https://economicsobservatory.com/which-taxes-are-best-and-wo...
> "Raising the income tax rate has by far the least negative effect on GDP. In the long run, the simulation shows that the economy pretty much returns to baseline levels, with a slight increase in potential output.
The opposite is true for corporation taxes. A rise in the corporation tax rate leads to a severe and negative initial fall in GDP. Potential output also decreases. This leads to lower productivity, higher inflationary pressures and deteriorating economic circumstances in the long run.
A rise in indirect taxes (such as VAT) does not affect GDP quite as badly as a rise in corporation taxes, but it does affect GDP more substantially than a rise in income taxes. Indirect taxes operate largely through the price channel, increasing the prices of goods. By artificially raising prices, demand is curtailed."
Regardless, we got rid of almost all corporate tax, and did that really trickle down to average laborers? Er, no, I think decidedly so.
And those effects are unpleasant and make the country more impractical to live in.
GDP is not just an abstract number. It's a measure of the value produced by the nation - value that people find, well, valuable.
We do not optimize only for GDP. It is merely a leading indicator we use that helps us predict things like recessions and unemployment which themselves are leading indicators for quality of life.
You're right that GDP is far from the only thing that matters. But sacrificing growth for intangible benefits is a tradeoff that should be made very carefully indeed.
Same with economics: wealth is the important part. Wealth can be invariant while money fluctuates.
Companies are great at this, and taking resources away from them means they have to crank out less of it. The best and simplest thing is to tax the salaries and dividends paid by the companies, and stop taxing consumption (regressive tax that's hardest on the poor) or profits (reduces investment and output).
So when you take cash away from companies and allocate it to the government, you're reducing the overall capital efficiency of the economy a lot.
If you set corporate taxes to 0%, you can still keep the same size government budget if you then tax dividends and executive salaries, except you'll take the money away from less efficient entities (individuals). By the way, this also removes the incentive to deduct all sorts of personal expenses from your business tax, because there isn't any.
And if the government wants to reign in this or that monopoly or incentivize certain activities, it can do so via regulation rather than tax breaks / increases.
Same level of government budget & control, higher economic growth.
How does that fit into the equation?
The annual Global Wealth Report from UBS [0] usually shows a very wide base of millionaires in the rich countries (there are 23 million millionaires in the US) and a rapidly rising crop of new rich people all over the world, especially the rapidly growing countries like India and China.
Even for those at the very tip of the pyramid, the 0.01%, there's a ton of turnover. Who was the richest family 0, 10, 25, 50, 100, 150, 200 years ago? The answers are all very different.
[0] https://www.ubs.com/global/en/wealthmanagement/insights/glob...
If it was so simple to use capital to exploit the rest of society, why would these investors not simply invest where they are? Why go to the trouble and expense of investing their money in a different country?
Anyone who has had a job knows it's not true.
> Anyone who has had a job knows it's not true.
In an 'absolute' sense they may not be as there is (always) some waste, but is there a more efficient way / entity?
Now, if this is really the case in the US today is debatable. But, it was the case in the past, and is still the case in many very functional countries.
It seems to me that the capitalist economics mostly end up in capitalisms favor because it simply ignores a lot of variables.
1) Capital is allocated according to the wishes of the capital owner, generally to gain more capital and buy luxury goods. My question then is what does the people who have no capital get out of this system!
They are of course free to sell their labour, which is different part of the equation all together.
You may trade the few chips you have made from selling your labor for capital, but the chips you will receive will be of extremely low values, compared to the vast fortunes accumulated by wealthy families over generations.
Often these capital owners are descendants from feudal lords and others who gained their capital via dubious means.
It also doesn't mean that 0% is the correct tax rate. This gives pretty strong evidence that during boom (bull) years you should increase the corporate tax rate to prevent the formation of bubbles and then during bane (bear) years you should decrease it to stimulate growth.
I think the easy way to think about this is that individuals tend not to spend all of their income especially at the higher income brackets. While companies are not as severe in that effect. So if you increase taxes on a business in order for the government to pay back debt to an individual who then saves the money instead of consumes it, you're going to decrease overall consumption.
