It’s a Myth That Corporate Tax Cuts Mean More Jobs

[ZiprHead]

https://www.nytimes.com/2017/08/30/opinion/corporate-tax-cuts-jobs.html?mcubz=3&referer=http%3A%2F%2Fm.facebook.com&_r=0

According to the Institute on Taxation and Economic Policy, AT&T enjoyed an effective tax rate of just 8 percent between 2008 and 2015, despite recording a profit in the United States each year, by exploiting tax breaks and loopholes. (The company argues that it pays significant taxes, at a rate close to 34 percent in recent years, but that includes deferred taxes and state and local levies.)

Despite the enormous savings AT&T has realized, the company has been downsizing. Although it hires thousands of people a year, the company, by our analysis at the Institute for Policy Studies, reduced its total work force by nearly 80,000 jobs between 2008 and 2016, accounting for acquisitions and spinoffs each involving more than 2,000 workers.

 

[dismal]

Phew, I'm glad we were able to prove something that complex with only one anecdote from one company in an industry beset by massive technical change.

 

[SimpleDon]

A comment to the NY Times, it is a myth cuts in the corporate income tax means more jobs.

Rather than lowering the corporate income tax I would eliminate it. I would replace the revenue from the current corporate income tax by increasing rate of the highest personal income tax bracket and by eliminating the lower capital gains tax rate.

Ultimately the corporate income tax is nothing more than a very small sales tax paid by the consumers. Due to all of the loopholes in the tax code the effective tax rate paid across the whole economy by corporations is only about 12% of income, not the nominal 35%. Assuming a 10% profit of sales the corporate income tax's impact is just slightly more than that of a 1% sales tax.

But the corporate income tax forces corporations into acting in essence as a tax shelter for the very rich. Corporations are pressured to convert profits into capital gains that are taxed at a lower rate for the highest earners than it would be if the profits were paid in dividends. The main ways that corporations do this is by using the profits to buy other corporations or by using the profits to buy their own stock, both usually result in higher stock prices. Neither results in more jobs. Consolidation, buying other companies, usually results in the loss of jobs.

The corporate income tax also forces corporations into efforts to avoid the tax. They spend money to lobby Congress and into the "soft" bribery of campaign contributions. They "off shore" profits to tax havens to avoid the tax.

These impacts from the corporate income tax divert the attention of the corporate management from their core businesses. They corrupt the Congress. They corrupt the market making winners out of corporations that do these things well, not the corporations that are better at their business. Who are more innovative and more efficient.

 

[SimpleDon]

Phew, I'm glad we were able to prove something that complex with only one anecdote from one company in an industry beset by massive technical change.

I agree that the article doesn't prove anything by concentrating on just AT&T. But it doesn't have to, the people who are proposing to cut the tax to increase jobs have to prove their assertion. They are proposing the change.

 

[dismal]

Phew, I'm glad we were able to prove something that complex with only one anecdote from one company in an industry beset by massive technical change.

I agree that the article doesn't prove anything by concentrating on just AT&T. But it doesn't have to, the people who are proposing to cut the tax to increase jobs have to prove their assertion. They are proposing the change.

Why would a business be more likely to hire someone if the government was going to take more of the profit they would produce?

 

[Lumpenproletariat]

We need millions more factory jobs to put people into, whatever it takes -- corporate welfare, subsidies, tax breaks, etc.

https://www.nytimes.com/2017/08/30/opinion/corporate-tax-cuts-jobs.html?mcubz=3&referer=http%3A%2F%2Fm.facebook.com&_r=0

According to the Institute on Taxation and Economic Policy, AT&T enjoyed an effective tax rate of just 8 percent between 2008 and 2015, despite recording a profit in the United States each year, by exploiting tax breaks and loopholes. (The company argues that it pays significant taxes, at a rate close to 34 percent in recent years, but that includes deferred taxes and state and local levies.)

Despite the enormous savings AT&T has realized, the company has been downsizing. Although it hires thousands of people a year, the company, by our analysis at the Institute for Policy Studies, reduced its total work force by nearly 80,000 jobs between 2008 and 2016, accounting for acquisitions and spinoffs each involving more than 2,000 workers.

