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

[Harry Bosch]

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 agree with Don. We should focus taxes on people, not on corporations. We should be encouraging corporations to locate and stay in our communities, hire more people, have more profits, and payout higher wages.

 

[barbos]

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.

You forget that a lot of money in these transactions are the result of the fucked up tax system in the first place. We have a situation where accountants and lawyers run technology companies, this is fucking ridiculous, SimpleDon is absolutely correct, we should get rid of it, and "profits" associated with it will disappear and there will be no more billionaire-accountants.

 

[SimpleDon]

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?

I would think that this is obvious, the company would hire more people to make the profit that the government doesn't take. On average corporations pay 12% of their profits to the federal government in income tax, due to all of the loopholes. The company would hire people to make the 88% of the profit after the income tax is paid.

I suppose that you turn down salary increases because the "government is going to take more." Now that you understand the dynamic involved you don't have to.

 

[Tigers!]

I suppose that you turn down salary increases because the "government is going to take more." Now that you understand the dynamic involved you don't have to.

That is actually true on occasions in Australia. With high marginal tax rates, many refuse overtime (aka known as a salary increase) if that OT would force them into a higher tax bracket. Depending upon the situation the extra OT could cause the tax to be greater than the extra pay gained.
Don't haven't all the time but the phenonium is well enough known.

 

[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?

I would think that this is obvious, the company would hire more people to make the profit that the government doesn't take. On average corporations pay 12% of their profits to the federal government in income tax, due to all of the loopholes. The company would hire people to make the 88% of the profit after the income tax is paid.

I suppose that you turn down salary increases because the "government is going to take more." Now that you understand the dynamic involved you don't have to.

So, reality check: You're arguing companies are not ruthless and greedy enough to spend capital and effort to go for a $1,000 profit but if the government cuts it to $500 they'll really hustle after it.

Don't we usually operate under the premise that companies are always and everywhere greedy? I seem to recall having been lectured on just that earlier in the thread.

If your theory requires the assumption that companies suddenly shift from being non-greedy when high profits are available to more greedy when things are less profitable you have left the realm of economics and reason and entered the realm of the absurd and religious belief.

 

[Horatio Parker]

I like the idea of equity tax - corporations have to give the govt a percentage of stock. Then if they screw the govt, they're screwing their investors.

And, tho the logic of repealing corporate income tax makes sense, there's also the problem of different economic behavior.

Most important for an economy is for its members to be productive. So productive activity should have the lightest tax burden. Rent seeking and speculation should pay a premium.

 

[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.

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 don't have any data but the corporate effort to avoid taxes is staggering. I worked for a German company and in Germany they get tax credits for establishing overseas, (ex. European), markets. As a result they would take all of the profits earned by overseas back to Germany and avoid paying corporate income taxes in the US, Canada, etc. They would charge technology transfer fees that would guarantee losses for the overseas branches. This by the way is the exact opposite of the incentives under the US tax code.

I don't know if these are the kind of corporate to corporate transactions that you mean. Or if you mean corporations buying other corporations or corporations buying the products of other corporations to include in products sold to consumers or corporations buying capital machinery from other corporations, that is the machinery used to make products to be sold. But finally all of the corporation to corporation transactions have to be paid for by products being sold to consumers for consumption. (This is by no means universally understood by corporate executives.)

 

[Crazy Eddie]

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.

No, it's literally the EXACT OPPOSITE of that. When a company with a finite profit margin sees an increase in expenses, they have to do find a way to increase their profit margins somehow. They can do this by cutting some other expense, or by increasing production and sales. Which one they choose depends on the opportunity costs of production: if cutting expenses allows you to maintain productivity (or most of it, at least) then you do that; this is called "tightening your belt" or "trimming the fat" and often involves layoffs, typically including both the most expensive and least productive employees. A company can also increase production in order to raise revenue, deferring the costs of increased production either through credit or by attracting new investment. They can also do BOTH, which is exactly what the SpaceX Corporation did after the failed Falcon 1 launch tests back in 2007 (and it worked, spectacularly, in their favor).

