Re:For the first time on record, the 400 wealthiest American...
by aeternum on Monday October 07, 2019 @04:33PM
(#21185653)
This was more true in the past.
Now, companies often put all profits into R&D avoiding both dividend tax and corporation tax. Investors are much more willing to value companies based on growth rather than actual dividends.
Re:For the first time on record, the 400 wealthiest American...
by elindbe2 on Monday October 07, 2019 @01:31PM
(#21183577)
But the money the company pays out doesn't count as tax paid by the shareholder, and there is very good reason for this from the shareholder's perspective. The company is a separately legal entity created to protect the shareholder from liability (among other reasons). At least in theory an owner can avoid this "double tax" by doing all business under their own name and accepting the potential liability which comes with that.
When a company allocates $100 to its employee, the employee receives $100 of salary, pays $20 of income tax, and ends up with $80.
When a company allocates $100 to its shareholder, it's first considered as profit, so the company pays $20 in corporation tax, the shareholder receives $80 of dividends, pays $16 of dividend tax, and ends up with $66.
When a company has $100 profit but does not distribute any dividends, it has to pays $20 in corporation tax, so the shareholder value increases by $80, so if the shareholder sells the share, he receives $80 of capital gain, pays $16 of dividend tax, and ends up with $66.
So, yes, if the all the tax rates are the same, you actually end up taxing capital more than salaried income, which would be a big incentive against creating your own company.