the US worker in the lower 90% has seen a 15% growth in his disposable income, but the cost of goods has increased around 65%. Cost inflation is outpacing monetary inflation by a wide margin. This benefits the corporations, since they're making more money per product than they once did, but it fucks over the consumer by decreasing the elasticity of his dollar. And this is what brings employment down; if a company can charge $4 for a widget they used to sell for $2.75 and meet the same level of revenue, this benefits them because it decreases their operating costs when they sell less product for more money.

    Simply: "More products for more money" is good. "Less product for more money" is better. "More product for same money" is bad. "More product for less money" is worst. Three of these four scenarios imply growth of employment, but for two of those three, it's a bad thing.


    Simple rule of Economics 201: Employment is a function of demand, which is increased by decreasing market prices or new market entries. If you decrease market prices, corporations are going to seek higher efficiency of production costs, and that means cutting labor. The only way to maintain high levels of output and avoid cutting labor is growth of your model and consistent innovation, and those factors are predicated on market competition, which we don't really have in the US because we buy all of our shit overseas.


    In short, we're kind of fucked, but giving the corporations more money isn't going to un-fuck us. It will fuck us much worse.

  • tinwhiskerstinwhiskers Registered User regular
    One thing I hear constantly is that rich people don't swim in their money in a giant money vault. They're constantly doing investments and stuff, which kinds of give money convection.

    Is this true? I don't know.

    Yes most rich people actually invest their money. How this creates jobs, no one every actually explains. There's a reason Bush I called it voodoo economics.

    Cut taxes on the Rich-->they invest more--->*VooDoo*-->more jobs for everyone.

    How do you spell Justice?B D S Non-Violent Resistance to Israel Apartheid & Occupation.
  • nexuscrawlernexuscrawler Registered User regular
    Gouning that may work in theory but not in practice. Raising taxes may cause a rise in prices or it may not. It really depends on the profit margin, amount of competition in that particular market and many other factors. likewise lowering taxes may or may not lower costs. Most companies have found a pricepoint people are willing to pay for their product that still makes a profit. Why would they lower prices when they can simply pocket the difference?

    Case in point during last years partial-FAA shutdown the government couldn't charge airlines about 200 million in taxes. ticket prices didn't go down at all in fact the airlines used the shutdown as an excuse to raise prices

  • DiannaoChongDiannaoChong Registered User regular
    The idea is rich people with lower tax rates invest more in riskier trends, which applies to new markets, which usually creates jobs. However even if the above works, it doesn't apply to business.

    As Futurama well put it, "Banks are where poor people keep their money that isn't prudently invested"

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  • AtomikaAtomika not a robot. does not eat bugs!Registered User regular
    The idea is rich people with lower tax rates invest more in riskier trends, which applies to new markets, which usually creates jobs. However even if the above works, it doesn't apply to business.

    As Futurama well put it, "Banks are where poor people keep their money that isn't prudently invested"

    Right. That's an argument for providing special tax incentives for new investments or corporate projects, not across-the-board slashing of taxes.

    That's like telling your mom you need new shoes but the store only accepts blank checks.

  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    One vital point that is often missed in these discussions is the rise of the Limited Liability Corporation (LLC). LLCs carry many of the advantages of traditional C Corporations (what people normally mean when they talk about corporations, and the only entities subject to what we normally think of as corporate taxes) like limited liability, indefinite existence, ease of administration, and the ability to issue unlimited shares in multiple classes, and are not subject to corporate taxes. Over the last decade or so, LLCs have become so popular that C Corps are really only used when (1) a company wants to go public, (2) there is a need for a corporation to pay taxes to block certain "bad" income from reaching tax exempt investors, or (3) the corporation serves an executive compensation related purpose in the overall structure. In (2) and (3), the corporation will just be a holding company, but the company actually engaged in the business will normally be an LLC. So the question isn't even really if we should lower corporate taxes, since most private companies are able to completely avoid them. The question is if we think that the continued disparity between public and private companies makes sense, and if it does, if the cost of being a public company instead of a private company should be lower or not.