Yes, but without those tax breaks the company would have reduced its work force by an even larger number.

So, let's give companies massive tax breaks so they won't reduce their workforce so much. We need to save as many "jobs" as possible.

And let's subsidize the "jobs" by increasing the national debt several trillions higher, so we can get companies to create more "jobs" and get everyone hired, especially manufacturing companies, so we can have millions more factory jobs to put people into to keep them out of mischief, like Bernie Sanders and Donald Trump want to do. After all, the best way to nullify the excess people, other than to exterminate them (which is politically incorrect), is to put them into factory jobs. That's why manufacturing is the most important sector of the economy.

 

[prideandfall]

Why would a business be more likely to hire someone if the government was going to take more of the profit they would produce?

why would a business be more likely to hire someone if the government wasn't going to take more of the profit they would produce?

"companies" are a physical manifestation of greed - specifically, of the aspect of greed that seeks to acquire and horde wealth for its own sake.
which is fine, but it means that companies don't hire people out of the goodness of their heart, they hire people to fill a role needed to further the function of the company in order to maintain profits.

no large company in the history of ever looked at its quarterly profits and went "hey you know what? we made good money this round, let's hire on a few hundred more people to help reduce the unemployment rate"
additionally no large company in the history of ever looked at its quarterly profits and went "hey you know what? we paid too much in taxes this last round, let's not hire anyone to staff the baltimore office, we'll just let it be vacant because if anyone is there creating profit we'll just have to pay taxes on it"

the OP is basically asserting water is wet and staring at the sun is bad for your eyes: only fucking psychotics and delusionals would have ever thought otherwise to begin with.

 

[dismal]

Why would a business be more likely to hire someone if the government was going to take more of the profit they would produce?

why would a business be more likely to hire someone if the government wasn't going to take more of the profit they would produce?

"companies" are a physical manifestation of greed - specifically, of the aspect of greed that seeks to acquire and horde wealth for its own sake.
which is fine, but it means that companies don't hire people out of the goodness of their heart, they hire people to fill a role needed to further the function of the company in order to maintain profits.

no large company in the history of ever looked at its quarterly profits and went "hey you know what? we made good money this round, let's hire on a few hundred more people to help reduce the unemployment rate"
additionally no large company in the history of ever looked at its quarterly profits and went "hey you know what? we paid too much in taxes this last round, let's not hire anyone to staff the baltimore office, we'll just let it be vacant because if anyone is there creating profit we'll just have to pay taxes on it"

the OP is basically asserting water is wet and staring at the sun is bad for your eyes: only fucking psychotics and delusionals would have ever thought otherwise to begin with.

Wow, what a pile of crap that is. I agree companies want to make money. Indeed that was the very premise of my point. When the government takes some of the profit they will engage in less activity.

Let's say I can invest $1000 to open a new lemonade stand. After hiring a guy to run it, the cost of ingredients, etc the stand makes $100 per year. A 10% return. I find this return acceptable for the risk.

Now comes friendly Uncle Sam with his hand out for 50% of my profits. I am now looking at $50 of net cash per year. If my cost of funds is 8% I don't open the stand, one less person gets hired.

A tax on profit always and everywhere reduces the incentive to engage in profit seeking activity.

 

[Crazy Eddie]

A comment to the NY Times, it is a myth cuts in the corporate income tax means more jobs.

Rather than lowering the corporate income tax I would eliminate it. I would replace the revenue from the current corporate income tax by increasing rate of the highest personal income tax bracket and by eliminating the lower capital gains tax rate.

Ultimately the corporate income tax is nothing more than a very small sales tax paid by the consumers. Due to all of the loopholes in the tax code the effective tax rate paid across the whole economy by corporations is only about 12% of income, not the nominal 35%. Assuming a 10% profit of sales the corporate income tax's impact is just slightly more than that of a 1% sales tax.

But the corporate income tax forces corporations into acting in essence as a tax shelter for the very rich. Corporations are pressured to convert profits into capital gains that are taxed at a lower rate for the highest earners than it would be if the profits were paid in dividends. The main ways that corporations do this is by using the profits to buy other corporations or by using the profits to buy their own stock, both usually result in higher stock prices. Neither results in more jobs. Consolidation, buying other companies, usually results in the loss of jobs.

