Some umm... taxes

[Jimmy Higgins]

The wonders of the Internet mean you can actually look anything up you want to, actual data too, not Tax Foundation or Democrat Underground manure. So, I was curious about the outrageous and unethical taxation of businesses.

The numbers surprised me a bit. According to the IRS, Business income taxes accounted for 10% of final revenue for the year of 2016. This was 1/5 of what Individuals and Estates paid. Less than 1/3 of what is paid for employment taxes (I'm thinking there is a little crossover with the FICA corporations do pay, though). Regardless, the nation has a GDP of $18 trillion, and the business income tax bill of $0.3 trillion.

The number just doesn't seem that high, $294 billion. Seems like something we could just remove and modify the tax structure. I mean, how much money is spent by the IRS to tax corporations?

 

[dismal]

The wonders of the Internet mean you can actually look anything up you want to, actual data too, not Tax Foundation or Democrat Underground manure. So, I was curious about the outrageous and unethical taxation of businesses.

The numbers surprised me a bit. According to the IRS, Business income taxes accounted for 10% of final revenue for the year of 2016. This was 1/5 of what Individuals and Estates paid. Less than 1/3 of what is paid for employment taxes (I'm thinking there is a little crossover with the FICA corporations do pay, though). Regardless, the nation has a GDP of $18 trillion, and the business income tax bill of $0.3 trillion.

The number just doesn't seem that high, $294 billion. Seems like something we could just remove and modify the tax structure. I mean, how much money is spent by the IRS to tax corporations?

<$294 billion.

The cost imposed on private entities of maintaining tax lawyers and accountants is far bigger.

But the argument for eliminating corporate taxation to me is that it is effectively double taxation. Just tax the income when it hits an individual.

 

[bilby]

I suspect taxation of businesses is an historical relic. Governments have always tried to raise taxes against things that people will find difficult to conceal or falsify; Income was (and remains) tricky to pin down, particularly in the days before widespread literacy and numeracy, so taxes tended to be levied on things that were easy for even an illiterate person to agree were objective - goods crossing defined borders (internal or external) is an easy choice - the UK tax collections department is still called the Inland Revenue, to distinguish it from the Customs and Excise revenue taken at international ports; and of course the 'I' in 'IRS' hints at the alternative being external revenue. Land taxes, and such oddities as window tax, chimney tax, and hearth tax, all fall into the category of 'things taxed because they were easy to measure and/or hard to conceal', and business taxes likely fell into that category too - businesses, unlike individuals, keep records of their finances.

Of course, it makes more sense to move to a tax system based on influencing economic activity in ways that you actually want them to go - pigouvian taxes are an excellent idea, and taxes that penalise behaviours you wish to discourage can be useful (although that opens another can of worms) - for example taxes on alcohol to both fund government and reduce public drunkenness are an excellent idea if you are a teetotal puritan, but not so great if you enjoy a quiet tipple or ten on a Friday night.

Income taxes help to balance the tendency for wealth to concentrate, which (if not corrected) is a positive feedback that causes all manner of problems. And they tend to mostly burden the people who are getting the most out of the society in which they live, so they are automatically fairly equitable, without having to waste time money and effort in working out exactly what specific infrastructure each citizen is using or benefiting from.

But taxes on business do seem to be a hangover from the 'we tax it because we can' days - like with import duties and sales taxes, taxes that discourage desirable economic activity should probably be eliminated, and the funds raised by other means.

Of course, the tax system has evolved over a long period of time, and like most evolved systems, it is complex, contains vestigial structures that could be safely eliminated, and carries a risk that any sudden or large change could have catastrophic unintended and unforeseen consequences - so it pays to be slow and cautious when trying to improve it. But I suspect that eliminating business taxes and moving the burden to Income Tax (particularly to the higher brackets) would be a good move.

 

[Loren Pechtel]

The wonders of the Internet mean you can actually look anything up you want to, actual data too, not Tax Foundation or Democrat Underground manure. So, I was curious about the outrageous and unethical taxation of businesses.

The numbers surprised me a bit. According to the IRS, Business income taxes accounted for 10% of final revenue for the year of 2016. This was 1/5 of what Individuals and Estates paid. Less than 1/3 of what is paid for employment taxes (I'm thinking there is a little crossover with the FICA corporations do pay, though). Regardless, the nation has a GDP of $18 trillion, and the business income tax bill of $0.3 trillion.

The number just doesn't seem that high, $294 billion. Seems like something we could just remove and modify the tax structure. I mean, how much money is spent by the IRS to tax corporations?

There are lots of good reasons to remove the corporate income tax:

1) Corporate taxes are regressive because they are passed on to the consumers--and thus disproportionately hit the poor.

2) The enforcement cost isn't that big a deal, but the amount of effort expended to minimize said taxes, and the efficiency loss from doing so, is a much bigger issue.

3) It's so much easier for corporations to avoid taxes than individuals and it's so much harder to enforce the laws. Where's the line between avoidance and evasion? It's something that many companies probably don't know exactly.

Remove the corporate income tax, raise every tax bracket by 20% and the only losers would be the tax avoidance industry. That's too big a change to do all at once, phase it in over say 5 years.

 

[Elixir]

1) Corporate taxes are regressive because they are passed on to the consumers--and thus disproportionately hit the poor.

WUT?
Poor people consume more than rich people?
Who knew?

 

[Loren Pechtel]

1) Corporate taxes are regressive because they are passed on to the consumers--and thus disproportionately hit the poor.

WUT?
Poor people consume more than rich people?
Who knew?