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    It's been a butt come true! I get to work with the absolute best boobs in the business. What more could a money ask for? Kids, aim for the freeloaders !

    @chanus
  • SaammielSaammiel Registered User regular
    edited March 2012
    Goumindong wrote: »
    And if the consumer is going to pay the taxes why not just have it be a consumption tax? Well there isn't really a good reason, except that it may be politically easier to support a corporate rather than consumption tax(or income tax or capital tax or whathaveyou) and underfunding the govt is probably worse than funding it in an inefficient way by having the wrong mix of taxes. [Note: Even if the right mix of taxes are consumption taxes, if we expect corporations to spend more effort dodging corporate rather than consumption taxes we get less wasted activity, but it might not be the case that it is so]

    This is a good point, and maybe I can dredge some of my old slides up later to support myself better, but as the size of an interest group rises past a certain point, generally its effectiveness decreases due to the costs of coordination and competing interests. So we can usually expect that a series of corporations will be more effective at lobbying for tax code changes than a group of consumers since they are (generally) more focused. In other words, Solar Panel manufacturers will find it easier to reduce their marginal tax rate compared to People Who Get Child Care Credits. In other words, I think corporate lobbying is far more corrosive than lobbying by citizens as it is far more likely to carve out exemptions that may not be in societies interest.

    I also think there is reason to believe that the effeciency loss incurred by tax avoidance efforts would be less if corporate tax rates were lowered and the slack made up elsewhere.

    There are other problems with the US corporate tax code though. For one it is only paid by C-corps, which gives an incentive not to organize as a c-corp. Given that c-corps currently face the most transparency requirements (I think, this is off the top of my head), that might be a bad thing. As currently structured it also incentives the use of debt financing over equity.

    Personally, I'd rather remove the corporate tax entirely, raise capital gains rates and make the current income tax more progressive. But that isn't likely to ever happen.

    Saammiel on
  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    Saammiel wrote: »
    Goumindong wrote: »
    And if the consumer is going to pay the taxes why not just have it be a consumption tax? Well there isn't really a good reason, except that it may be politically easier to support a corporate rather than consumption tax(or income tax or capital tax or whathaveyou) and underfunding the govt is probably worse than funding it in an inefficient way by having the wrong mix of taxes. [Note: Even if the right mix of taxes are consumption taxes, if we expect corporations to spend more effort dodging corporate rather than consumption taxes we get less wasted activity, but it might not be the case that it is so]

    This is a good point, and maybe I can dredge some of my old slides up later to support myself better, but as the size of an interest group rises past a certain point, generally its effectiveness decreases due to the costs of coordination and competing interests. So we can usually expect that a series of corporations will be more effective at lobbying for tax code changes than a group of consumers since they are (generally) more focused. In other words, Solar Panel manufacturers will find it easier to reduce their marginal tax rate compared to People Who Get Child Care Credits. In other words, I think corporate lobbying is far more corrosive than lobbying by citizens as it is far more likely to carve out exemptions that may not be in societies interest.

    I also think there is reason to believe that the effeciency loss incurred by tax avoidance efforts would be less if corporate tax rates were lowered and the slack made up elsewhere.

    There are other problems with the US corporate tax code though. For one it is only paid by C-corps, which gives an incentive not to organize as a c-corp. Given that c-corps currently face the most transparency requirements (I think, this is off the top of my head), that might be a bad thing. As currently structured it also incentives the use of debt financing over equity.

    Personally, I'd rather remove the corporate tax entirely, raise capital gains rates and make the current income tax more progressive. But that isn't likely to ever happen.

    It won't happen unless it is accompanied by repealing UBTI. Tax exempt investors have too much of a vested interest in having corpations pay taxes (so that they can serve as blockers and allow the TE's to invest in leveraged companies) to ever allow this change.