Corporations have many tax avoidance strategies available, and the incentives to activate them based on tax changes, so basically because capital is much freer to move than labour (in most places) one would see the effects suggested in the linked article.
That being said I'm sceptical of this research, does anyone have more detailed links to the simulations on which the analysis is based?
Publicly saying "we paid lots of tax" would be career suicide for a tech CEO.
They are taxes on revenue, but with a set of allowed deductions (e.g. labor costs, R&D, capital expenditure, etc. etc.)
Whether you call that a tax on profit or a tax on revenue with business related deductions is really just a matter of perspective.
That's what the standard/itemized deduction is supposed to represent. The problem is that we obviously can't let you deduct everything, because if you can deduct everything there would be nothing to tax, aside from savings. And you really don't want to tax savings because savings (also known as "investment") is what makes the modern economy possible.
> The problem is that we obviously can't let you deduct everything, because if you can deduct everything there would be nothing to tax, aside from savings.
This is the point the parent poster is making. We say that it's ok for corporations to deduct everything, but not the people? Why are we ok with that?
Because companies, to some approximation, are pass-through entities, so it doesn't make sense to tax them. Most of the stuff you buy are for own use/consumption. Food is an obvious one, but so are movie tickets TV and last year's European vacation. Companies don't do any of that. It doesn't need food, movie tickets, or European vacations. It might buy flight tickets for its employees to go on sales trips or whatever, but it's not for the company itself. Moreover if you're buying stuff for business purposes (eg. you're a contractor and need a flight ticket to go meet your client), you can deduct it too.
More practically, taxing revenue or not allowing companies to deduct expenses would heavily encourage vertical integration. A vertically integrated widget factory will only have to pay such a tax once, but a widget factory that buys its sheet metal from a foundry, which gets its ores from a miner will have to pay the tax 3 times. That's bad for the economy because it discourages specialization and division of labor, which is basically the other pillar of the modern economy.
And yet they sure seem to cater a lot of lunches and dinners, pick up the costs for large corporate events, pay for suites at event venues, and fly executives around the world in private jets.
Those are taxed at 50% rate, specifically for this reason
https://www.irs.gov/publications/p15b#en_US_2025_publink1000...
>pick up the costs for large corporate events
define "costs"?
>pay for suites at event venues, and fly executives around the world in private jets.
If it's for legitimate corporate purposes, I don't see the issue, because as a contractor you can do the same deduction. And while I'm sure there's some non-zero amount of improper expensing going on, the amount relative to income taxes paid by the employee makes this a non-issue in practicality. The IRS has better things to worry about than grilling a company on whether some executive's 1 week stay at a $500/night hotel (tax value: $3500) was a proper expense or not, when the executive makes $500k+ TC.
If they wanted you to deduct housing costs they'd just let you deduct housing costs. Instead they play games about mortgage interest deductions because they want to incentivize certain kinds of living arrangements over others and give handouts to some voters but not others.
I agree the idea of only having households pay taxes on savings is pretty much untenable with existing revenue structures and would be disencentivizing things we want to incentivize. Just pointing out how corporate taxes just seem pretty absurd from what households pay in comparison.
Let's imagine two groups of people. One group gets a bonus and takes that money to go on a cruise. Easily 30%+ of that money gets taken by income taxes (including FICA). The other group gets their company to just pay for them to go on that cruise as a team building exercise/corporate summit/planning meeting/whatever you want to call it. That's negative taxes in the end, the cost of the business operating, it's a cost that offsets revenues. Good luck getting that audited and declared taxable.
Totally seems fair.
Your "they" is doing a lot of work here.
In reality, this system isn't top-down; it's bottom-up. Influential groups of voters (corporations, sure, but also just various stripes of "rich people" — and even upper-middle-class people at the municipal level) go out and lobby their local and regional representatives to get exceptions carved out for them (and, mostly coincidentally, people like them.)
The voters who don't get handouts are the ones who have no political influence.
