Why should the corporate tax rate exist?

The United States currently imposes a tax of 21 percent on the profits of all corporations, but why should this tax exist?

A corporation is not a person, and that corporate income ultimately will be going to individual persons. When those people who own the corporation (like stockholders) get the money, they will also have to pay taxes on that money.

Isn't this double taxation? How is this fair?

I think we should completely get rid of the corporate tax, and just tax all income the same.

This just seems to be Leftist emotionalism, like "Those big bad corporations are bad and deserve to be taxed"

 

I did read that an "S Corporation" is not subject to corporate taxes, but to be eligible for that the company must meet the following criteria:
Has no more than 100 shareholders
All the shareholders must be U.S. residents
All the shareholders must be individuals, not other corporations (with certain exceptions for tax-exempt organizations, estates, and trusts)

Why not instead just add on a tax to profits sent to shareholders who are not U.S. residents? Wouldn't that make more sense?
Maybe there is a reason to tax corporations with more than 100 shareholders a little bit higher, but the tax rate should not be that much higher.

 

Look, I'm all for getting rid of corporate taxes if we could afford it with a balanced federal budget.

And, anyway...
I thought that citizens united decided that corporations are people?!

I took a financing course, and I'll be retaking it because I withdrew from it. But, the key idea that I was starting to learn is that the company's finances must be kept at equilibrium.

Accounting equation:

Assets equal Liabilities plus Owners Equity.

And, I would have learned, and will learn in the future, more detailed concepts built on top of that equation.

But, anyway, the owners of the company give money to the business by issuing common stock on one side of the equation and then increasing cash on the other side of the equation that records assets.

When the owners take money out of the company, the accountant is supposed to lower the cash asset account and decrease the owners' equity amount.

So, basically, the money is gone. Poof! It's been taken out of the company.

 

A. It essentially doesn't, thanks to the myriads of deductions available to them.

B. RWNJs decided they are indeed people

C. Roads, traffic control, drainage, communications, fire stations, cops, water, power, free trade, Stock market, the list is endless.

 

That's a very weak defense. You might as well be in favor of reducing the corporate tax to only 5% then, and eliminating all the loopholes.

That's not really true, and I'm not even going there in this thread with you.

They deserve the same sort of protections as people, yes.

 

It's not a defense, it's a fact.

and first you say they aren't, then you say they are.

derp

 

It's a good question, and one I'm not at all an expert on, so someone correct me if I'm wrong, but...

I think the general idea is that, without a corporate tax, corporations (and thus their investors) could avoid paying taxes on profits indefinitely by simply keeping those profits in the company and not paying them out to individuals.

In effect, a wealthy shareholder could use the corporation as a special savings account with tax-free interest. One day, maybe, they'd receive dividends and pay personal income tax, but in the mean-time they gets years or decades of interest on those untaxed earnings, something unavailable to the average Americans who has to pay taxes on their savings account interest every year.

Moreover, a shareholder might instead just use those unpaid dividends as collateral to take low-interest loans and use that money for any purchases they need/want. As long as the interest rate was lower than their tax rate, it's still a win for them, and theoretically they might NEVER need to actually receive profits from their shares and thus NEVER pay any tax on that income.

 

True, but any business could do this, couldn't it? If the business just keeps reinvesting all of its profits into growth and writing it off as expenses.

 

Well I don't see it as a huge issue so long as no one is forced into a corporation (iirc, the law does force a business to become a corporation under certain conditions, and in this case I oppose the double taxation...) but I think a better question is- why does a corporation exist? Specifically- why does there need to be a way to make a business into its own legal entity, one that can be blamed for breaking laws but cannot be sent to prison or executed for breaking laws? Seems to me the only reason would be so the govt can make lots of money by fining wealthy businesses that break the law and so that wealthy businesses can break the law without anyone going to prison or being executed. If ever there was 'fascism', corporatism is it. In fact, when Fascism was created by Mussolini, he was in the process of trying to rebuild a new Roman Empire, the first version of which can attribute much if its power, wealth and arguably its collapse on its having been the progenitor of the very concept of the corporation. Its just interesting how often history rhymes...