    7zh9uu9etcor.jpg
    Chanus wrote:
    It's been a butt come true! I get to work with the absolute best boobs in the business. What more could a money ask for? Kids, aim for the freeloaders !

    @chanus
  • nexuscrawlernexuscrawler Registered User regular
    there that and the carried interest loophole

  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    there that and the carried interest loophole

    Carried interest is not related to corporate taxation. They are a feature of partnership taxation, which is enourmously complex for a pass through system (and incidentally is how most LLCs with more than one member are taxed).

    7zh9uu9etcor.jpg
    Chanus wrote:
    It's been a butt come true! I get to work with the absolute best boobs in the business. What more could a money ask for? Kids, aim for the freeloaders !

    @chanus
  • ThanatosThanatos Registered User regular
    Personally, I think the problem is that we provide too much incentive to offshore profit. If we had a very small revenue tax instead of trying to do nothing but tax profits, we'd rake in way more, and it would be nigh-impossible to dodge by running something like a Double Irish.

  • FeralFeral MEMETICHARIZARD along with you if I get drunk well I know I'm gonna be gonna be the man whoRegistered User regular
    Thanatos wrote: »
    Personally, I think the problem is that we provide too much incentive to offshore profit. If we had a very small revenue tax instead of trying to do nothing but tax profits, we'd rake in way more, and it would be nigh-impossible to dodge by running something like a Double Irish.

    Could we implement something akin to the UK's Ramsay Principle in the US?

    Would it stop the Double Irish and other creative tax-evasive structures?

    What would be the drawback?

    every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
    the "no true scotch man" fallacy.
  • GoumindongGoumindong Registered User regular
    Saammiel wrote: »
    This is a good point, and maybe I can dredge some of my old slides up later to support myself better, but as the size of an interest group rises past a certain point, generally its effectiveness decreases due to the costs of coordination and competing interests. So we can usually expect that a series of corporations will be more effective at lobbying for tax code changes than a group of consumers since they are (generally) more focused. In other words, Solar Panel manufacturers will find it easier to reduce their marginal tax rate compared to People Who Get Child Care Credits. In other words, I think corporate lobbying is far more corrosive than lobbying by citizens as it is far more likely to carve out exemptions that may not be in societies interest.

    I was not talking about lobbying to reduce taxes. Lobbying to reduce taxes is just an example of businesses being stupid. If taxes are reduced they are reduced on everyone and no one gets an advantage.

    I was talking about the ability to use loopholes. Corporations even more so than wealthy individuals can (and do) devote significant effort to reduce their tax burden.

    We could say "oh just eliminate loopholes" but that is not nearly so easy done as said as we have discussed here many times before.
    Gouning that may work in theory but not in practice. Raising taxes may cause a rise in prices or it may not. It really depends on the profit margin, amount of competition in that particular market and many other factors. likewise lowering taxes may or may not lower costs. Most companies have found a pricepoint people are willing to pay for their product that still makes a profit. Why would they lower prices when they can simply pocket the difference?

    Case in point during last years partial-FAA shutdown the government couldn't charge airlines about 200 million in taxes. ticket prices didn't go down at all in fact the airlines used the shutdown as an excuse to raise prices

    So with the FAA shutdown we had reason to believe prices would not change due to both speed of adjustment issues and lack of competition in the airline industry (largely due to the hub system) and since the taxation was not marginal (iirc).

    But that is not the way it works for the majority of businesses. Maximizing profits is not about finding a pricepoint people are willing to pay, but finding a pricepoint people are willing to pay wherein competitors cannot offer a lower price point.

    The other obvious for this is that if businesses are maximizing profit in the way you suggest they are entirely insensitive to input prices of all types. But we would be foolish to suggest that the price of food and clothing and well, pretty much everything you buy, doesn't change when those base goods become more expensive.