(Fun fact: our current situation with capital-gains taxes, was an attempt to "rationalize" a system that was previously similarly cronyist in shape. It used to be that there were particular exceptions carved out for investment classes A and B and C that rich-and-influential people invested in, and none carved out for your regular Joe. People got mad, and the government's solution — rather than removing the carve-outs — was to just make them equally accessible to everyone.)
How is that negative taxes? At best it's tax free, but calling it negative tax (because it's lower than the alternative?) is double-counting. Moreover AFAIK this sort of tax evasion mostly happens at the small business level (eg. a plumber buying a pickup truck and then using it to go to the grocery store and pick up his kids from soccer practice), but it doesn't really happen at the corporate level because 1) such spending will almost be in contravention of corporate governance policies and be flagged by auditors and 2) you need so many people in on the conspiracy that it's impossible to keep a lid on it. Plenty of companies get flak for their subsidiaries in tax havens, but I'm not aware of any serious allegations of corporate tax evasion by the way of fringe benefits.
The other reason is to tax the rich, but you can do that by simply taxing the rich directly. If we fear powerful companies, we can put some sort of scaling size tax on the largest ones.
Do you realize that won't produce more revenue, it will just bankrupt companies and produce less revenue?
Companies are already incentivized not to waste by competition. That's the whole point of capitalism. You don't need taxes for that.
This is part of the reason why if you look around America today it's going to be 99% big corporate players dominating markets and 1% small businesses barely staying afloat.
That doesn't make any sense. You're saying, instead of consumers getting lower prices, they should pay more and that money should go towards taxes. That means, essentially, that you're asking the consumers to pay taxes.
What you're describing is predatory pricing. People have mixed views on that, but if you want to address it, then address it directly. Taxing revenue is a strange, roundabout way of doing it that is going to harm a ton of non-predatory businesses without actually changing the market dynamics of predatory pricing -- because your taxes will be affecting the non-predatory companies even more! Since they, by definition, charge more money and therefore will be paying more taxes on the greater revenue.
We have some methods to address predatory pricing but I think it's obvious they pretty much don't work on any scale that matters. When I look around the modern US, I see the least amount of successful small businesses I've ever seen in my lifetime. We're living in a corporate hellscape, and more and more business look to rent-seeking anti-consumerist behavior.
It really doesn't at all. It's quite neutral in that regard.
> Companies actively try to optimize for the lowest amount of profit
This is self-evidently false. Companies actively optimize for the greatest total profit, considering the net present value of future profits. This does mean delaying profits if reinvesting them is expected to yield growth. This is desirable.
> We have some methods to address predatory pricing but I think it's obvious they pretty much don't work on any scale that matters.
Honestly it hasn't been a major policy priority. They could absolutely work if implemented, but not everyone agrees it's a problem that needs solving. Many people consider it to be hostile to a free market. I'm not taking sides here.
> When I look around the modern US, I see the least amount of successful small businesses I've ever seen in my lifetime.
The major culprit here is technology and economies of scale. The tax code has some quirks, but it is essentially irrelevant here. Even if predatory pricing accelerates the demise of some small businesses, they weren't going to last much longer anyways. Which is why predatory pricing isn't actually nearly as common as many people think, and why it's not always viewed as a problem. E.g. Uber and Lyft engaged in it for years, but traditional taxis are still in business. Small businesses have been disappearing because they simply don't have economies of scale. Their products cost more so people don't go there. It's that simple. Nothing to do with the tax code.
My vacations, car payments, food expenses, and housing expenses are absolutely not able to be written off. One part of my housing expenses may be able to be written off, but not anywhere near all of them. Some education expenses, but not nearly all. I get $5k of untaxed income for childcare for the year. How many weeks do you think $5k covers for two kids?
https://www.fidelity.com/learning-center/smart-money/hsa-con...
In reality, there is no objective definition of "a fair share", there is only the intent expressed in the tax code (and people of course argue over what the intent "really is"). If people and/or corps. are paying taxes following that intent, then for all practical purposes, they are paying their "fair share".
And that's what our tax system is designed around.
Corporations, and specifically their status (or otherwise) as "persons" complicates the picture quite a bit.
https://www.currentfederaltaxdevelopments.com/blog/2018/7/12...
