Serious question: almost every economists thinks we shouldn't have corporate taxes. So why can't we just get rid of them and properly tax money as it LEAVES companies in the form of dividends or imports?

Recently, stock buy-backs are causing people to get around income tax, so we'd have to fix capital gains, too.

Taxing companies seems like a cop-out. It doesn't seem to have any impact at all on inequality. And it just makes American businesses less competitive.

+1

The best rebuttals I've heard are

1. Potentially reduces accounting compliance (but the argument is that public companies have this either way)

2. Less frequent taxation (only when owners have capital gains)

3. Creates a greyer area for business expenses, that businesses might fight

4. Regulatory market that REITs currently enjoy (that effectively have this)

The major arguments for it are transparency, simplification, more progressive passive income taxes.

The implicit argument #5 is that a lot of people would be upset if corporations weren't taxed, because it wouldn't be "fair".

I might be wrong, but I think the system is currently structured such that corporate taxes are mostly a sham anyway; when they pay out dividends, those are taxed at a lower rate to make up for the corporate tax. This is probably anti-progressive because poor people aren't incentivized to invest in businesses, as they'd be effectively taxed closer to rich people rates.

Really, a surprising amount of screwy and circuitous things in our civilization are a direct result of income taxes.

> almost every economists thinks we shouldn't have corporate taxes.

My understanding is that this issue is still robustly debated among economists. Do you have a citation for this?

I asked the same question and I'm still waiting for a reply. I won't hold my breath

I bet he means western economists aka lobbyists

getting rid of corporate tax would simply increase inequality, because wealthier individuals can employ corporations more effectively to gain even more advantage.

if you equalize tax treatment (not just rates, but other things like carryforwards) across people, corporations, and capital, wealthy folks wouldn't be able to game the differences like they do now.

international competition can be addressed with tariffs, which is already quite prevalent but are used for petty politics rather than to level the playing field in international trade.

How would they do that though? You can't take money out of a corporation without it being taxed as income? At some point it's going to be taxed. I agree capital gains rates could use a second look but I don't see this big "wealth loophole".

How about this example: a corporation buys a yacht that the CEO has exclusive use of and lives on. Now the CEO gets full food & board & luxury sea transportation provided. The CEO's salary is $1.

The CEO is taking untaxed value out of the corporation but paying no income tax. If the corporation pays no taxes either, then the staff of the yacht will be paying more taxes than the CEO & corporation combined!

Aside from the fact that this is illegal under the current rules (most perquisites are considered income by the IRS), the yacht is an expense, so reduces the taxes the corporation pays under today's rules.

> You can't take money out of a corporation without it being taxed as income?

There's a lot of ways (though there are limits) you can derive personal benefit through things that look like corporate expenses but not personal income, and so are not taxed to you or the corporation; these aren't even constrained by corporate taxes.

But, back to the point, absent corporate taxes, you can use corporate retained earnings as a perpetual tax structuring vehicle by choosing to extract and realize income from the corporation when most convenient for you, as well as enjoying any personal benefits tax free that you can slide by as business expenses. It's that permanent deferment piggy bank,not the more limited tax free benefit extraction, that makes it a tax shelter.

And given the high threshold at which estate tax kicks in, this is potentially a multigenerational tax shelter.

Corporate income tax (which is really a retained earnings tax, because expenses are deducted) shuts down the corporation as tax shelter maneuver.

Sure, but how is that different than other investments such as stocks or bonds?

Claiming personal expenses as business expenses is slippery, we are in illegal territory here.

> Sure, but how is that different than other investments such as stocks or bonds?

Since stocks are how one owns a corporation, it's literally exactly the same as stocks, which are not an “other investment”.

Of course, there is a manifest difference between controlling enough stock that one determines, among other things, if, when, and how much a corporation distributes back to shareholders and, well, not controlling that much. But the same issue, in principal, exists with shareholders collectively as with a single shareholder individually, though coordinated action becomes harder with larger numbers.

Corporate car leases, corporate hotel stays, corporate supplied breakfasts and lunches, corporate sponsored day care, corporate tickets to games/performances. There are a lot of lifestyle perks that can be justified as a cost of doing business.