The corporate income tax also forces corporations into efforts to avoid the tax. They spend money to lobby Congress and into the "soft" bribery of campaign contributions. They "off shore" profits to tax havens to avoid the tax.

These impacts from the corporate income tax divert the attention of the corporate management from their core businesses. They corrupt the Congress. They corrupt the market making winners out of corporations that do these things well, not the corporations that are better at their business. Who are more innovative and more efficient.

This actually gave me pause, and it's a pretty good point. The only problem with it is, alot of corporations are making billions of dollars in transactions with other corporations and would not actually be taxed for that income. I suppose it's a wash with all the loopholes being exploited, but I'm inclined to think that there is a lot more money in corporate-to-corporate transactions than there is in end-user consumer sales.

 

[prideandfall]

When the government takes some of the profit they will engage in less activity.

this is completely ridiculous on every conceptual level from intellectual to ethical to economic *unless* you are specifically arguing in favor for the concept of there being a minimum amount of MOAR that you can justifiably demand of the universe before you're satisfied, and that only taxes count as reducing the total income.

taxes are a cost of business - just like rent, or employee wages, or tariff fees, or transportation costs, or the materials to build whatever your product is.
you wouldn't blather on about how "well if i can't pay nothing for lumber then i won't even bother having a construction business, if Big Lumber is going to eat into all my profits i'll just build less" because that's fucking stupid and is completely counter to the entire capitalistic concept of business.
likewise, bitching about taxes is fucking stupid, because it's just part of what you have to do in order to run a company.

Let's say I can invest $1000 to open a new lemonade stand. After hiring a guy to run it, the cost of ingredients, etc the stand makes $100 per year. A 10% return. I find this return acceptable for the risk.
Now comes friendly Uncle Sam with his hand out for 50% of my profits. I am now looking at $50 of net cash per year. If my cost of funds is 8% I don't open the stand, one less person gets hired.

okay, so what you're saying is that america's thriving 1 person lemonade stand economy is in trouble?

A tax on profit always and everywhere reduces the incentive to engage in profit seeking activity.

what was it you said?
oh that's right: wow, what a pile of crap that is.

it's the height of ideologically driven absurdism bullshit to say "if i get more than i had, i won't bother if it's not EVEN MOAR than i had"

 

[Crazy Eddie]

why would a business be more likely to hire someone if the government wasn't going to take more of the profit they would produce?

"companies" are a physical manifestation of greed - specifically, of the aspect of greed that seeks to acquire and horde wealth for its own sake.
which is fine, but it means that companies don't hire people out of the goodness of their heart, they hire people to fill a role needed to further the function of the company in order to maintain profits.

no large company in the history of ever looked at its quarterly profits and went "hey you know what? we made good money this round, let's hire on a few hundred more people to help reduce the unemployment rate"
additionally no large company in the history of ever looked at its quarterly profits and went "hey you know what? we paid too much in taxes this last round, let's not hire anyone to staff the baltimore office, we'll just let it be vacant because if anyone is there creating profit we'll just have to pay taxes on it"

the OP is basically asserting water is wet and staring at the sun is bad for your eyes: only fucking psychotics and delusionals would have ever thought otherwise to begin with.

Wow, what a pile of crap that is. I agree companies want to make money. Indeed that was the very premise of my point. When the government takes some of the profit they will engage in less activity.

False. They will engage in MORE activity because they want to make a larger profit margin. If your company wants to make more money, it must increase its sales; if it wants to increase sales, it must get more work out of its employees. Sometimes, that means hiring more and better employees who can do more work for a given amount of time.

Let's say I can invest $1000 to open a new lemonade stand. After hiring a guy to run it, the cost of ingredients, etc the stand makes $100 per year. A 10% return. I find this return acceptable for the risk.

Now comes friendly Uncle Sam with his hand out for 50% of my profits. I am now looking at $50 of net cash per year. If my cost of funds is 8% I don't open the stand, one less person gets hired.

Except what ACTUALLY happens is, you open a bigger stand for $2000 that can sell more lemonade and therefore make $400 a year. After you pay your taxes, there's your 10% return.

