I believe the correct corporate tax rate is zero. This is because at the end, the tax is really paid by one of 1) shareholders 2) employees 3) customers (if there were no tax, the money would be distributed between these three somehow. Therefore, the tax is really money withheld from these three in that same proportion). So, corporations pay no taxes in reality. On the other hand, avoidance of these taxes has created significant negative effects in the society. Why not get rid of them altogether and let the final recipients of the money pay the taxes as individuals?
That’s an interesting thesis and I think it is worth exploring. But if I take the comparison with shareholders, I would say the problem is that shareholders have to pay capital gains taxes on their shares and only do so when they sell their shares. Meanwhile employees pay income taxes every year. And since income tax rates are higher than capital gains taxes your idea would amount to a massive be edit for shareholders over employees. So, if we make capital gains taxes equal income taxes and shareholders have to pay capital gains tax every year independent of them holding or selling shares then it would be fair. But that would obviously be unfair I other respects to shareholders, most importantly that it might force shareholders to sell stocks just to pay their taxes.
To the address the fairness question, assuming the current capital gains tax rates are fair, it is indeed the shareholders that have a valid complaint, which is that they’re currently getting taxed at the same rate as employees, while they should be taxed at capital gains rate.
But that entire line of thinking is misguided in my opinion, because it assumes implicitly that the return to shareholders is in the form of buybacks. However, share buybacks are also something to be abolished as well. In so many cases, they just counter the dilution caused by stock based compensation. Much better to restrict pay backs to shareholders to dividends and tax them as such. In the case of dividends, there’s no need to wait until the shares are sold.
Overall though, I think there is a bigger issue at play. Namely that by taxing corporations, we’ve given them rights that should be preserved for individuals. I am not a lawyer, but it seems to me, the case for a right to lobby the legislature or to contribute to political campaigns would be significantly weakened if companies weren’t paying any taxes. And it seems to me that these corporate rights have had an overall negative impact on the society.
Capital gains (long term, as short term ARE already taxed at income tax rates) are lower for a reason. First of all, LTCG are subject to the effects of inflation since the have to be held at least a year, while income (and STCG) can be spent immediately,
discounting the effects of inflation. Secondly, LTCG encourages longer term holding of equities (less focus on the current quarterly earnings and longer term view) and less market churn and volatility.
Throughout the article today you write about Government Investment. Switch the phrase to "Government Spending" and then I challenge you to republish the article after assessing the impact of this simple change.
I would still publish it with the words government spending instead of government investment. The reason is that from an economic perspective, government spending is highly effective to foster growth. I know, it feels bad and I am against excessive spending as well, which is why I am politically opposed to too much government spending. But if you look at the numbers, government spending typically has a fiscal multiplier of 1.0 or higher (I.e. 1 dollar spending creates 1 dollop or more of GDP growth) because most of it is geared towards older people and poorer people who have the lowest savings rates.
Good point. Although you also need to argue that the fiscal multiplier generated by businesses is much lower than that of the government spend. I doubt that argument will stand up, do you?
Should we not be using a matrix multiplication in all these cases to see who the money benefits? And consider that a fire station has little fiscal return except lowering insurance claims cost?
Tax Avoidance (not Tax Evasion) is legal and - from the Taxpayer’s viewpoint - sensible. Only co-ordinated transnational legislation will stop this. Persuasion via JK suggestion is worth trying.
I believe the correct corporate tax rate is zero. This is because at the end, the tax is really paid by one of 1) shareholders 2) employees 3) customers (if there were no tax, the money would be distributed between these three somehow. Therefore, the tax is really money withheld from these three in that same proportion). So, corporations pay no taxes in reality. On the other hand, avoidance of these taxes has created significant negative effects in the society. Why not get rid of them altogether and let the final recipients of the money pay the taxes as individuals?
That’s an interesting thesis and I think it is worth exploring. But if I take the comparison with shareholders, I would say the problem is that shareholders have to pay capital gains taxes on their shares and only do so when they sell their shares. Meanwhile employees pay income taxes every year. And since income tax rates are higher than capital gains taxes your idea would amount to a massive be edit for shareholders over employees. So, if we make capital gains taxes equal income taxes and shareholders have to pay capital gains tax every year independent of them holding or selling shares then it would be fair. But that would obviously be unfair I other respects to shareholders, most importantly that it might force shareholders to sell stocks just to pay their taxes.
To the address the fairness question, assuming the current capital gains tax rates are fair, it is indeed the shareholders that have a valid complaint, which is that they’re currently getting taxed at the same rate as employees, while they should be taxed at capital gains rate.
But that entire line of thinking is misguided in my opinion, because it assumes implicitly that the return to shareholders is in the form of buybacks. However, share buybacks are also something to be abolished as well. In so many cases, they just counter the dilution caused by stock based compensation. Much better to restrict pay backs to shareholders to dividends and tax them as such. In the case of dividends, there’s no need to wait until the shares are sold.
Overall though, I think there is a bigger issue at play. Namely that by taxing corporations, we’ve given them rights that should be preserved for individuals. I am not a lawyer, but it seems to me, the case for a right to lobby the legislature or to contribute to political campaigns would be significantly weakened if companies weren’t paying any taxes. And it seems to me that these corporate rights have had an overall negative impact on the society.
Capital gains (long term, as short term ARE already taxed at income tax rates) are lower for a reason. First of all, LTCG are subject to the effects of inflation since the have to be held at least a year, while income (and STCG) can be spent immediately,
discounting the effects of inflation. Secondly, LTCG encourages longer term holding of equities (less focus on the current quarterly earnings and longer term view) and less market churn and volatility.
Throughout the article today you write about Government Investment. Switch the phrase to "Government Spending" and then I challenge you to republish the article after assessing the impact of this simple change.
I would still publish it with the words government spending instead of government investment. The reason is that from an economic perspective, government spending is highly effective to foster growth. I know, it feels bad and I am against excessive spending as well, which is why I am politically opposed to too much government spending. But if you look at the numbers, government spending typically has a fiscal multiplier of 1.0 or higher (I.e. 1 dollar spending creates 1 dollop or more of GDP growth) because most of it is geared towards older people and poorer people who have the lowest savings rates.
Good point. Although you also need to argue that the fiscal multiplier generated by businesses is much lower than that of the government spend. I doubt that argument will stand up, do you?
Good question. I honestly don’t know what the fiscal
Multiplier of private business is.
Should we not be using a matrix multiplication in all these cases to see who the money benefits? And consider that a fire station has little fiscal return except lowering insurance claims cost?
Tax Avoidance (not Tax Evasion) is legal and - from the Taxpayer’s viewpoint - sensible. Only co-ordinated transnational legislation will stop this. Persuasion via JK suggestion is worth trying.
Great stack. I especially like the factor investing stuff as it makes sense to me and seems promising.
Thought you'd enjoy this
https://jimychanga.substack.com/p/new-funds-show-dem-and-repub-politician