Seems to me the corporation is just a scam that allows the rich and well connected to legally operate outside of the law that rest of us must abide by. This works out well for govt btw, since govt often needs entities that can break its laws for it without undermining a perception of the consent of the governed. A corporation can basically do whatever it wants as long as it can afford the fines, and its not hard to afford fines when your profits are not constrained by the law. Corporations are still run by people who choose to break the law and engage in evil, but unlike when other peopledo it, we cant punish them for it beyond fines. That is the ultimate advantage in business.

 

Corporations are, indeed, legal persons.
Taxes on corporations are costs, and costs are figured into prices.
Sales of their goods pay corporate taxes.
What should not be taxed are people for their wages and individual revenues. They then pay taxes when they purchase goods and services. The purchase of labor should be taxed the way the purchase of goods are.

 

To an extent, yes, though if the profits are actually used as business expenses they'll be harder for shareholders to make use of.

Without any corporate tax, the company could just bank the profits, keeping them easily accessible for dividends or as collateral. Heck, the company could even invest the profits in the very same stocks/bonds/savings account an individual would, but without having to pay taxes on it first.

I guess maybe that's the thing. If there's no corporate tax, everyone should immediately set up a shell company to represent them for purposes of employment and finances and so be able to indefinitely accrue profits and returns on investment without having to pay taxes.

Anyway, I think, that's the theory behind it. Again, I'm no expert. Practically speaking, though, the reason we keep corporate taxes is that they fund large portions of the government and no one has convincingly made the political case for a superior alternative. If we eliminate corporate tax revenue, where will we make it up? Who will win and lose in that reapportionment of taxation?

 

What's wrong with that? When dividends are eventually paid, taxes will have to be paid on them.

How is that really any different from a business reinvesting its own profits into itself?

Do the math on this one. Whether you pay the taxes before investment or after investment is irrelevant to how much taxes will actually eventually get paid.

 

Sorry I never noticed this reply. It was the end of the school year and life got busy.

the math actually works out quite differently.

Case 1:

• $1,000 profits taxes immediately at 20% ($200).
• The remaining $800 is invested and earns 10% profit ($80) which is then taxes at 20% ($40).
• Total tax revenue: $240 ( plus maybe $20 if the government invests that initial $200.)

Case 2:

• $1,000 profits not taxed immediately but all invested and earning that same 10% ($100)
• Then the entire amount ($1,100) is withdrawn and taxes at 20% ($220).
• Total tax revenue: $220

That’s a loss of 9% for the government, not counting the money they could have made investing the initial tax payment, and the loss would just be greater every year that passes.

 

I can explain this to you. In algebra it is called the commutative property. The order of multiplication of factors does not matter (so long as there are no additions or subtractions between those factors).

tax: 1.00 - 0.20 = 0.8
profit: 1.00 + 0.10 = 1.1

Case 1: 1000 (0.8 ) (1.1)
Case 2: 1000 (1.1) (0.8 )

So if you pay taxes before you invest the money or after you invest the money to get a profit, it is the same thing.

The only reason it would matter is if there is double taxation. That is if you get taxed on the entirety of the profits before you can invest them, and then get taxed again on your new profits from the investment.

 

It's not about the order of operations, it's about whether or not you get to re-invest ALL your profits or just your after-tax profits.

It’s the same as a regular IRA, where your earnings can accumulate and be re-invested, year after year, tax-free until you withdraw them. It’s a tax advantage because you get years of time to earn returns on money that you would have otherwise given to the government.

With no corporate tax, wealthy individuals could easily set of shell companies to effectively be IRAs, except without any of the limits or regulations put on real IRAs.

Anyway, I may be doing a bad job of explaining it, but the end result is that it’s widely recognized that eliminating corporate taxes would result in a massive loss of tax revenue for the government and no one has come up with a politically palatable way to replace those losses.

 

Something tells me you didn't understand my post.

 

Quite clearly they do and lots of them where do you think not only corporate income tax revenues the government takes in and all the revenues from the excise taxes they pay comes from.

US Code Title 1 Section One decides that. And of course all a corporation is is an assembly of PEOPLE engaged in a common endeavor. You know that right to assemble thingy. And the people of that corporation can have issues before the government and the right to petition and address the government over legislation that affects them. And even appeal to the public for their issues.