This happens because the whole reason you opened the lemonade stand in the first place is because you wanted to make money. If the goal is to make MORE money, you need to do more business. The best way to do more business is to hire more workers.

A tax on profit always and everywhere reduces the incentive to engage in profit seeking activity.

That's just silly. In capitalism, profit is an incentive in and of itself; no one actually NEEDS incentive to engage in profit-seeking, because profit-seeking is the entire point of capitalism.

On the contrary, a tax on profit raises the incentive to INCREASE activity, since a person who wants to make more money has to sell more units to boost his profit margins.

American workers do this all the time with their paychecks. If I want to take home $4,000 a month, and I know that Uncle Sam is going to take 25% of my paycheck, what do I need to do? I need to earn $6,000. But my current job only pays me $4,000 a month before taxes... so in order to make more money, I need to either get a pay raise (hard) or work more hours (also hard, because it means getting a second job or taking on more responsibility at work).

Note that I would never bother to work more hours or get a second job if Uncle Sam wasn't already taking taxes out; without taxes, I've already got the $4,000 that I need for my household budget. But now that I've got taxes to pay, suddenly I need more money than I would have had otherwise, and now I've got incentive to work a bit harder to make more money and keep more of that cash myself.

You believe corporations would do the exact opposite of this... that is a silly belief.

 

[dismal]

Wow, what a pile of crap that is. I agree companies want to make money. Indeed that was the very premise of my point. When the government takes some of the profit they will engage in less activity.

False. They will engage in MORE activity because they want to make a larger profit margin. If your company wants to make more money, it must increase its sales; if it wants to increase sales, it must get more work out of its employees. Sometimes, that means hiring more and better employees who can do more work for a given amount of time.

Let's say I can invest $1000 to open a new lemonade stand. After hiring a guy to run it, the cost of ingredients, etc the stand makes $100 per year. A 10% return. I find this return acceptable for the risk.

Now comes friendly Uncle Sam with his hand out for 50% of my profits. I am now looking at $50 of net cash per year. If my cost of funds is 8% I don't open the stand, one less person gets hired.

Except what ACTUALLY happens is, you open a bigger stand for $2000 that can sell more lemonade and therefore make $400 a year. After you pay your taxes, there's your 10% return.

This happens because the whole reason you opened the lemonade stand in the first place is because you wanted to make money. If the goal is to make MORE money, you need to do more business. The best way to do more business is to hire more workers.

A tax on profit always and everywhere reduces the incentive to engage in profit seeking activity.

That's just silly. In capitalism, profit is an incentive in and of itself; no one actually NEEDS incentive to engage in profit-seeking, because profit-seeking is the entire point of capitalism.

On the contrary, a tax on profit raises the incentive to INCREASE activity, since a person who wants to make more money has to sell more units to boost his profit margins.

American workers do this all the time with their paychecks. If I want to take home $4,000 a month, and I know that Uncle Sam is going to take 25% of my paycheck, what do I need to do? I need to earn $6,000. But my current job only pays me $4,000 a month before taxes... so in order to make more money, I need to either get a pay raise (hard) or work more hours (also hard, because it means getting a second job or taking on more responsibility at work).

Note that I would never bother to work more hours or get a second job if Uncle Sam wasn't already taking taxes out; without taxes, I've already got the $4,000 that I need for my household budget. But now that I've got taxes to pay, suddenly I need more money than I would have had otherwise, and now I've got incentive to work a bit harder to make more money and keep more of that cash myself.

You believe corporations would do the exact opposite of this... that is a silly belief.

Stunning.

Your argument is based on the premise that greedy rapacious businesses don't really try that hard to make profit until they are forced to by higher taxes? They could make $1000 doing an activity ex ante but they won't because they'e insufficiently interested in making money, but when you cut that to $500 they'll jump on it right away? Seriously?

Your argument is so bad it is even internally inconsistent, let alone inconsistent with reality.

When you tax profit, profit seeking activities become less profitable. Some of them become not worth doing at all. There is no incentive created to do activities that are no longer worth doing.

 

[funinspace]

A comment to the NY Times, it is a myth cuts in the corporate income tax means more jobs.

