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.
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.
My understanding is that this issue is still robustly debated among economists. Do you have a citation for this?
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.
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!
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.
Claiming personal expenses as business expenses is slippery, we are in illegal territory here.
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.
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?
https://www.thetaxadviser.com/issues/2017/may/identifying-co...
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.
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.
This whole buyback debate in the last few days is frankly bizarre and just shows how many people are financially illiterate.
— 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.
Appealing to the authority of rich white dudes on this topic is not at all convincing.
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.
Name names, please.
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!
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.
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.
Tax the rich directly, via their incomes.
You can't really bad pollution anyway. You and I exhale CO2, a greenhouse gas.
Source?
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.
They literally just slashed them.
Oh yeah? Got some evidence for that claim?
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.
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.