So the question is really: why do some people only get to save $7k a year in an IRA and others get to save much, much more?
>employees of small and less well funded businesses
For example, a startup without the funds or time to do all the HR to allow for 401ks is disadvantaged because their employees cannot contribute as much to a retirement account as someone who works for a business that offers a 401k (or for themselves).
A person has the following choices:
1) work for a business offering a 401k (usually larger, well funded, etc)
2) work for themselves
3) work for a small, upstart business (usually smaller, not as well funded, etc)
Why does working for #3 disallow you from saving as much for retirement? Why are tax advantaged retirement savings a function of your employer at all?
Same for paying for health insurance with pre-tax income.
So my time spent on this ends now.
At least, that was the publicly delivered account.
For a billionare who can already retire in comfort few will ever know to be using any kind of IRA for any purpose is outside of the publicly given justification for their existence.
So if you're sufficiently rich (by some arbitrary amount), you're now a "tax evader" and "not paying your fair share"? Can we say the same about other deductions, like the standard deduction? I doubt you'll be able to find a politician that answer "yes" to "do you think bill gates' first $14.6k in income should be tax-free?", does that mean that's "tax evasion" too?
I really don't know how this is difficult unless you're trying to be a troll or somehow miraculously don't comprehend how numbers work.
The standard deduction has an entirely different purpose which is not negated by extremely high income and/or wealth.
IRA's, however, were set up for a specific purpose for which Thiel is not the target.
Some examples:
> Food conglomerate Archer Daniels Midland enjoyed $438 million of U.S. pretax income last year and received a federal tax rebate of $164 million.
> The delivery giant FedEx zeroed out its federal income tax on $1.2 billion of U.S. pretax income in 2020 and received a rebate of $230 million.
> The shoe manufacturer Nike didn’t pay a dime of federal income tax on almost $2.9 billion of U.S. pretax income last year, instead enjoying a $109 million tax rebate.
If you think this is the same as someone putting $7k into a 401k then you are acting in bad faith and we have nothing productive to discuss.
Those cases are different, even though the legal status of them may be the same.
What you're describing is tax fraud, and that's different from corporations using legal strategies to mitigate their tax burdens.
"A way of avoiding or escaping a cost or legal burden that would otherwise apply by means of an omission or ambiguity in the wording of a contract or law." - The American Heritage® Dictionary of the English Language, 5th Edition.
What they're describing is corporations using legal strategies to mitigate their tax burdens that you or I cannot do. Lobbying is legal, but you or I cannot lobby to any useful degree. Big-box store companies build their stores to be short-lived buildings, then will only sell them with a contract that says the next occupant cannot be a big-box store, then argue that since value is determined by what someone else will pay and nobody will pay much for the end of life of a short-lived store intended to be a shop but which now cannot be a shop, so their stores are low value and comparable to empty stores, therefore they shouldn't pay much tax on them. "In Wisconsin, new Gov. Tony Evers says his budget proposal will close the dark stores loophole in the state"[1].
> "Legally avoiding taxes isn't cheating."
Try arguing that you would only sell your houses with a stipulation that nobody can live in it, therefore you should pay the same taxes and rates that an empty lot would pay, and see if you still think that "legal is the same as right and fair".
[1] https://slate.com/business/2019/02/dark-store-theory-big-box...
But if I’m playing a multi-player game, there can be rules of that game that ban the use of cheat codes. Breaking those rules would be cheating.
Laws are not enacted in spirit, they are drafted, voted on, and enacted in text. What the law says is what matters, not what people assume it wants to achieve.
To claim that complying with the law exactly as it is written is unfair is, quite frankly, undemocratic and an outright rejection of the rule of law.
Also, Apple reports paying more than this for the 12 months ending in September 2024: $29.749 billion.
https://www.apple.com/newsroom/pdfs/fy2024-q4/FY24_Q4_Consol...
Direct taxes and indirect taxes.
Indirect taxes.
These are paid by customers on purchase of goods or services. Vat and gst or hst are examples.
For a service provider, or a seller, there is no way to avoid this tax. If you sell something, you HAVE TO COLLECT THIS TAX AND REMIT TO GOVERNMENT.