Rather than lowering the corporate income tax I would eliminate it. I would replace the revenue from the current corporate income tax by increasing rate of the highest personal income tax bracket and by eliminating the lower capital gains tax rate.

Ultimately the corporate income tax is nothing more than a very small sales tax paid by the consumers. Due to all of the loopholes in the tax code the effective tax rate paid across the whole economy by corporations is only about 12% of income, not the nominal 35%. Assuming a 10% profit of sales the corporate income tax's impact is just slightly more than that of a 1% sales tax.

But the corporate income tax forces corporations into acting in essence as a tax shelter for the very rich. Corporations are pressured to convert profits into capital gains that are taxed at a lower rate for the highest earners than it would be if the profits were paid in dividends. The main ways that corporations do this is by using the profits to buy other corporations or by using the profits to buy their own stock, both usually result in higher stock prices. Neither results in more jobs. Consolidation, buying other companies, usually results in the loss of jobs.

The corporate income tax also forces corporations into efforts to avoid the tax. They spend money to lobby Congress and into the "soft" bribery of campaign contributions. They "off shore" profits to tax havens to avoid the tax.

These impacts from the corporate income tax divert the attention of the corporate management from their core businesses. They corrupt the Congress. They corrupt the market making winners out of corporations that do these things well, not the corporations that are better at their business. Who are more innovative and more efficient.

This actually gave me pause, and it's a pretty good point. The only problem with it is, alot of corporations are making billions of dollars in transactions with other corporations and would not actually be taxed for that income. I suppose it's a wash with all the loopholes being exploited, but I'm inclined to think that there is a lot more money in corporate-to-corporate transactions than there is in end-user consumer sales.

I agree with SimpleDon for several reasons, but your concern seems to be a little confused. Corp to corp sales isn't an issue, as eventually all gains/dividends will go to some human (Americans at least), who would end up paying income taxes on it. The only drawback is that all the invested non-profits and retirements funds would skip paying taxes. But I figure removing a huge layer of gimmickry, tax lawyers, and accountants would be a quality savings for all.

Now back to reality: Those Congressional Critters are never going to give up their cash cows by ending the tax loophole game. And boy have the corporations worked the game in DC. Two graphs pretty much say it all:

 

[Crazy Eddie]

False. They will engage in MORE activity because they want to make a larger profit margin. If your company wants to make more money, it must increase its sales; if it wants to increase sales, it must get more work out of its employees. Sometimes, that means hiring more and better employees who can do more work for a given amount of time.

Let's say I can invest $1000 to open a new lemonade stand. After hiring a guy to run it, the cost of ingredients, etc the stand makes $100 per year. A 10% return. I find this return acceptable for the risk.

Now comes friendly Uncle Sam with his hand out for 50% of my profits. I am now looking at $50 of net cash per year. If my cost of funds is 8% I don't open the stand, one less person gets hired.

Except what ACTUALLY happens is, you open a bigger stand for $2000 that can sell more lemonade and therefore make $400 a year. After you pay your taxes, there's your 10% return.

This happens because the whole reason you opened the lemonade stand in the first place is because you wanted to make money. If the goal is to make MORE money, you need to do more business. The best way to do more business is to hire more workers.

A tax on profit always and everywhere reduces the incentive to engage in profit seeking activity.

That's just silly. In capitalism, profit is an incentive in and of itself; no one actually NEEDS incentive to engage in profit-seeking, because profit-seeking is the entire point of capitalism.

On the contrary, a tax on profit raises the incentive to INCREASE activity, since a person who wants to make more money has to sell more units to boost his profit margins.

American workers do this all the time with their paychecks. If I want to take home $4,000 a month, and I know that Uncle Sam is going to take 25% of my paycheck, what do I need to do? I need to earn $6,000. But my current job only pays me $4,000 a month before taxes... so in order to make more money, I need to either get a pay raise (hard) or work more hours (also hard, because it means getting a second job or taking on more responsibility at work).

Note that I would never bother to work more hours or get a second job if Uncle Sam wasn't already taking taxes out; without taxes, I've already got the $4,000 that I need for my household budget. But now that I've got taxes to pay, suddenly I need more money than I would have had otherwise, and now I've got incentive to work a bit harder to make more money and keep more of that cash myself.