About the only thing they won't do is suspend activities and reduce output. That is the equivalent of a poor person quitting his job in response to his landlord raising his rent. He might switch to a better job, or he might pick up a second job, but he certainly won't choose to work LESS just because his expenses went up.

 

[Crazy Eddie]

I would think that this is obvious, the company would hire more people to make the profit that the government doesn't take. On average corporations pay 12% of their profits to the federal government in income tax, due to all of the loopholes. The company would hire people to make the 88% of the profit after the income tax is paid.

I suppose that you turn down salary increases because the "government is going to take more." Now that you understand the dynamic involved you don't have to.

So, reality check: You're arguing companies are not ruthless and greedy enough to spend capital and effort to go for a $1,000 profit but if the government cuts it to $500 they'll really hustle after it.

Don't we usually operate under the premise that companies are always and everywhere greedy?

Greed is not the same thing as ambition. There is a certain amount of passivity in any large organization that stalls initiative by decision makers. On some level this is a good thing, because it keeps people in charge from making costly mistakes without more of their peers being able to analyze the situation and see some flaws in the plan that the higher-ups might have overlooked. The net result, however, is that companies tend to take the safer bet with a lower risk factor than gamble on a riskier but more rewarding path. It's simply safer for companies to grab the low-hanging fruit.

That's not just human nature, that's nature in general. A company will seek the path of least resistance to accomplish its goals. If the goal is a 10% profit margin, it will take whatever steps allow it to achieve that margin for the smallest amount of time and energy.

If your theory requires the assumption that companies suddenly shift from being non-greedy when high profits are available to more greedy when things are less profitable you have left the realm of economics and reason and entered the realm of the absurd and religious belief.

Ambition and greed are not the same thing.

 

[SimpleDon]

I am not too impressed with this NY Times article. They use a single example of a corporation that hasn't invested despite earning huge untaxed profits. We are talking about making a macroeconomic policy change that will have a large impact on all of the economy, that is being proposed to have benefits beyond the corporations and their shareholders, specifically by increasing the number of jobs, the number of people who need and want a job who have a job. It is paramount that we see some evidence that lowering the corporate income tax will create jobs. Evidence that should be not just for a single company. Evidence that should be readily available since we have been increasing corporate profits intentionally for decades now based on this promise of increasing the number of jobs in the economy by increasing corporate investment.

Dean Baker, a well respected mainstream economist doesn't think that the evidence exists looking at the whole economy for the last sixty years or so. He presents this graph of corporate profits and corporate investment, the job producing mechanism in the tax cutting rational. As he points out if there is any trend in this data it is the exact opposite, that investment goes up when the profits go down. His article is here.

​

If anything, I see the data as inconclusive of anything but that corporate investment and corporate profits go down in recessions and otherwise there is certainly no trend proving that cutting taxes increases investment and the number of jobs. The average would show that investment has stayed roughly even while corporate profits have doubled under the neoliberal, supply side policies since 1980's.

That there is no connection between the amount of profits and investment when profits are high and that investment actually goes up when profits are low is entirely logical if the economy and specifically corporate job increasing investment is demand led instead of being supply side led as the idea that tax cutting increases investment and jobs assumes. Profits go down when wages go up. Wages are the major component of demand in the economy.

Does anyone here know why the industrial revolution started in England and not in Germany, France or Italy?

It is because wages in England were twice as high as wages in those other countries. High wages means lower profits, higher demand for products and the desire of businesses to pursue what we now call automation to reduce their wage bill. This is why the industrial revolution started in England.

The US also had high wages, especially after emancipation of the slaves. This coupled with other factors such as high tariffs, government subsidies, an abundance of raw materials, a large domestic economy, abundant land, a high rate of incoming immigration, etc. is why the lead in the industrial revolution shifted to the US in the latter half of the nineteenth century.