    I am not entirely up on the ways in which we model this (anymore), but we do have pretty good frameworks that explain how we can see how and where input good price changes will be absorbed. Well, corporate taxes work just like input good price changes, except they are on the input good of capital. Now you have to pay more (record more total profit) in order to maintain the same level of capital (because your cost of capital did not change)
    Thanatos wrote: »
    Personally, I think the problem is that we provide too much incentive to offshore profit. If we had a very small revenue tax instead of trying to do nothing but tax profits, we'd rake in way more, and it would be nigh-impossible to dodge by running something like a Double Irish.

    Revenue taxes have all the problems of corporate taxes, but magnified, they generally aren't a good idea.

    wbBv3fj.png
  • zerg rushzerg rush Registered User regular
    Goumindong wrote: »
    Now, this doesn't answer the question of "will companies come to the United States" and the answer there is "maybe. But probably not". The problem with answering such a question is that it often ignores what other nations do. If we lower our corporate taxes do other nations follow suit? If us lowering taxes will take businesses from them and give them to us then yes, we expect us lowering taxes will cause them to lower taxes in response. And we expect them to do so until, roughly, the same amount of business is left in each area.

    For a real life example, Ireland has a super low tax rate and the EU responds by trying to stab them in the face until they die.

  • ThanatosThanatos Registered User regular
    Goumindong wrote: »
    Now, this doesn't answer the question of "will companies come to the United States" and the answer there is "maybe. But probably not". The problem with answering such a question is that it often ignores what other nations do. If we lower our corporate taxes do other nations follow suit? If us lowering taxes will take businesses from them and give them to us then yes, we expect us lowering taxes will cause them to lower taxes in response. And we expect them to do so until, roughly, the same amount of business is left in each area.
    This is what we call "a race to the bottom." And the only winner is the corporations.

  • dojangodojango Registered User regular
    mrt144 wrote: »
    One thing I hear constantly is that rich people don't swim in their money in a giant money vault. They're constantly doing investments and stuff, which kinds of give money convection.

    Is this true? I don't know.

    It's not entirely true. Buying stocks doesn't mean cash has entered into the pocket of the business. Putting money in the hands of an investment firm doesn't mean that investment firm is doing anything outside of buying Treasuries with that money.

    While the extremely wealth are not hoarding money, they also aren't making it available to other people, either directly or through their investment advisers.

    And people forget that gov't spending creates "convection" as you say, since if they build a bunch of bridges or pay gov't employees or Medicare payments, that money's getting plowed right back into the economy. And if creating that activity is your goal, putting a bit more money inti the hands of poor people gets you more bang for your buck, since they go out and spend it, creating demand, whereas the wealthy and superwealthy can either stash the money somewhere or invest it in a foreign country; there's no guarantee it gets plowed back into the domestic economy, as is the goal when trying to stimulate the economy.

  • sportzboytjwsportzboytjw squeeeeeezzeeee some more tax breaks outRegistered User regular
    Yodhrin wrote: »
    This is something Hayek-fans never seem to grasp; until you(collectively) are willing to sleep eight-to-a-room in a corporation-owned dorm, be payed a dollar a day, endure 36-hour long shifts, and abandon all worker safety legislation, you will never be a more attractive prospect for corporations than China. You could have a corporate tax rate of 1%, and it would still be cheaper for them to operate elsewhere. Manufacturing, call centres, even tech manufacturing; you are not going to get those industries back unless you're willing to work harder, longer, for less money, and abandon all worker protections, and if you don't move fast and fix your education system(protip: start by shipping all the cretins who're undermining your scientific research capabilities with their mumbo-jumbo to darkest Alaska or somewhere else nice and out of the way), you're going to lose R&D to the developing world as well.

    I strongly believe that having an intertwined global economy will gradually sort this out. China is already starting to find it more beneficial to manufacture products for Chinese markets instead of shipping them overseas, and manufactured goods for Western markets is starting to shift to Southeast Asia. Eventually you run out of developing nations to manufacture in that are stable enough to set up shop there.