You believe corporations would do the exact opposite of this... that is a silly belief.

Stunning.

Your argument is based on the premise that greedy rapacious businesses don't really try that hard to make profit until they are forced to by higher taxes?

No. My argument is that they TRY HARDER to make profit when faced with a source of loss. Whether that's taxation, natural disasters, changing material costs, etc. When your expenses go up in ways you cannot control, you have to increase sales to compensate. Taxes are one such expense.

They could make $1000 doing an activity ex ante but they won't because they'e insufficiently interested in making money, but when you cut that to $500 they'll jump on it right away? Seriously?

Look at the example above: in order to make the additional $400 to offset the effect of taxation, you'd have to make a much larger initial investment. That's a riskier venture, and is going to require a lot more WORK for the same overall return you would have had without the taxes. Some people will do this anyway, and some will not. The higher tax rate makes the riskier investment look a lot more attractive, and the extra overhead of creating a larger business than you would otherwise need is justified by the higher necessary returns.

Again, this is EXACTLY the calculus that American workers use every day to plan their own lives. If everyone likes to make money, then why do people who don't have families only work 30 to 40 hours a week? Why isn't EVERYONE working a 60-hour work day?

Answer: in many cases, not enough incentive. They're making just enough profit to meet their objectives for now and don't need to invest more time and money than they need to to reach their goals. They will increase their activity ONLY if their goals change (they want more profit than before) or their expenses change (they need to make more money for the same amount of profit).

Significantly: eliminating their taxes altogether means they don't have to work any harder to make a bigger profit. What's true for the corporations is true for the individual: cutting taxes doesn't create work, because it increases the real value of the work you're already doing. Cutting corporate taxes does not create jobs, it increases the profitability of the jobs that already exist.

When you tax profit, profit seeking activities become less profitable. Some of them become not worth doing at all.

The second part is incorrect. Any activity is profitable so long as the net profit from that activity is greater than zero. If an activity is profitable, therefore, it is still worth doing.

What IS true is that it may be less worth doing than another activity that is more profitable. This is the opportunity cost of a particular product or service compared to others. When expenses eat into profits, a good or a service with a very small profit margin may be discontinued and production shifted to another product that has a better return, OR the company will simply sell that previous product at a much higher volume, OR it may simply raise the price of that product to boost its margins even more.

The one thing a company WON'T do is deliberately sell fewer units. Layoffs happen when a company is already failing to meet its goals and is UNABLE to sell enough volume to make a profit; a company CHOOSING not to sell enough goods to make a profit is something that almost never happens, and when it does, it definitely isn't caused by corporate taxes.

 

[Crazy Eddie]

This actually gave me pause, and it's a pretty good point. The only problem with it is, alot of corporations are making billions of dollars in transactions with other corporations and would not actually be taxed for that income. I suppose it's a wash with all the loopholes being exploited, but I'm inclined to think that there is a lot more money in corporate-to-corporate transactions than there is in end-user consumer sales.

I agree with SimpleDon for several reasons, but your concern seems to be a little confused. Corp to corp sales isn't an issue, as eventually all gains/dividends will go to some human (Americans at least), who would end up paying income taxes on it. The only drawback is that all the invested non-profits and retirements funds would skip paying taxes. But I figure removing a huge layer of gimmickry, tax lawyers, and accountants would be a quality savings for all.

Now back to reality: Those Congressional Critters are never going to give up their cash cows by ending the tax loophole game. And boy have the corporations worked the game in DC. Two graphs pretty much say it all:

View attachment 12339

View attachment 12340

So what it really boils down to is: would raising the income tax rate for the highest earners make up for the 13% loss in corporate taxes? I mean, that's 13% loaded onto the backs of individuals, and if most of that will be concentrated on the top quintile, yes?

 

[Elixir]

Your argument is based on the premise that greedy rapacious businesses don't really try that hard to make profit until they are forced to by higher taxes? They could make $1000 doing an activity ex ante but they won't because they'e insufficiently interested in making money, but when you cut that to $500 they'll jump on it right away? Seriously?

