On taxing corporations

[linusrichard]

Why would it be rational to consume less? And there are no substitutes - the tax would be the same regargless of which brand/type you bought.

It would be rational to consume less because the cost goes up. I drink pop. If pop cost $4 a bottle, I would drink much less pop. If pop cost $20 a bottle, I would drink no pop. Maybe on my birthday.

As for substitutes, they don't have to be different brands/types of the same stuff - it can be different stuff. Let's say I drink beer over wine because it's cheaper. If beer gets taxed more than wine, to the point where wine is cheaper, I might start drinking wine. Let's say I manufacture Widgets out of Material X because it's cheaper than Material Y. Raise taxes on Material X high enough, and I'll start using Material Y.

I'm still waiting for one of you guys to explain the origin of moneys businesses use to pay taxes, if it doesn't come from their customers. No one has been able to explain it yet, can you?

I don't get this. Obviously they come from the customers. But if the business doesn't get to keep as much money with the tax as it would without the tax, how is it not bearing some of the tax?

Because every penny that business collects comes from their customers. the customers bear it all, any way you slice it.

Right, but without taxes, the business gets to keep every penny its customers give it. With taxes, it has to give away some of those pennies. Do you also think income taxes are borne by employers, because every penny that the employees get comes from their employers?

 

[UserGoogol]

Uh, yeah, it's just like that!

Explain to me how the current tax scheme is really sticking t to those fat cat CEOs?

As has already been said, passing taxes onto consumers lowers consumption. But also, everyone passes every tax onto everyone else. Regular middle class people will demand higher wages when income tax lowers their effective wage, thus "passing the tax" onto their employers. Whenever anyone is taxed, they adjust their economic behavior accordingly, and this effects everyone they trade with.

Of course, big corporations probably have more flexibility in how they can adjust their prices than workers can adjust their wages, so they can avoid facing the brunt of taxes to a stronger degree, but it's not simply like fatcat CEOs can simply magically wave their taxes away. Thus, it is unreasonable to assume that taxing corporations makes no difference over taxing their consumers directly.

 

[geni]

Don't be silly. We have all kinds of taxes that can be applied differently or not at all to different classes of persons.

Not remotely silly. If you don't set your company up as a coperation you don't pay coperation tax.

Never heard that one before, nor do I see the thought that drives it.

Some of those unpaid bills will be to the state. The state has given you an advantage over non corperations in the form of limited liability. Seems reasonable that you should pay for it.

 

[fxm]

In truth, though, I think the incidence falls on both consumer and corporation - the business raises prices (customers pay part of the tax), which results in fewer sales, which results in lower profits (business pays part of the tax).

Alternatives to raising prices are: reducing costs, which often translates to either reducing the number of employees or not paying them as much; or passing the profit hit along to shareholders via reduced dividend or reduced value of shares in the market because the profit numbers are lower.

Whether it's customers, employees, or shareholders, real people wind up paying for it somehow.

 

[WildCat]

As has already been said, passing taxes onto consumers lowers consumption. But also, everyone passes every tax onto everyone else. Regular middle class people will demand higher wages when income tax lowers their effective wage, thus "passing the tax" onto their employers.

Bingo! Now you see why I support this. It's about real people seeing what their tax burden really is, rather than the ignorant bliss that comes from hiding taxes in the cost of consumer goods.

 

[WildCat]

Some of those unpaid bills will be to the state. The state has given you an advantage over non corperations in the form of limited liability. Seems reasonable that you should pay for it.

That's not how limited liability works, at least not in the US. It doesn't protect the companies, only the personal assets of the owners.

 

[drkitten]

That's not how limited liability works, at least not in the US. It doesn't protect the companies, only the personal assets of the owners.

Yes, and that's a substantial protection for the owners of the company.

In exchange for that protection, the owners of the company pay a higher rate of taxes on their assets (their income is taxed twice, once as corporate income and again when they get personal income from the company).

If I run a dry-cleaning shop taking in $200,000 a year as a sole proprietorship, I can essentially run the company as an extension of my wallet. I will pay personal taxes on $200,000, but if someone sues me for losing their favorite pair of pants, I could lose everything, including my car, my summer home, and my retirement fund.

If I run the same shop, but as a corporation, I will pay corporate taxes on $200,000 plus personal taxes on whatever I pay myself, either as wages, dividends, whatever. That might well be the full $200,000 But my summer home and retirement fund are safe from nut-case lawsuits.

Protecting my retirement fund and summer home are a very valuable privilege indeed -- and one well worth paying for, yes?

 

[Suddenly]

That's not how limited liability works, at least not in the US. It doesn't protect the companies, only the personal assets of the owners.

It only protects the company when the company is really, really big, screws up in the face of adversity, and the government bails it out rather than put up with the mess of the market sorting itself out, disruption of services, unemployment, etc.

This isn't exactly an official protection, but it happens.

 

[Francesca R]

Bingo! Now you see why I support this. It's about real people seeing what their tax burden really is, rather than the ignorant bliss that comes from hiding taxes in the cost of consumer goods.

But corporation tax is not merely an extension of the customer's tax burden. Some of it is borne by employees, who could earn a higher gross wage if profits were untaxed, and some by suppliers who may be able to command a higher price for their inputs if the company they sell to is not taxed, and some of it is borne by shareholders who would experience higher earnings-per-share without tax.

Just because customers are the only one of this group of four who pay money over to the company (in return for goods/services), whereas the other three receive money from the company (in exchange for goods/services, human capital or investment capital) does not mean it is sensible to say customers bear all the impact of corporation tax.

 

[Francesca R]

Corporation tax is simply societies way of reducing the net loss caused by corporations going bankrupt and not paying their bills (since guess who will end up paying the bills eventualy)?

This isn't a justification for corporate tax that I have seen. Many people believe that limited liability is actually a public good, benefitting society by encouraging competitive profit-motivated enterprise. In that case there would be no need to charge for it.