Poor people consume a greater percentage of their income. Thus the corporate tax ends up taking a greater percentage of their income.

Note that under my proposal the total tax paid by the poor goes down.

 

[Underseer]

So we can't tax the elites and can only tax commoners because taxing the elites would hurt the commoners?

Who can argue with logic like that?

 

[Loren Pechtel]

So we can't tax the elites and can only tax commoners because taxing the elites would hurt the commoners?

Who can argue with logic like that?

You are utterly missing the point. Businesses are neither elites nor commoners. Taxes applied to them are pretty much entirely passed through to the consumer and thus should be seen as having the same effect as a sales tax that yielded the same total revenue.

What's so hard about the notion that to tax elites you tax elites?

 

[zorq]

At first glance I was swayed by LP's argument. But I now have some concerns.

A great deal of businesses in the US (and everywhere else) these days are essentially international entities with control, assets, or ownership all potentially abroad to some degree. Business taxes at the very least prevent money from being milked out of the local economy without paying SOMETHING back in to it.

Should we really tolerate someone out there getting a free ride? Businesses are major players in economic activity. They aren't windows or hearths, they are players and we can't ignore them.

Really, the typical conservative approace to simplifying the tax code is misguided. We shouldn't be trying to tax fewer things, but rather the opposite. I think it would be more effective to eliminate all the exceptions, deductions, subsidies and loopholes. While each one of those was enacted as an attempt to encourage "positive" activity in society, (or merely the result of corrupt lobbying or pork handouts) they all exist as an opportunity to game the system.

Yes, we can eliminate excessively redundant taxes including "sin taxes" (though IMO they have their place) but it isn't the same to say that business taxes are double taxation because businesses spend and invest their money differently from individuals.

 

[untermensche]

So what is it? Are corporations competing with one another or Not?

Because if they are actually competing the idea that they can just foist their tax burden onto customers or whatever is a contradiction.

 

[barbos]

We have had this discussion a million times. Most of the tax code exist to enrich tax lawyers and huge (in comparison to small) business. Corporate tax should have been eliminated the moment they invented off-shoring it.

 

[Harry Bosch]

We have had this discussion a million times. Most of the tax code exist to enrich tax lawyers and huge (in comparison to small) business. Corporate tax should have been eliminated the moment they invented off-shoring it.

Agreed. Eliminate the tax. But make it revenue neutral by increasing taxes on those who receive the distributions. IOW, don't force companies to reduce their equity by paying taxes. Tax individuals when then realize distributions.

 

[Loren Pechtel]

At first glance I was swayed by LP's argument. But I now have some concerns.

A great deal of businesses in the US (and everywhere else) these days are essentially international entities with control, assets, or ownership all potentially abroad to some degree. Business taxes at the very least prevent money from being milked out of the local economy without paying SOMETHING back in to it.

Except what we see is the exact opposite--money is drawn out for tax avoidance reasons. Remove tax avoidance from the picture and they'll cease to draw the money out like that.

Should we really tolerate someone out there getting a free ride? Businesses are major players in economic activity. They aren't windows or hearths, they are players and we can't ignore them.

The thing is the tax is passed on anyway.

Really, the typical conservative approace to simplifying the tax code is misguided. We shouldn't be trying to tax fewer things, but rather the opposite. I think it would be more effective to eliminate all the exceptions, deductions, subsidies and loopholes. While each one of those was enacted as an attempt to encourage "positive" activity in society, (or merely the result of corrupt lobbying or pork handouts) they all exist as an opportunity to game the system.

Exceptions etc fall into three categories:

1) Those meant to encourage "positive" things. I think we would be better served by ceasing such meddling.

2) Those meant to cut the burden of negative things. Examples are the medical and casualty loss deductions. Those should be expanded. (Both have a % of AGI threshold that should be removed.)

3) Those meant to ensure fairness. For example, alimony is deductible by the payer and taxed by the recipient. Congress has already gotten very bad about these--taking things that used to be simply untaxed (for example, employer-paid relocation) and converting them to taxable but deductible. That gives them the social security tax and an awful lot of people can't take the deduction anyway, thus netting them income tax on something that wasn't really income in the first place. These should stay, and many should be pushed back to their original more fair forms.

Yes, we can eliminate excessively redundant taxes including "sin taxes" (though IMO they have their place) but it isn't the same to say that business taxes are double taxation because businesses spend and invest their money differently from individuals.

Sin taxes should go. At first glance they are a good thing but in practice it means government will be hurt from actually addressing the sin. Politicians will refuse to do effective things to stop the sin.

- - - Updated - - -

So what is it? Are corporations competing with one another or Not?

Because if they are actually competing the idea that they can just foist their tax burden onto customers or whatever is a contradiction.

Competition is only meaningful when dealing with variable costs. Fixed costs will be passed through.

(And note that there's another negative here--big companies are far more effective at tax avoidance than little companies. Business taxes hinder the small guy.)

 

[Loren Pechtel]

We have had this discussion a million times. Most of the tax code exist to enrich tax lawyers and huge (in comparison to small) business. Corporate tax should have been eliminated the moment they invented off-shoring it.

Agreed. Eliminate the tax. But make it revenue neutral by increasing taxes on those who receive the distributions. IOW, don't force companies to reduce their equity by paying taxes. Tax individuals when then realize distributions.

No--there's a nasty form of tax avoidance here. Look at what's happening with companies like Amazon--they aren't making much of anything. The thing is, their "profit" is redirected to acquisitions--the end result is their profit is about zero but their value goes up and up.

Simply move the tax burden to the rich, don't target corporate distributions.