spytap:

mikehudack:

harryh:

mikehudack:

harryh:

motherjones:

Are you an average American? Percentage-wise, you pay more income tax than ExxonMobil does.

Oh come on Mike.  That’s a totally meaningless comparison! There is no reason at all to think that the corporate tax rate of an oil company should relate in any way to the average american.

Corporate taxes are a bizzarre construct in the first place.  They’re still taxes on people just in a convoluted, distortion inducing way.  Why do we even have them?

I can’t believe you made me trade my ipad for my laptop just to reply to this. But you did. Not really your fault, I just couldn’t let this go.

The argument against corporate taxation is that corporations are simply artificial constructs that allow a group of people to legally bind themselves together for the purposes of accomplishing a goal. Ultimately corporations are nothing more than collections of people, and those people make money, and the people’s money that come from the corporations is taxed… ergo taxing the corporation means that the money is being taxed twice and taxing anything twice is evil.

There are many problems with this argument. First: corporations are theoretically people. The Supreme Court has upheld this concept, particularly as it relates to corporate speech. So of course taxes on corporations are taxes on people. Corporations are people!

Second: Corporations make money, they save money, they spend money, they invest money. Corporate economic activity has, as I’m sure you can imagine, a massive impact on the American economy. Said another way: what American businesses decide to do with their money has massive implications for “the rest of us ordinary folk.” And taxes are policy tools. They have been for generations now. We use the tax code to incentivize certain economic activities and punish others. This is why we tax capital gains and ordinary income differently. The government has an overwhelming interest in influencing whether American companies hoard money, disperse money to shareholders, disperse money to employees, hire more employees, buy inventory, lay off workers, close factories, open factories, et cetera. Tax policy is one of the only tools we have to influence positive economic activity on the part of corporations. Without these tools there is a simple tragedy of the commons: corporations are always obligated to create shareholder value; they are not obligated or even incented to create common value… it is through tools like tax policy that we can influence them to save money when that’s beneficial to the commons or hire more people when that’s beneficial. Or invest in new technologies (say: clean energy or electric cars) that would otherwise be too expensive but that are essential for America’s long-term competitiveness.

Third: all money is taxed twice. Actually, all money is taxed an infinite number of times. If I give you a thousand dollars you have to pay tax on that money as income. Then, when you use that thousand dollars to buy a brand new iPad 2 you have to pay sales tax on it. Then when Apple books that money as income it has to pay taxes on it. Then when it disburses the money to its employees in the form of salary both Apple and the employees have to pay taxes on it. Then when those employees spend the money… you get the idea.

So the “taxes on corporations are bizarre because they’re double taxation” argument is bullshit because all money is taxed all the time through a theoretically infinite number of iterations.

Fourth: American corporations benefit tremendously from American infrastructure. That infrastructure is paid for by tax dollars. The wealth created by that infrastructure should be taxed at the point closest to its creation, which is the corporation. This is infinitely more efficient than taxing the employees and shareholders who more indirectly benefit from this infrastructure.

Fifth: We have a consumer economy. Taxing corporations is better policy than taxing low or lower income individuals. Corporate income tax (the type I imagine you object to most, although there are of course others) is on net income. Personal income tax is on gross or adjusted gross income. Corporations only pay tax when they are profitable. People pay taxes even when they are struggling. Taxing a struggling person has meaningful negative social impact (i.e. it depresses the economy and causes second-order problems that may cost more money in the long run than the taxes bring in). Taxing a profitable corporation has little negative social or economic cost, if any, as long as there’s still plenty of money left over to distribute to employees in the form of salaries and benefits (there is, the company’s profitable or it’s not paying taxes) and to distribute to shareholders in the form of increased share prices and/or dividends (there is, Exxon’s market cap is four hundred billion dollars). Exxon and its shareholders can afford to pay a bit more tax without damaging anyone’s interests. Really.

I’m pretty sure I could go on but I want to get back to my iPad. Also: when are we getting that beer?

