Xan wrote: ↑Sat Nov 16, 2024 4:59 pm
Also you're glossing over a nasty part of taxation: let's say you're right and the final sales price doesn't increase, but some percentage of manufacturers go out of business instead. Is that a win for society? I would argue it isn't.
In the real world you'll get some of both: higher prices and fewer businesses. Both are costs borne by the general public.
Half of the amount that's currently taken by corporate taxation would go to reduced prices for the consumer? Wouldn't that be absolutely huge?
We can then have a healthy, honest debate about what the personal tax rate should be of "corporate owners". If you want to go after that income, then go for it, where it belongs on their personal taxes. Think of the reduction in wasted manhours that are currently spent preparing, auditing, and otherwise dealing with corporate tax returns!
yankees60 wrote: ↑Sat Nov 16, 2024 4:12 pm
Coming back to this.
You are strictly speaking about C corporations.
There are also Sub S corporations which are taxed like a partnership. No taxation at the entity level. All tax income is passed on to the corporate owners to be taxed as part of their taxable income.
I just checked the requirements to be an S corporation:
"Before you elect your C-corporation to an S-corporation, they company must meet certain eligibility criteria. First, you corporation must have fewer than 100 shareholders. Next, your C-corporation cannot have more than one class of stock. Finally, all shareholders must be U.S. citizens or residents and not other legal entities. If you company meets all these criteria, you can submit form 2553 with the IRS."
A corporation with 100 shareholders can be a fairly large corporation.
I'm sure we have situations wherein there are C corporations and S corporations engaging in the same activities.
Your arguments would be saying that the S corporation would be charging lower prices to their customers than their fellow C corporations because they don't have to pay any taxes on the entity level.
I would bet that they are charging their customers the exact same prices that the C corporations are, with the consequent better profits.
Banks don't like that credit unions don't pay taxes, contending that it gives them a completive advantage. Again, by your assertion credit unions should have lower fees than banks for the same services. Is this the case? I don't know because though I have many accounts with each I pay no fees to any of them. But when I look at my credit unions' pages of fees ... they don't look that inexpensive to me.
You're pointing out that there are two different types of corporation, one that's double-taxed and one that isn't, because... of reasons. And this unfair situation is your argument to keep the double taxation?
The different tax treatment of a C corporation and a Subchapter S corporation is not necessarily unfair. There are pros and cons to both structures. It is not as simple as double taxed = bad and not double taxed = good.
A C corp of a material size will have access to the capital of the public equity markets which will not be the case for a Sub S due to shareholder constraints. The public markets necessitate a SEC, FTC and other regulatory agencies to prevent the fraud and rigging we had in the markets before those agencies came about. It seems reasonable that C corps should pay taxes to cover those functions.
Another consideration that has not been specifically discussed here is the difference in tax treatment of income in a pass through single tax entity versus a C corp. In a pass through entity, income is recognized at the shareholder level
whether it has been distributed or not.
In a C corp, the shareholder only recognizes income
when it is distributed, in the form of dividends or other distributions. This allows the C corp to retain earnings for growth without tax consequences to its shareholders.
In a Sub S corp (or a limited partnership or an LLC), if earnings are retained for growth, the shareholders will owe taxes on the undistributed income, a circumstance sometimes called phantom income. No shareholder likes paying taxes on income recognized but not received.
So if we did away with corporate taxes entirely, would we now tax shareholders in a C corp on their allocated share of income not distributed? Or in your zero tax scenario, would the C corp have the ability to accumulate an unlimited amount of income without paying out dividends in which case nobody is paying the tax on the income?
Pass through entities came about to make it less burdensome on small businesses where the features of a C corp were not advantageous.
As to pricing, there is a simplistic case that could be made that reducing costs like taxes could result in lower prices. I tend to think that argument applies more to operating costs than to costs like interest or taxes. This is because most companies are making their pricing decisions (in part) based on operating margin, which does not consider taxes.
I would bet consumers would get better prices through free market competition and operating efficiencies than from corporate tax policy. For example, Amazon and Wal-Mart have used scale and technology very effectively.
Tariffs might be a different story though, because they are part of the acquisition cost of imported goods thus a true COGS. So I could imagine tariffs to be a form of tax that would raise prices to consumers.
To your other question about why not super high corporate taxes (50%, 90%, 100%), there is a problem that arises when corporate taxes are too high relative to other countries, and that is the phenomenon of corporate inversions where companies seek to change jurisdiction for tax purposes, either outright, or through merger with a foreign company. The Trump corporate tax cuts of 2017 had a sound objective in that they were trying to reduce the inversion incentive and retain business in the U.S. by right sizing the flat rate to be competitive with other countries.
Other than the reduction in the inversion incentive, the place where reduced corporate taxes will have an effect will not be reduced consumer prices, it will be increased stock prices. This is because EPS is calculated after taxes, so a corporate tax cut will create an immediate EPS pick-up, all other factors being the same. So the beneficiaries will be stockholders, not the general public.