> wealthier individuals can employ corporations more effectively

I think onlyrealcuzzo suggested that problem would be fixed by "properly tax money as it LEAVES companies"

> I think onlyrealcuzzo suggested that problem would be fixed by "properly tax money as it LEAVES companies"

What if the money never leaves, but instead is spent by the corporation to benefit the individual?

Then it's probably regarded as a 'constructive dividend' by the IRS and is liable to tax.

https://www.thetaxadviser.com/issues/2017/may/identifying-co...

That type of behavior falls into category of either "income" or "embezzlement".

This is actually a good point. If you're sufficiently rich, you can create your own corporation that exists to buy really nice boats and then sail you around as a business plan. The corporation will be able to avoid paying any taxes by virtue of being completely unable to exist without you pumping it full of money.

I don't think we should give corporations a pass, but at the same time we can't also expect them to "play fair" when there is no way for anyone to actually determine what that means.

This is illegal under current laws.

The truth is, there's really only a couple hundred thousand families in the US with enough money to do stuff like this. And the IRS should have the resources to make sure they aren't making $10M+ per year and reporting income of like $15k.

Alternatively, you could do something similar as a religious organization and bypass a lot more IRS scrutiny.

Buybacks don't "get around" income tax since buybacks in no way affect taxable income or tax rate at the corporate level. However, buybacks could (hopefully) boost the value of the stock, in which case shareholders pay more in capital gains taxes when the stock is sold, so indirectly, buybacks are sometimes effectively taxed already. I would also note that no other country in the world taxes buybacks.

This whole buyback debate in the last few days is frankly bizarre and just shows how many people are financially illiterate.

So corporations are people but without income taxes? How can I declare myself a corporation?

Capital gains should be taxed as normal income.

“The tax on capital gains directly affects investment decisions, the mobility and flow risk of capital.. the ease and difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.”

— President John F. Kennedy, 1963

Myopic egalitarianism on taxes would have ruinous affects on all levels of society. The incentive structures that determine how we allocate capital determine how dynamic our economy is and thus the opportunities for working and middle-class Americans. Lower capital gains taxes encourages skilled investors to reallocate capital to promising projects, ensuring capital goes to the companies most likely to create jobs as they innovate and scale. Better investment of capital literally results in higher wages, superior goods, and a more sustainable tax base. The maximum capital gains tax in the US is already one of the highest in the developed world. It should be zero, like Singapore, Hong Kong, and a dozen other OECD countries.

Taxing capital gains as ordinary income would freeze long term investments in place. This is the “lock-in effect.” When capital gains taxes are high, the tax penalty discourages investors from moving their money to potentially better investments.

Obama said raising capital gains taxes was “fair.” However, that sounds good to voters that don’t know any better while it would be disastrous in practice. His statement was catnip to the economically ignorant just like “build the wall” is catnip to the right-wing. Both ideas are of questionable benefit while the potential for unintended consequences are somewhat infinite. Of course there are those that actually want the US economy to get worse in order to bolster anti-capitalist arguments. So perhaps the negative effects of taxing capital gains as ordinary income is a desirable outcome for those who suggest it. A bit cynical, however, how else could it be explained: if raising capital gains taxes is bad for the economy as Kennedy and economists say, why would anyone support it? They’re either badly informed or perfectly informed and malicious.

It irks me that you're allowed to effectively call me stupid but any response would get me in trouble.

Appealing to the authority of rich white dudes on this topic is not at all convincing.

Well, that's a fair response, but it also is unconvincing - the op shouldn't have implied that you're malicious in wanting a tax on capital gains. Still, the question remains - does it have a chilling effect on investment? Since you seem to know about this I'm curious what your retort would be.

Removing the corporate income tax implies changing the capital gains exemptions as corporations would no longer be double taxed.

Once double taxation is eliminated, capital gains can approach the full progressive rate as they will still be incentivized without the earned income payroll taxes.

What double-taxation are you referring to here?

Corporate tax + capital gains tax.

Still not sure what you're referring to. Are you talking about companies investing into other companies, then when they sell those investments, are they paying a capital gains AND corporate tax on the profits?