Direct taxes.
This is whats "income tax".
You sell something, you buy goods to sell, you earn a markup, you subtract expenses and your PBT (profit before tax) is subject to 15-25-30% income tax and you are left with Pat (profit after tax).
Now, usually this Pat is exempt from subsequent tax because the owner gets this money but many jurisdictions now charge taxes on this "income" as well for individuals or other owners
There are creative accounting ways to reduce this PBT but you cant just show $X on your financials and then say I dont owe any income tax..
Income tax is usually calculated on PBT
e.g. They could be highly concentrated in industries where tax accounting tricks are too hard to do effectively.
Berkshire hathaway is famous for not paying dividends and keeping profits and never selling shares, so this makes sense.
Most companies withdraw or reinvest as much profit as possible to reduce this tax.
The 5% is a relative measure against all other corporations in the USA.
Corporate tax paid by Berkshire Hathaway / Sum of Corp Tax paid by all US corps = 5/100 = 1:20
It's clear what it means, how they measure it would be another story, but I'm sure there is public budget information that clearly indicates what the 2024 taxation for that type of tax was.
In any case, corporations benefit from airports / roads / ports / law enforcement / defense / education / etc... which are funded by local / federal governments. So corporations have a moral duty for to contribute to these expenses by paying taxes.
(But it is only a moral duty, and not a legal obligation. So corporations end up paying nothing, or next to nothing.)
Why doesn’t the moral obligation rest with the owners of the company, rather than this legal construct that was created on paper?
Corporations aren’t rich people - they are machines that allocate capital and eventually return the money with profit to the owners. They can be owned by rich people, and we can tax them.
When we add taxes on corporations, we introduce compliance issues, accounting and forecasting requirements - all complications that take away money from the actual good things we can get from corporations - jobs in the community, better product development, etc.
Hypothetically with zero corporate tax, if the corporation paid zero salary, zero dividends, and shareholders never sold anything, the corporation could amass ridiculous amounts of untaxed wealth. But this never seems to happen.
I mean personal income taxes, plus capital gains taxes, taxes on the individual -- I am in favor of; not on the corporate entity.
And I really don’t think the EU is a model for tax sanity. Look at eliminating loopholes, not squeezing the average Joe even more than they already are. Their shit salary isn’t even keeping up with inflation. But their taxes sure do.
You'd never want other companies paying as much tax if they didn't have the profit to back it up. It would bankrupt them.
They do have the profit in that the money they make doing things exceeds the money they spend to do the thing, but though a series of tricks of varying legality and ethics they make it so on paper they do not have "profit" and therefore successfully avoid taxes.
Amazon reported losses for the first 10 years while growing to billions in yearly revenue.
>It would bankrupt them.
It really wouldn't have. While Amazon was growing to dominate retail and putting very many competitors out of business, they were paying 0 corporate taxes. Many companies play these tricks and many people want them to pay fair taxes. If you need to be tax free to break even, you should go bankrupt. Especially in the Fortune 500 region.
https://taxpolicycenter.org/taxvox/tpc-number-those-who-dont...
IMO corporate tax should be zero, and we tax individual people instead.
Money is taxed (generally) whenever it moves between parties. You paid tax on your income; you give (some of) it to someone else for goods or services - they pay taxes on it again. That's not double taxation, that's how tax works.
Money flows to the corporation. They pay some to employees, who pay tax on their income. They (might) pay some to shareholders, who (might) pay tax on dividends or capital gains. What is left (very simply speaking), the corporation pays tax on as its income.
But the point is that the owners accept double taxation in exchange for the protections of the corporate form, like a legal liability shield, treatment of ownership interests as capital assets subject to lower tax rates on sale, deferral of taxation of shareholders' allocable shares of the business' income (as represented by dividends), etc.
A corporate tax rate is good policy. The answer to how high that tax rate should be has split families and friends for decades. Higher corporate tax rates drive substantially increased R&D spending and capital investments (and it's not even close; its easily 4x-5x the amount invested when corporate tax rates are low). This apparent paradox is quite easy to explain: when corporate tax rates are high, corporations will increase their spending on deductible categories to reduce their taxable income, and thus the tax they pay. When tax rates are low, there's little to no incentive to due that.