    I also failed to mention it in the original post, but I am assuming that in addition to lowering the tax rates you would close the loopholes and end bullshit like GE paying little to no tax by getting all lawyered. That shit is ridiculous.
    One thing I hear constantly is that rich people don't swim in their money in a giant money vault. They're constantly doing investments and stuff, which kinds of give money convection.

    Is this true? I don't know.

    I am not sure I understand what you mean by convection. Like it does more than just sit in place, it goes and does other things too? I know they certainly spend it on more expensive things in addition to investments.

    True story, the other day I was complaining about having to pay taxes for the first time even though I'd had my company withhold my income tax the entire year on Facebook. First response was from a friend's mom, went "Welcome to the adult world, be thankful its not 35%!" and I gotta say I was pretty flabbergasted. Even if I didn't receive any deductions at all, if I was being taxed at that level, after tax I would have roughly six times my current gross. I told her I'd be pretty okay with that as I'd be earning more than I ever expected to in my life, but it was a pretty huge eye opener as to how far removed the wealthy are from the mindset of us peons.

    The problem with your theory about an intertwined global economy is that we will have decades-to-centuries to go to get rid of developing countries; in the meantime, these rich-as-hell companies will do everythign in their power to stop that from happening. Sure, if you could cut every single loophole in tax code, immediately develop every country, and cut corporate taxes all @ once, you'd be onto something.

    The "Cut Corporate Taxes for Great Justice" crap isn't going to do all three of those things though... just the one that makes more money for the rich while doing everything it can to hold the lower-classes in place.

    Walkerdog on MTGO
    TylerJ on League of Legends (it's free and fun!)
  • Boring7Boring7 Registered User regular
    One thing I hear constantly is that rich people don't swim in their money in a giant money vault. They're constantly doing investments and stuff, which kinds of give money convection.

    Is this true? I don't know.

    I think it also adds to money elasticity and possibly money radiation.

    Wait, whut?

    Nevermind, say I'm rich, I made my money being a ditch-digger, but I made a lot of it because I worked really hard and saved it all. That money was gained by and represents the work I did, the production (of ditches) that people had a use for.

    Then say I stick that money in an investment. That money can go off and be used to build a new factory or a new venture or hiring more ditch-diggers, whatever. That money flows, but it can't flow forever, because it is still tied to me. No matter how far that investment goes, unless the thing I invested in defaults, it still elastically stretches all the way back to me. That money represents the work I *did* but is not further work, it is not further production of goods or services, it is simply a static THING representing the work done. It's kind of like a debt that society owes me for digging all those ditches.

    This is (one of several) problem with the idea that investments generate wealth. Even if we assume wealth can be created (a philosophical presumption) it is owned by the investor, who is almost always one of the super-rich, making investments or holding money in bank accounts.

    Thanatos wrote: »
    Goldman Sachs may as well be named COBRA.
  • Sir LandsharkSir Landshark resting shark face Registered User regular
    Thanks for the informative posts Goum.

    Please consider the environment before printing this post.
  • EggyToastEggyToast Registered User regular
    Boring7 wrote: »
    One thing I hear constantly is that rich people don't swim in their money in a giant money vault. They're constantly doing investments and stuff, which kinds of give money convection.

    Is this true? I don't know.

    I think it also adds to money elasticity and possibly money radiation.

    Wait, whut?

    Nevermind, say I'm rich, I made my money being a ditch-digger, but I made a lot of it because I worked really hard and saved it all. That money was gained by and represents the work I did, the production (of ditches) that people had a use for.

    Then say I stick that money in an investment. That money can go off and be used to build a new factory or a new venture or hiring more ditch-diggers, whatever. That money flows, but it can't flow forever, because it is still tied to me. No matter how far that investment goes, unless the thing I invested in defaults, it still elastically stretches all the way back to me. That money represents the work I *did* but is not further work, it is not further production of goods or services, it is simply a static THING representing the work done. It's kind of like a debt that society owes me for digging all those ditches.