> almost every economists thinks we shouldn't have corporate taxes

Name names, please.

excuse me? "almost every economist"?

taxes serve as both revenue and incentive generation. turns out that when you have 0% corporate tax you lose the ability to incentivize corps via taxes. there are externalities e.g. pollution that one can no longer incentivize via taxation.

you're also bound to hear the same excuse, can't afford to pay the labor now that their tax rates are higher, guess we'll move somewhere else!

> turns out that when you have 0% corporate tax you lose the ability to incentivize corps via taxes. there are externalities e.g. pollution that one can no longer incentivize via taxation.

Well, you can't incentivize via tax deductions or credits against the corporate income tax if it doesn't exist, but you can absolutely drive corporate incentives via other taxes. E.g., particularly with regard to pollution, fuel/carbon/emissions taxes, rather than corporate income taxes.

Taxing pollution has nothing to do with income taxes. Taxing pollution is "internalizing the externalities", not "they made some money let's take a slice."

it does in the sense that if corporations pay 0% income taxes then there is no money that can be offset from e.g. pollution tax breaks. think about how the mortgage deduction influences homebuying behavior for private individuals.

Well, if you're charged roughly X per kwH for energy, and Y for each # of waste your company produces, this encourages cutting those costs beyond the costs of those parts alone. This would have a more direct effect than simple income tax incentives and be more direct.

There's still an incentive, it's just it's not tethered to income which has MANY ways to work around in other ways with the current structure and the companies wind up not reducing pollution and waste.

You can still incent corporations via taxes. You just don't have an additional "no reason" tax.

Tax the rich directly, via their incomes.

The pollution issue can be solved by simply regulating polluting businesses or just banning them.

Taxing pollution is a much more economically efficient approach than regulation or banning.

You can't really bad pollution anyway. You and I exhale CO2, a greenhouse gas.

Tax/Legislate the issues directly.

This effectively removes income tax entirely for rich people. I can simply create a corporation and never take money out of it. If I need to spend money, I can just borrow (whether directly from the corporation or indirectly). Even if you remove the latter loophole somehow, you're effectively only taxing consumption, which is highly regressive.

> almost every economists thinks we shouldn't have corporate taxes

Source?

Because we've already spent those tax dollars by allocating them to some spending program. In other words, we can't stop taxing corporations and based on current sentiments going around....the taxes on businesses are only going higher.

I agree it is stupid to tax businesses due to how international our economies are getting. Foreign companies can ship product into the USA but pay no taxes in the USA so they get an economic advantage by being in the lowest taxed country. The only tax they pay is import taxes.

> based on current sentiments going around....the taxes on businesses are only going higher

They literally just slashed them.

Income taxes go into the general fund, they aren't allocated to specific spending programs. Obviously any complete elimination of corporate income taxes would have to be coupled with a tax increase on high-income individuals in order to make the change revenue neutral.

From my understanding the government pays for things by printing money. It's literally created on demand. Taxation and bonds/interest rates are partially used to take excess money supply out of the economy and control inflation (which is a highly simplified view of things).

> Serious question: almost every economists thinks we shouldn't have corporate taxes.

Oh yeah? Got some evidence for that claim?

We shouldn't care what economists think, only what they can prove. Evidence-based policy is what is needed.

If you have a choice between A and B, and can't "prove" (what?) B is better, that doesn't mean you should choose A.

Economists prefer models and policies based on models, based on data.

Of course economic data is usually statistical in nature, so interpretation leaves a pretty wide margin for personal biases to influence model/policy selection, but that doesn't mean economics is not evidence based.

Proving things is only possible withing a model. That's easy. Arguing for and finding the right model is hard.

Most corporations don't pay taxes... it would be simpler to just remove the taxes as a whole and remove incentives around holding onto underutilized and unutilized capital. That would lead to either an expanding economy or payouts to those who then would be paying taxes.

What areas of the tax code do you think that Amazon is taking advantage of? What "ridiculous loopholes" do you think are problems in this specific case?

Just for interesting discussion: What kind of reasonable activity would you suggest would fairly negate a corporation's tax obligation? I.e. What can corporations do with their money—instead of giving it to the government—that would benefit the people as much or more than actually giving it to the government.

Would you agree that Amazon has bettered your life in some way? If so, then your argument loses most of its weight. Personally, I trust a corporation with money more than the federal government, for the simple reason of accountability. A business has a chance at failure if they're dumb about money. A government will always have more. It's simple, but a compelling argument.