Taxing corporate profits is layering an additional (hefty) tax on its beneficiaries - people.
Search 'double taxation' and you will see this term is generally accepted by financial professionals in many jurisdictions to describe the above scenario where a corporation makes a profit, is taxed at the corporate level and then additional taxes must also be paid by the receiver of the already taxed funds (ex. shareholder, bondholder).
You do some work, you earn income, which presumably (or hopefully) exceeds your perception of the cost of doing the work to you. You pay taxes on that. You then give the money to some third party, as a gift, for goods & services, to repay a debt, or whatever reason. Subject to the stipulations of the tax code, the recipient pays taxes on whatever they receive (e.g. for gifts there is a threshold, for debts they will pay tax only on the interest received etc. etc.). Nobody calls this double taxation.
A corporation does what it does, earns income, which hopefully exceeds the cost of doing whatever it is that it does. They pay taxes on that. They then give the money to some third party, as a dividend or bond repayment or whatever other reason. Subject to the stipulations of the tax code, the recipient pays taxes on whatever they receive. Some people try to call this double taxation.
Trying to dress this up with concepts like "the shareholders receive the profit, but taxes have already been paid on that" is just missing the point entirely: our tax system taxes money when it moves, not based on how it is labelled (at least when it works as intended).
You.
Plumbler.
Landlord.
Each person is a different person and pays income tax on "their income"
If the corporation shields the shareholds from many forms of liability, why should the shareholders be able to claim the same personhood when it comes to income and taxation?
If corporations are said to be able to have moral and religious beliefs (thanks, SCOTUS), and yet their shareholders are free to have other, different beliefs, how can they considered the same person?
a corporation is a distinct "legal person" because it goes through "incorporation" which breathes a legal life into a concept.
a person does, a corporation has legally perpetual existence because the shareholders can endlessly transfer their shares to other persons and on death the shares are given as inheritance.
Eventually that money is going to come back though - no shareholder wants a company to sit on a massive cash pile for decades.
If a company can’t find a use for the money, then investors will want that cash returned so that they can find a use for it elsewhere.
Apple itself set a goal in 2018 to be net cash neutral:
https://www.morningstar.com/markets/what-apples-cash-problem...
And when the money comes back to investors, that’s when taxes can be paid and everyone benefits.
Stock buybacks also result in capital gains taxes eventually - it just takes a long time because investors get to choose when to take the gain. If we wanted to fix that, we could just make stock buybacks illegal again like they were before 1982.
Then investors would get dividends again, which results in immediate revenue for the federal government.
"Hording cash" sounds like NOT spending on expenses and offsetting profits, and therefore likely involves that corporation being taxed. In addition it sounds a lot more sustainable than wall streets typical obsession with short term gains Uber alles.
“Company ABC made a billion last quarter and still had layoffs. Why are they so stupid? Can’t they save for a rainy day?”
“Company XYZ made a billion for the last 12 quarters. Why aren’t they giving it to their employees, or paying a wealth tax?”
If the goal of the USA is to force companies to re-shore, wouldn't this be a better way [0] to proceed than inflating the costs of many goods for the consumer? Large corporations appear to have record cash on hand in recent decades, where as consumers hold record debt.
[0] By better, I mean more much likely to achieve the stated goal.
Then, your corporation would quickly be scrutinized on both its income (corporations don’t get W-2’s, you probably can’t just move your existing income to a corp) and its expenses (“reasonable and necessary” is very broadly interpreted, but is unlikely to support what you’re doing).
Perhaps we need window dressing to make people happy. Stop doing "income" tax and convert it to "payroll" tax. Gov gets the same amount, people can stop complaining about companies not paying tax. But at the end of the day, it's all window dressing.
> Amazon annual income taxes for 2024 were $9.265B, a 30.13% increase from 2023. > > https://m.macrotrends.net/stocks/charts/AMZN/amazon/total-pr...
> On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article.
Hard to imagine someone who invests would have no indirect positions in BRK. Any broad-market ETF would have substantial exposure.