Whoa, hey there, when did I say anything about “taxing anything twice is evil”?  I didn’t say that at all.  Here are some great reasons to eliminate the corporate income tax:

It’s not progressive. Corporate income tax ultimately, somehow, ends up as a tax on real people (stock holders, employees, suppliers, customers) at some point.  Some of these are really rich people.  Some of them are really poor.  Why should we be taxing them all at the same rate?  Lets just get the money in the hands of the people and then tax them that way.  Bill Gates pays lots, the unemployed person pays none (or even a negative tax), everyone else is somewhere in between.  You’re absolutely right when you say that Exxon’s shareholders could afford to pay a little more.  But why are we treating all of those shareholders the same?

It encourages wasted effort on avoidance and corruption through lobbying. Corporate finances (especially for wealthy companies) are enormously complicated and so are corporate taxes. Remember the recent story about how GE essentially has an in house tax firm to deal with their taxes? How much do companies spend every year on lobbying to get special tax breaks?  How much does this corrupt our govt?  How much wasted economic effort is going on there?  Individual finances are far simpler and much less (though, before you say it certainly not all) subject to this sort of waste and corruption.

It encourages debt. Since companies can write of debt from their taxes (unlike equity) they raise more debt than they would in a world without the corporate income tax.

Oh yes, beer.  TJs Friday after work?

PS: also that graph makes use of the very evil Y axis other than 0 trick.  Making it intellectually dishonest right from the start.

Okay. I may have put some words in your mouth. This was largely because I was responding to the general idea that taxing corporations is “bizarre” rather than your specific statements. I owe you an apology for that, no doubt.

Regarding your follow-up points, though, I just don’t agree. A corporate tax is progressive. It taxes value creation at the most efficient point (where it’s created). It’s true that there are potentially regressive second order effects (one fewer custodian is hired because of corporate tax load equivalent to the cost of hiring that custodian). But this is unlikely to have nearly the same regressive impact as individual income taxes on lower income folks. Remember: taxes are only levied on net income. If the corporation hires that custodian it gets to deduct the custodian’s hourly wage from its net income and thus does not pay taxes on that money. In fact, hiring is an effective way to lower your corporation’s income tax liability. This is a perfect example of tax’s usefulness as a policy tool. Taxes are levied on net income instead of gross revenue in order to encourage this kind of economic activity.

Your second point is valid. Corporate taxes are complicated and they do encourage wasted economic output in the form of corporate tax departments and other tax preparation and avoidance schemes. This isn’t an argument against corporate tax, though. It’s an argument against bad corporate tax. Most people on both sides of the aisle would like to see the tax code simplified and streamlined so as to reduce this kind of negative or non-productive economic activity. A good place to start would be to examine all of the policy elements of the tax code and determine whether or not they still achieve actual current policy goals.

The problem with the tax code as a policy tool is that it’s easy to insert benefits for positive economic behavior, but it’s hard to take them away when those economic behaviors are no longer positive. It’ll take real effort and come at the expense of significant political capital on both sides of the aisle, but we are perfectly capable as a nation and a government of taking policy tools and loopholes out of the tax code, and then reinserting only those that make current sense. From there we could set up a system — maybe expirations, maybe mandatory reexamination, whatever it may be — to force us to regularly refactor the tax code along these lines. Such an approach should significantly decrease the amount of negative economic activity expended on satisfying the letter of the law while escaping as much actual tax liability as possible.

Your final point about debt is also well taken. But see above. At some point someone made the decision that encouraging debt would result in a positive outcome for the country. That may no longer be the case. So we should reexamine that particular policy and perhaps revise it to encourage equity investment over debt. There you go. Problem solved. And the problem wasn’t the existence of the tax, the problem was with some of the policy elements of the tax code. They’re revisable.

T&J on Friday sounds good. Maybe 8:30?

This is a really smart conversation from really smart people, and worth reblogging.

People to beer with, for sure.