Added: Productivity is down to zero in the US recently. This is another indication that increasing profits doesn't increase virtuous job producing investment. This means that the collective judgment of American businesses is that wages are so low that there is no reason to invest in automation. Productivity is growth in an economy with a mere replacement birth rate and low immigration.

 

[dismal]

So, reality check: You're arguing companies are not ruthless and greedy enough to spend capital and effort to go for a $1,000 profit but if the government cuts it to $500 they'll really hustle after it.

Don't we usually operate under the premise that companies are always and everywhere greedy?

Greed is not the same thing as ambition. There is a certain amount of passivity in any large organization that stalls initiative by decision makers. On some level this is a good thing, because it keeps people in charge from making costly mistakes without more of their peers being able to analyze the situation and see some flaws in the plan that the higher-ups might have overlooked. The net result, however, is that companies tend to take the safer bet with a lower risk factor than gamble on a riskier but more rewarding path. It's simply safer for companies to grab the low-hanging fruit.

That's not just human nature, that's nature in general. A company will seek the path of least resistance to accomplish its goals. If the goal is a 10% profit margin, it will take whatever steps allow it to achieve that margin for the smallest amount of time and energy.

If your theory requires the assumption that companies suddenly shift from being non-greedy when high profits are available to more greedy when things are less profitable you have left the realm of economics and reason and entered the realm of the absurd and religious belief.

Ambition and greed are not the same thing.

The goal is to make as much money as possible. This is limited by time, effort and capital.

I have never, ever, never, once in all of the businesses I have been involved in (and it has been dozens) heard anyone ,ever, say, ever, "let's not go after this opportunity because we already have enough profit".

If you ever here someone say that let me know and I'll find someone who will happily go after that profit.

 

[Crazy Eddie]

Greed is not the same thing as ambition. There is a certain amount of passivity in any large organization that stalls initiative by decision makers. On some level this is a good thing, because it keeps people in charge from making costly mistakes without more of their peers being able to analyze the situation and see some flaws in the plan that the higher-ups might have overlooked. The net result, however, is that companies tend to take the safer bet with a lower risk factor than gamble on a riskier but more rewarding path. It's simply safer for companies to grab the low-hanging fruit.

That's not just human nature, that's nature in general. A company will seek the path of least resistance to accomplish its goals. If the goal is a 10% profit margin, it will take whatever steps allow it to achieve that margin for the smallest amount of time and energy.

If your theory requires the assumption that companies suddenly shift from being non-greedy when high profits are available to more greedy when things are less profitable you have left the realm of economics and reason and entered the realm of the absurd and religious belief.

Ambition and greed are not the same thing.

The goal is to make as much money as possible. This is limited by time, effort and capital.

I have never, ever, never, once in all of the businesses I have been involved in (and it has been dozens) heard anyone ,ever, say, ever, "let's not go after this opportunity because we already have enough profit".

And yet I have MANY times had a boss or manager reject a highly profitable option with the words "That seems overly complicated. Aren't we already doing enough?"

A good example: A few years ago I had to convince a board of directors that consisted almost entirely of fifty-year old former soccer moms to adopt a modern office network and LAN system for their computers. They were apparently still using dialup internet (yes, that's still a thing!), a website that hadn't been updated since 1998, and lacked the ability to process credit cards or eCommerce transactions of any kind. They communicated with their customers mainly through email, but that communication was extremely ineffective because because the person who checked the inbox didn't know how to use spam filters and so the inbox received around 200 emails a day, 99% of which were spam (so she spent 2 to 4 hours every day just checking and answering emails; that, plus returning phone calls from their antiquated voicemail system, was pretty much her only job).