I don't understand your reasoning here. I've given amazon money for products and/or services, and I've paid my share of taxes on those transactions.

It's not like they've ensured my roads are safe, my food is safe, my healthcare is taken care of, and that laws are enforced. Also, I'm not so selfish to think I'm the only one who should be helped here. The greater good of society matters more than me as an individual.

Why shouldn't amazon pay their share of taxes for those things, (some) of which they're undoubtedly taking advantage?

From an economic perspective, there's no difference between the sales tax that is paid by the seller or by the buyer. So it's not correct for you to take credit for the taxes paid on the transactions between you and Amazon - the economic burden is shared by both parties. Likewise, Amazon pays the payroll tax and any income tax that is paid by its employees, effectively increases the cost of transaction between Amazon and its employees, making it a shared burden by both parties.

Paying employees to produce benefits many people. Possibly at a much more effective rate than giving it to the government (as they actually produce something in return).

Investing in capital goods and means of production. Again, this has a return that giving to the government does not.

Simple example of what is going on here. Someone buys a plot of land and materials in 2000 for $100000. They build a house and sell it in 2001 for $120000. What should they be taxed on? The "losses" from 2000 get carried over to 2001, and they are taxed on $20k.

In virtually every one of these articles "OMG ABC Corp paid $0 in taxes this year!", the explanation is that losses (investments typically) are being carried forward. This is absolutely normal, expected, and necessary for long term planning and growth.

How does “doubled profits” indicate any losses to carry forward? Aren’t profit and loss mutually exclusive?

Pay the capital investment of a huge data center that they depreciate and reduce tax liability over the term specified by the IRS. That seems pretty reasonable to me.

I’m not a tax expert, but I think most capital investments work this way.

What tax obligations are being negated here? My assumption is that Amazon is not paying any taxes because they don't owe any - as in, they have no tax obligations.

Reinvesting in said company for one, which is why carry over debt is deductible.

Sure, but how does that benefit the people of the U.S.?

How does growing a business benefit citizens? Jobs, economic stimulus, eventually larger taxes would be the obvious three. If you start disincentivizing reinvestment then, well... growth will slow.

Same goes for losses. A calendar year is an arbitrary delineation of time. If your business loses $100 in one year and brings in $100 in revenue the next, do you really want them to pay taxes on said revenue? Seems a bit unfair, no? In a two year period they broke even, and that's not even considering what profits they may or may not have made.

We want people to grow their businesses because it's generally good for everyone. Similarly, we tax profits, not revenue, because if we did the former companies would simply cut costs at every opportunity and never put money back in.

Sounds a lot like Trickle Down Economics, which has been disproven time and again.

Also: if amazon’s profit is double what it was last year, shouldn’t that profit be taxed? If they never pay taxes and continue exploiting labor, aren’t they a net drain on society?

We're talking about specifics here though, not an overarching economic theory which is defined by political buzzwords. I agree that the idea of trickle down on the whole doesn't work, but that doesn't mean every one of its ideas are wrong (and I believe this specifically is related to Reagan era economics.) Companies investing revenue is, in general, a good thing. You can of course debate the specifics of what constitutes an investment.

>if amazon’s profit is double what it was last year, shouldn’t that profit be taxed? If they never pay taxes and continue exploiting labor, aren’t they a net drain on society?

Well they do pay taxes, so I don't know where you're getting "never" from. Heck, just look at the chart at the bottom of the article. This is the _first_ year they had a negative rate. If you're going to make statements (shrouded in questions) like "they're a net drain on society" you're going to have to come up with some numbers.

Turning a large profit and not paying taxes? That part?

They're following the code, it's written in law. If they didn't take advantage of it, their stockholders would be pissed.

thatsthepoint.jpg

The problem is that our tax laws allow immense, profitable corporations to pay nothing in federal taxes despite using massive amount of federally funded infrastructure in their course of doing business. How much burden do all those delivery trucks put on our federally funded roadways, bridges, and environment? And that's just the start of it...

Which specific sections of the tax code do you think should be repealed or amended?

The entirety of the tax code that allows them to pay under 20% of their profit in taxes.

Can you cite any specific sections? Just one example!

The deductibility of employee stock compensation would be the obvious answer here.