Which are paid for out of excises taxes on the federal level and a combination of excise taxes and property taxes on the state and local level. This discussion is about the corporate income taxes and should that exist. A tax which is simply passed on as a cost of doing the business.

 

I think those on the Left who argue that "corporations should be taxed like people because they are treated like people" are making a very disingenuous argument and being very myopic in their perspective (not seeing the wider picture or overall context).
When we say "corporations are treated like people", all that really means is the corporation is given rights. Government can't just take away the property of that corporation, or restrict that corporation for arbitrary reasons. This is because that corporation is owned by multiple normal. Under normal circumstances, you couldn't take away a small business's property or place arbitrary restrictions on that business because to do so would be to directly infringe on the rights of the individual who owns and runs that small business. With a corporation, the ownership is less direct. And that is why we say a corporation should get the rights of a person, because we have to respect the rights of the people who own the corporation. But a corporation is (at least theoretically) not really earning money for itself. The profit it gets is for the owners. It doesn't really make sense to tax money that is already going to be taxed when it goes to the owners.

 

One reason taxation of corporate profits is considered benign is that it does not affect the company's decisions -- i.e., there is no deadweight loss. Whatever business strategy maximizes profits will also maximize them if they are taxed. Of course, the actual effect is to reduce investment in corporate shares and new productive enterprises by attenuating returns thereto. .

 

Weird why are they Corps? What benefit do they derive from incorporation?

Double taxation? LMAOROG

My gardener tells me that every year he gets his 1099

 

PGE (Calif utility) has plead guilty to 84 deaths, treated the same?
A $3.5 Million Fine But 'No Prison For Anyone'

Tampa, FL – A Florida corporation pleaded guilty in federal court in the Middle District of Florida to a charge of willfully violating an Occupational Safety and Health Administration (OSHA) rule. The criminal charge related to an explosion at a coal-fired power plant in 2017 that caused the deaths of five workers.

Federal law makes it a class B misdemeanor to willfully fail to follow an OSHA safety standard, where the failure causes the death of an employee. The class B misdemeanor is the only federal criminal charge covering such workplace safety violations.


BP Exploration and Production Inc. pleaded guilty to 14 criminal counts for its illegal conduct leading to and after the 2010 Deepwater Horizon disaster

“The Deepwater Horizon explosion was a national tragedy that resulted in the senseless deaths of 11 people and immense environmental damage,”

BP PAID FINES OF $4 BILLION AND HAD 5 YEARS PROBATION, THE MOST THAT THE COURTS COULD GIVE

Yeah Corps are just like people

 

"C. Roads, traffic control, drainage, communications, fire stations, cops, water, power, free trade, Stock market, the list is endless."

Nonsense, it's not even close that excise taxes at the federal level pays enough for these things.

 

Most shareholders are other corporations though (and certainly would become so if corporate profits were no longer taxed).

Also, what would stop me from creating a company to essentially run my life? It would contract my services to my current employer and from it's assets, it would pay all my living expenses. I wouldn't personally be receiving any income and so would pay zero income tax.

We still wouldn't be taxing all income the same though. Corporate income is still income, it's just a different kind of income.

There are certainly people who think like that but lots of people have different irrational biases or flawed views in this area. Just because someone thinks something is good for a flawed reason doesn't automatically mean that thing is bad though.

In general, I don't think you can suggest major shifts in how an economic system works like this without looking at the bigger picture. Simply scrapping corporate tax would have so many different knock-on effects that would need to be addressed or accounted for that you might as well start with working out a general tax and spending policy in the first place.

 

Nope those are mostly paid out of excise, duties on the federal and those and property taxes at the state and local (sales taxes are a form of general excise tax). Keep in mind the federal government does not fund your local drainage, fire stations, cops, traffic controls. Water and power are products you purchase not something you get through taxes and the government nor does the government tax you to provide you with "free trade" and a stock market.

 

Not all money earned by a corporations flows back through American shareholders and employees. Much of the profits earned by corporations can be invested in capital, resources, services and infrastructure outside of the US. Even our company has huge investments in capital like offices, warehouses, schools, housing in other countries. In addition we are in partnership and do business with many companies overseas. Using your system none of that money would ever be taxed even though it was earned in America.

Also we have not even begun to discuss the problems with foreign companies doing business in the U.S.