I patiently explained to these people, who had managed to run their company this way for 30 years, that they would make a lot more money -- and KEEP a lot more money -- with some very simple changes to their business process. I laid out, in numbers, how much of their market share they were loosing by not accepting credit cards, and how they could boost sales by advertising online, by offering discount programs for online orders, and how to streamline communication by keeping the spam out of their inbox (and the very nice lady who did nothing but answer emails and take phone calls was happy to not have to do that all day anymore). Over the course of three years, I got them to reorganize their offices, updated their computers from Windows XP to Windows 10, got them an actual working LAN network, helped them buy their very first color printer, and got them to stop accidentally violating every fire code in existence on account of their not actually knowing that fire codes were a thing.

This for a company that had been in business for thirty years.

. I still remember clearly the conversation the first time I suggested these changes, because it is the conversation that pops up every single time we hit on this subject:

Me: This is something we should do because it will boost our sales by x%, it will reduce expenses by y%, and it will make our clients happy, which will have an effect on our reputation and help bring in more business.
Director1: But won't this be really expensive? We don't actually know how much this is going to cost us. I don't think we can justify the costs.
Me: The cost is right there in the report I wrote for you. It's less than X% of your total income. I specifically chose a system that is cheap and affordable because I knew you were worried about keeping costs down.
Director2: Do you think we'll have time to learn a totally new system with all this other stuff going on? We have blah blah blah and blah blah blah coming up.
Me: We ALWAYS have things coming up, but this is the ideal time to make these changes, because things are good and we haven't had a major crisis in a while.
Director3: I don't think we should make a decision on these changes until we've had time to review the plan for this. This all seems really complicated.
Me: Which is why the 5-page document you are currently holding was emailed to you a month and a half ago and why I spent the last three weeks bugging you guys to read and review it... which, evidently, none of you did.
Director1: Sorry about that... well, thank you for your suggestions, but I think we should wait on this until we've had a chance to think about it some more.
[Three months later]
Director1: I called this emergency meeting because our accountant just informed us that sales are down and we are deeply in the red this quarter. If something isn't done soon, we could be in real trouble financially.
Director2: I figured that. Our clients are really unhappy and we've had a lot of complaints about service.
Director3: This is a serious problem. We need to find some way to boost sales, reduce expenses, and mend fences with our clients. Anyone have any suggestions?
Me: <sighs>

^ This happens approximately once every three months. And I've come to understand that this is not entirely uncommon in the corporate world: MANY companies actually hold off on making decisions -- even highly profitable decisions -- until forced to do so by a crisis.

It's not just the corporate world, as I explained to you, consumers do this too. People pass up opportunities to make money every day just because they don't see those opportunities or don't have enough confidence to pursue them. But a person who gets desperate enough will jump at opportunities he never would have before, just because his current situation is sufficiently uncomfortable to make the risk worthwhile.

In fact, this is the same basic logic of welfare reform: that people need to stop depending on government handouts and go out and get real jobs. It is assumed -- correctly -- that human laziness and complacency can sometimes overcome ambition and a person will not necessarily take the more profitable path of gainful employment even when given the chance to do so. There is no reason to assume that the poor are unique in this behavior; the comfortable and lazy welfare recipient has the same mindset as the comfortable and lazy corporate executive.

 

[dismal]

So, let's take an example.

Exxon in 2016 had net income from continuing ops of $12,646,000,000. Your view is that they could have made more but just stopped trying because there was a companywide consensus that $12,646,000,000 was enough profit to be making?

And, if the government raised taxes, say 10% and took an additional $1,264,000,000 they would suddenly spring into action to do just enough projects to get the income back up to $12,646,000,000?

And, if the government raised taxes, say 50% and took an additional $6,323,000,000 they would suddenly spring into even harder into action and do enough to get income back to $12,646,000,000?