Actually I am being serious, not trolling.

To make my point more clearly -- I think accounting is too complicated to reduce to simple populist sound-bytes like "companies with X income should pay Y tax". I also think it's plausible that there are good reasons for some or all of the deductions Amazon is taking advantage of. That might not turn out to be the case, but it's impossible to know in advance without knowing what those deductions are.

Corporate income tax accounts for a whopping 9% of federal taxes for 2017. It's projected at 7% for 2019. Pathetic. Historically, this tax as a percentage of GDP is pretty low: https://www.taxpolicycenter.org/statistics/corporate-income-....

Those "good reasons" appear to be "because our representatives like to keep their paychecks coming and fashion the tax code in a way favorable to corporations". You can complain about "populist sound-bytes" all you'd like, but it's absurd for a company to use so many public resources and pay nothing.

I think the very fact that it is complicated is unfair.

I want one of the following

1. An education system so absurdly stellar that our 18 year old high school graduates have the legal and fiscal expertise to navigate the tax code as expertly as a HSBC financial advisor, or

2. A tax code so simple it can be read and understood, verbatim, by every US citizen.

> 2. A tax code so simple it can be read and understood, verbatim, by every US citizen.

Not possible considering one-fifth of adults don't understand percentages.

https://www.theguardian.com/education/2016/mar/07/a-fifth-of...

Yeah, the article refers to adults in the UK, but considering how terrible the education system is in the USA, do you think it'd be any better?

Asking for an example isn't trolling, and claiming otherwise is uncivil.

If I knew the answer to that, I would also be paying 0 in tax.

I'm allowed to be upset at the fact that it's possible, without knowing how they do it.

So, given that you admit to not understanding the details of Amazon's accounting practices, how can you be so sure that what they're doing is wrong or bad?

We're in the thread I started, where I lauded them for taking advantage of tax loopholes to not pay any tax. So, I'd be interested in why you believe I think what Amazon is doing is wrong.

What I don't like is that companies are allowed to do this at all - I support more government sponsored measures such as universal healthcare and education, far greater investment in sciences, etc, and I believe corporations paying higher tax rates is a fantastic way to pay for these things.

Well approximately 45% of Americans pay no federal income tax.

The 45% that are disabled, retired, unemployed, or who make barely enough to live? Who cares that they pay nothing. How many citizens have $10B in annual income and pay nothing in taxes? The effective tax rate for the top 1% of citizens is about 30%... what do you think it is for the top 1% of corporations?

Being able to income average by carrying forward previous losses is not a ridiculous loophole. Many businesses have a much longer cycle of investment/payoff than a year. Boeing, for example, when they develop a new airplane like the 747, can have massive losses for 8 years or so before turning a profit.

My cynical view is these loopholes will only close when small/midsized companies start to aggressively apply them. However, I fear that when the little guy does this there is a real risk of prison time, and no matter how far Apple and AMZN push the bounds of the law there is no way in hell Bezos or Cook would ever get arrested.

https://www.barnesandnoble.com/w/the-chickenshit-club-jesse-...

No one got arrested for 2008. Has anyone been arrested for the Opiate crisis?

Oligarchs don't have the same laws as the rest of us.

Let's imagine you were a federal prosecutor. Who specifically would you indict for the 2008 crisis, and on what specific charge?

Let's not, because it's a pointless exercise. I'm not a federal prosecutor with the powers to investigate the malfeasance of white collar criminals.

https://www.nytimes.com/2014/05/04/magazine/only-one-top-ban...

accounting fraud, for one. Banks carried so much unsold bonds on their books at prices that were nowhere near reality.

Fortunately no amount of US law restricts a foreign company.

The U.S. Tax law stops at the U.S border. The U.S. needs to compete at the global level. Ireland's tax law is not by coincidence.

Fortunately companies have a choice for now.

How is it broken? If Amazon pays less taxes, that means the products I need are necessarily cheaper. A tax cut for Amazon is a discount to everyone that buys their products. That discount is more valuable for lower income people, which means that cutting taxes for Amazon means more disposable money in the pockets of their customers. I’m not sure how that’s a bad thing. Corporations don’t pay taxes: their customers do.

How is it broken? Or are you suggesting taking away a carry loss forward deduction?