Your argument is so bad it is even internally inconsistent, let alone inconsistent with reality.

When you tax profit, profit seeking activities become less profitable. Some of them become not worth doing at all. There is no incentive created to do activities that are no longer worth doing.

I just want to point out that having a very high corporate tax rate and a galaxy of potential loopholes that are only accessible via expensive lawyers, is a total boon to Big Business, their profits and their death-grip on their operational sector. While they enjoy tremendous economy of scale and pay minimal (or no) taxes, any upstart potential competitor is quickly quashed, having no access to those loopholes and paying 35% tax on profits - effectively preventing them from growing into the protected space of Big Business.

 

[Loren Pechtel]

no large company in the history of ever looked at its quarterly profits and went "hey you know what? we made good money this round, let's hire on a few hundred more people to help reduce the unemployment rate"

Of course not. But they do say "hey, we made good money this round, lets expand." That expansion causes hiring people.

 

[Loren Pechtel]

A comment to the NY Times, it is a myth cuts in the corporate income tax means more jobs.

Rather than lowering the corporate income tax I would eliminate it. I would replace the revenue from the current corporate income tax by increasing rate of the highest personal income tax bracket and by eliminating the lower capital gains tax rate.

Ultimately the corporate income tax is nothing more than a very small sales tax paid by the consumers. Due to all of the loopholes in the tax code the effective tax rate paid across the whole economy by corporations is only about 12% of income, not the nominal 35%. Assuming a 10% profit of sales the corporate income tax's impact is just slightly more than that of a 1% sales tax.

But the corporate income tax forces corporations into acting in essence as a tax shelter for the very rich. Corporations are pressured to convert profits into capital gains that are taxed at a lower rate for the highest earners than it would be if the profits were paid in dividends. The main ways that corporations do this is by using the profits to buy other corporations or by using the profits to buy their own stock, both usually result in higher stock prices. Neither results in more jobs. Consolidation, buying other companies, usually results in the loss of jobs.

The corporate income tax also forces corporations into efforts to avoid the tax. They spend money to lobby Congress and into the "soft" bribery of campaign contributions. They "off shore" profits to tax havens to avoid the tax.

These impacts from the corporate income tax divert the attention of the corporate management from their core businesses. They corrupt the Congress. They corrupt the market making winners out of corporations that do these things well, not the corporations that are better at their business. Who are more innovative and more efficient.

I don't know why I missed this one before. While I don't exactly align with what they're saying I have reached the same conclusion for related reasons.

A corporate income tax is passed through to the customer--in the end it's the consumer that pays the tax. That's a regressive tax and regressive taxes are pretty much a bad thing. Eliminate the corporate tax, raise the upper income brackets to compensate, now it's a progressive tax like it should be.

Dividends and capital gains would always be taxable to the recipient and at the regular income rate. However, I would index the basis (you normally don't think of basis on things like bank account but the concept works, I would apply it) so you only pay tax on true gains, not phantom gains.

 

[Loren Pechtel]

This actually gave me pause, and it's a pretty good point. The only problem with it is, alot of corporations are making billions of dollars in transactions with other corporations and would not actually be taxed for that income. I suppose it's a wash with all the loopholes being exploited, but I'm inclined to think that there is a lot more money in corporate-to-corporate transactions than there is in end-user consumer sales.

Corporate-corporate transactions aren't taxed anyway. Companies are only taxed on profit, not on transactions. (For individuals we have the standard deduction or itemized deductions that basically define the cost of existence that won't be taxed.)

 

[Loren Pechtel]

Stunning.

Your argument is based on the premise that greedy rapacious businesses don't really try that hard to make profit until they are forced to by higher taxes? They could make $1000 doing an activity ex ante but they won't because they'e insufficiently interested in making money, but when you cut that to $500 they'll jump on it right away? Seriously?

Your argument is so bad it is even internally inconsistent, let alone inconsistent with reality.

When you tax profit, profit seeking activities become less profitable. Some of them become not worth doing at all. There is no incentive created to do activities that are no longer worth doing.

It's just another variation on the infinite pool of profits idea that underlies most leftist economics. Since that infinite pool obviously doesn't exist he's now saying you have to drive up their costs to force them to find that profit.