And, if so, given income from continuing ops was $23,794,000,000 in 2015 how did it fall to $12,646,000,000 in 2016? Why didn't they try harder and keep it at $23,794,000,000?

https://finance.yahoo.com/quote/XOM/financials?p=XOM

 

[SimpleDon]

I would think that this is obvious, the company would hire more people to make the profit that the government doesn't take. On average corporations pay 12% of their profits to the federal government in income tax, due to all of the loopholes. The company would hire people to make the 88% of the profit after the income tax is paid.

I suppose that you turn down salary increases because the "government is going to take more." Now that you understand the dynamic involved you don't have to.

So, reality check: You're arguing companies are not ruthless and greedy enough to spend capital and effort to go for a $1,000 profit but if the government cuts it to $500 they'll really hustle after it.

Don't we usually operate under the premise that companies are always and everywhere greedy? I seem to recall having been lectured on just that earlier in the thread.

If your theory requires the assumption that companies suddenly shift from being non-greedy when high profits are available to more greedy when things are less profitable you have left the realm of economics and reason and entered the realm of the absurd and religious belief.

My argument is in post #30 of this thread. It is not in the realm of the absurd as you will see.

I reluctantly point out that you haven't presented what if anything you believe. If you support the idea that higher profits create higher investment then tell us why you believe it and present the reasons and evidence that have convinced you.

I don't believe that corporations are greedy. That was someone else. Corporate executives don't try to maximize profits. Corporate executives try to earn a level of profits that keep the board of directors, the shareholders and the market analysts happy and satisfied. A level of profits that assure that they will keep their jobs.

I don't know how high in the organization chart you reached if indeed you worked for a large corporation. It is axiomatic that the people who reach the highest levels of a corporation are much more likely to be incompetent in their jobs. This is because people who are competent are also promoted until they reach the level where they are incompetent. Then they are promoted no further. This called the  Peter Principle.

(It is also yet another reason why the idea that we should let businessmen run the government like a business is so crazy, as if we need any more evidence of the craziness of this idea than what is currently played out on our nightly news. It is also why so many women have always been more competent in their jobs than men, it is much more likely that they haven't been promoted to their first level of incompetence. The same holds true for minorities. One of the reasons that I enjoyed the modest level of success that I achieved was that I worked with the women and the minorities in the organization because I recognized this fact. It also is what got me married to an extremely competent but underestimated, beautiful woman mechanical engineer.) But I digress.

Because of the Peter Principle the vast majority of corporate executives are either incompetent and afraid that they will be found out or are afraid that they are incompetent and reluctant to prove it or afraid that they will be fired by someone over them who is incompetent. As a result virtually all of the executives in the country are afraid of losing their jobs. This what drives our corporate executives and therefore our corporations.

(That is except for the executives who are related to the owner of the company who pretty much are always incompetent in their jobs because they have been promoted too fast usually without regard to their competence.)

This is pretty much at least worth three hours of credit toward an MBA or a doctorate in economics. I humbly accept your thanks, preemptively.

 

[SimpleDon]

Greed is not the same thing as ambition. There is a certain amount of passivity in any large organization that stalls initiative by decision makers. On some level this is a good thing, because it keeps people in charge from making costly mistakes without more of their peers being able to analyze the situation and see some flaws in the plan that the higher-ups might have overlooked. The net result, however, is that companies tend to take the safer bet with a lower risk factor than gamble on a riskier but more rewarding path. It's simply safer for companies to grab the low-hanging fruit.

That's not just human nature, that's nature in general. A company will seek the path of least resistance to accomplish its goals. If the goal is a 10% profit margin, it will take whatever steps allow it to achieve that margin for the smallest amount of time and energy.

If your theory requires the assumption that companies suddenly shift from being non-greedy when high profits are available to more greedy when things are less profitable you have left the realm of economics and reason and entered the realm of the absurd and religious belief.

Ambition and greed are not the same thing.

The goal is to make as much money as possible. This is limited by time, effort and capital.

I have never, ever, never, once in all of the businesses I have been involved in (and it has been dozens) heard anyone ,ever, say, ever, "let's not go after this opportunity because we already have enough profit".