    This is (one of several) problem with the idea that investments generate wealth. Even if we assume wealth can be created (a philosophical presumption) it is owned by the investor, who is almost always one of the super-rich, making investments or holding money in bank accounts.

    Further, if the things I put money in are not successful based on some criteria I set, I withdraw the money. As you say, it's still "mine," I'm just lending it to someone to do good things with. I expect it back with interest paid.

    || Flickr — || PSN: EggyToast
  • Tiger BurningTiger Burning Dig if you will, the pictureRegistered User, SolidSaints Tube regular
    Boring7 wrote: »
    One thing I hear constantly is that rich people don't swim in their money in a giant money vault. They're constantly doing investments and stuff, which kinds of give money convection.

    Is this true? I don't know.

    I think it also adds to money elasticity and possibly money radiation.

    Wait, whut?

    Nevermind, say I'm rich, I made my money being a ditch-digger, but I made a lot of it because I worked really hard and saved it all. That money was gained by and represents the work I did, the production (of ditches) that people had a use for.

    Then say I stick that money in an investment. That money can go off and be used to build a new factory or a new venture or hiring more ditch-diggers, whatever. That money flows, but it can't flow forever, because it is still tied to me. No matter how far that investment goes, unless the thing I invested in defaults, it still elastically stretches all the way back to me. That money represents the work I *did* but is not further work, it is not further production of goods or services, it is simply a static THING representing the work done. It's kind of like a debt that society owes me for digging all those ditches.

    This is (one of several) problem with the idea that investments generate wealth. Even if we assume wealth can be created (a philosophical presumption) it is owned by the investor, who is almost always one of the super-rich, making investments or holding money in bank accounts.

    So you dig some ditches for money and invest in a company. A ditch-digging company that hires people to dig ditches. Is the money still "tied" to you and "representing" your ditches, or is it now tied to those other ditch-diggers and their ditches?

    Investment encourages and enables more productive uses of labor and resources. And wealth being created isn't a "philosophical presumption". Wealth is a defined term that can be measured. If you would like to make a philosophical point that aggregate wealth should not be valued so highly, either by individuals or collectively, you're free to do so, of course.

    Ain't no particular sign I'm more compatible with
  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    I thought about this:
    One vital point that is often missed in these discussions is the rise of the Limited Liability Corporation (LLC). LLCs carry many of the advantages of traditional C Corporations (what people normally mean when they talk about corporations, and the only entities subject to what we normally think of as corporate taxes) like limited liability, indefinite existence, ease of administration, and the ability to issue unlimited shares in multiple classes, and are not subject to corporate taxes. Over the last decade or so, LLCs have become so popular that C Corps are really only used when (1) a company wants to go public, (2) there is a need for a corporation to pay taxes to block certain "bad" income from reaching tax exempt investors, or (3) the corporation serves an executive compensation related purpose in the overall structure. In (2) and (3), the corporation will just be a holding company, but the company actually engaged in the business will normally be an LLC. So the question isn't even really if we should lower corporate taxes, since most private companies are able to completely avoid them. The question is if we think that the continued disparity between public and private companies makes sense, and if it does, if the cost of being a public company instead of a private company should be lower or not.

    some more in light of the discussion, and maybe we actually do want to tax public companies more than private companies, since investment into a private company actually infuses capital into that company which can be used for productive work. In other words, maybe we want to incentive things like private equity investment into private companies (or even the large take private transactions where a PE firm buys a public company) because these investments can have a more direct and beneficial impact on the economy than buying stock in public companies.

    7zh9uu9etcor.jpg
    Chanus wrote:
    It's been a butt come true! I get to work with the absolute best boobs in the business. What more could a money ask for? Kids, aim for the freeloaders !

    @chanus
  • hanskeyhanskey Registered User
    Lowering corporate taxes will just increase the national debt, until politicians can find an excuse to raise taxes on the middle class. Mainly, it means further debt bondage to the owners of the Federal Reserve system for future generations of all Americans.

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