If you ever here someone say that let me know and I'll find someone who will happily go after that profit.

Business is not about maximizing profits, it is about balancing risk and reward. Maximizing profits by say going into another business that your people aren't familiar with or pushing the prices up on already profitable products or expanding your territory or building your own factory instead of contracting production out or or whether to buy a competitor or owning your own building instead of renting or hundreds of other decisions that have to be made that to one degree or another all involve the risk of failure and put the current profits and even the business at risk.

Forgive me for doubting what you have said but are you sure that you have run multiple businesses? These are pretty elemental points that come up frequently in business. I have never come across a businessman who was so oblivious to risk. Perhaps this is why you have run so many businesses?

 

[dismal]

Business is not about maximizing profits, it is about balancing risk and reward.

And what does a higher corporate income tax do to the balance of risk and reward?

 

[Playball40]

Please show me even ONE example of that. Just one.

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?

 

[laughing dog]

Business is not about maximizing profits, it is about balancing risk and reward.

And what does a higher corporate income tax do to the balance of risk and reward?

A corporate income tax reduces the net profit and net loss (by allowing writeoffs of losses), so it reduces the overall risk and the overall reward. There is no a priori reason why the change to both would move in the direction of less activity or more activity.

 

[SimpleDon]

Business is not about maximizing profits, it is about balancing risk and reward.

And what does a higher corporate income tax do to the balance of risk and reward?

Nothing to next to nothing. It has everything to do with the prudent limits of maximizing profits that you don't seem to understand.

 

[Loren Pechtel]

I suppose that you turn down salary increases because the "government is going to take more." Now that you understand the dynamic involved you don't have to.

That is actually true on occasions in Australia. With high marginal tax rates, many refuse overtime (aka known as a salary increase) if that OT would force them into a higher tax bracket. Depending upon the situation the extra OT could cause the tax to be greater than the extra pay gained.
Don't haven't all the time but the phenonium is well enough known.

Then your tax system is fucked up.

Here when you go into a higher bracket it only applies to dollars in that bracket. Adding a dollar doesn't change the tax you paid on previous dollars. The only case where you end up worse off for making more is when it pushed you above a threshold to take some deduction. These days most of them step down rather than have a hard cliff so the places where you get an effective tax rate over 100% are very narrow, not something you're going to try to avoid.

- - - Updated - - -

I like the idea of equity tax - corporations have to give the govt a percentage of stock. Then if they screw the govt, they're screwing their investors.

And, tho the logic of repealing corporate income tax makes sense, there's also the problem of different economic behavior.

Most important for an economy is for its members to be productive. So productive activity should have the lightest tax burden. Rent seeking and speculation should pay a premium.

In other words, an owner can't maintain control of his company for a long period of time. Horrible idea.

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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.

No, it's literally the EXACT OPPOSITE of that. When a company with a finite profit margin sees an increase in expenses, they have to do find a way to increase their profit margins somehow. They can do this by cutting some other expense, or by increasing production and sales. Which one they choose depends on the opportunity costs of production: if cutting expenses allows you to maintain productivity (or most of it, at least) then you do that; this is called "tightening your belt" or "trimming the fat" and often involves layoffs, typically including both the most expensive and least productive employees. A company can also increase production in order to raise revenue, deferring the costs of increased production either through credit or by attracting new investment. They can also do BOTH, which is exactly what the SpaceX Corporation did after the failed Falcon 1 launch tests back in 2007 (and it worked, spectacularly, in their favor).

About the only thing they won't do is suspend activities and reduce output. That is the equivalent of a poor person quitting his job in response to his landlord raising his rent. He might switch to a better job, or he might pick up a second job, but he certainly won't choose to work LESS just because his expenses went up.

Saying it's backwards doesn't make it so. All you're saying is that they'll come up with that infinite profit if you force them to.