I don't want to sound like some kind of hardcore Austrian fundamentalist, because I'm not. Taxes are fine, but levying them on fictitious non-person entities is just a means of obscuring to voters where the tax burden ultimately lies. All taxes are paid by individuals, either directly, or by corporations raising or lowering the prices they charge and prices they pay, to suppliers, employees, owners, and customers. But this just means who bears the burden is now an opaque function of relative bargaining power and price elasticity of supply and demand.
But that is not what we want from tax rates. We want them to be an open, transparent reflection of democratically passed laws. To that end, it is far better to levy taxes directly on suppliers, employees, owners, and customers of businesses, rather than on the businesses. This would also have the nice side effect of causing businesses to choose where they locate headquarters and factories based on something other than comparative tax rates, reducing an avenue of both dead weight loss and potential corruption.
I'm kind of the opposite. We should have 0% personal income tax and a minimum corporate income tax.
A personal income tax incentivises the state to surveil the economic activity of individuals and play games with nudging people to do X or Y, and puts the burden of tax filing and the consequences of not reporting (which some people just can't do correctly).
Contrariwise, a corporate income tax can be thought of as a "user fee" for the privilege of the corporate veil and limited liability. If you don't want your mom and pop shop to pay corporate income tax, simple: don't incorporate, and be responsible for your personally responsible for your employees' well being. And thus it becomes a driver of small business growth and a progressive taxation (the beneficiaries of bigcorp profits are going to be disproportionately wealthy). If you can't afford an accountant to keep track of what taxes you owe, don't incorporate. Etc.
Corporations don't generate enough profit to float a nation's tax needs.
Corporate profit in the US is generally somewhere around $2 trillion per quarter when times are very good. That's including all businesses, from mom & pop to Microsoft, and that includes all profit from global operations (not just domestic operations).
A 50% tax would only pay for just over half the US tax revenue needs (assuming you make the mistake of taxing global profits at 50% as well) and that would probably cripple the US economy. Many of the consequential corporations would attempt to flee (so you'd have to implement some form of government-sponsored slavery to keep people in). A 100% tax would immediately begin to collapse the US economy as businesses would no longer be able to save for any future purpose (including recessions, business problems, unexpected opportunities, and so on) and they would fail rapidly.
The only tax source large enough to support a nation is an income tax on individuals. That's why, for example, no nation in Europe has ever attempted to fund their expensive and well-experimented welfare states in the way you're suggesting. They know it doesn't come close to working.
> The only tax source large enough to support a nation
The US did quite well for a time without income taxes. If I recall correctly, the US even went from a nearly destroyed nation to global empire, building up several colonial territories, and constructing battleships that went around the world, in a time period where there was no personal income tax.
Those operations can choose to pay income taxes. A lot of small operations (contracting shops whose customers are businesses) will do just fine without limited liability. You can also limit liability on a contract by contract basis. Many people are incorporating their operations just to be able to claim business expense deductions on their income stream. This seems unnecessary.
I don't understand how this would work. You would tax corporations based on actual income? So money-losing businesses would have to pay taxes on their income even though they operated at a net loss? And low-volume/high-revenue businesses would pay less in taxes than high-volume/low-revenue would?
One of the problems is that net loss is fictional. Companies use well meaning tax credits and deductions to offset income. His point is fair but the specifics need a little tweaking.
I've never seen this proposal before. I'm curious what the consensus is that leads to it being downvoted so. I'm inclined to think this is a bad idea, but I'm not confident.
My guess is you'd see a small portion go to employees, a large chunk reinvested into the business, and a large chunk go directly to shareholders. If you managed to alter the structure of taxes so that shareholders paid more for capital gains and dividend income, I feel that's a better outcome than corporate taxes. But lingering doubts of the feasibility of doing so + companies just hoarding cash seem like large problems.
Agreed. Instead of taxing the profit of a corporation, just tax the payment of dividends from that profit. The total tax burden can still remain the same if that's what people desire, but the end result will be more transparency as you say. I think Estonia has exactly this policy, or at least they did last time I checked.
It also removes the incentive to mess around with stock buybacks, which is good because the extra liquidity can be put to better use within the company.
For very small companies (such as my own) it would also remove the bureaucracy involved in saving profits from one fiscal year to the next.
> just tax the payment of dividends from that profit
My dividends are already being taxed as income. I agree with you, but good luck trying to convince Big Gov that they need to eliminate a revenue stream without picking up a new one.
> Instead of taxing the profit of a corporation, just tax the payment of dividends from that profit.
This would be regressive, though. Why not tax the individual via a progressive cap gains tax?
> It also removes the incentive to mess around with stock buybacks, which is good because the extra liquidity can be put to better use within the company.
If a company can't think of a good use for their profits, do we really want to force them to keep the money within the organization? This seems like a recipe for bloated budgets and bigger Christmas parties, but I'm not sure that we could expect much benefit otherwise.
> This would be regressive, though. Why not tax the individual via a progressive cap gains tax?
How would it be regressive? According to Wikipedia[0], most corporate tax rates are proportional (i.e. "flat"). Just replace that with an equivalent rate on payout of dividends. Capital gains tax for the recipient is an entirely separate question.
> If a company can't think of a good use for their profits, do we really want to force them to keep the money within the organization?
In such situations they can pay dividends of course, which are taxed in my proposal. The point is that there is no point in buying back stocks instead of paying dividends.
An interesting thought exercise, but you use the term "supplier" as if it isn't itself a business.
And while I see what you're trying to get at, I think the idea is flawed. Taxed being "open and transparent" are good attributes, but not the reason, for taxes to exist. They exist to fund society.
Corporations and businesses, as entities, utilize public services. They wear roads, they take up land, they pollute. They should be expected to pay their portion of the upkeep to their local area.
I understand the idea of reducing the race to the bottom and city/country gamesmanship for tax evasion... which is what the linked proposal looks to solve AFAIK.
They do pay a portion though, through payroll taxes and their employee's income taxes. They also pay property taxes and shareholders pay capital gains taxes. I'm sure there are even taxes I am forgetting about. This is only talking about the tax on corporate profits.
Also worth noting that corporate taxes make up only 7% of federal tax receipts, but likely incur a huge cost in terms of avoidance and manipulating practices.
I am for 0% corporate rates as well, I personally think we should just raise the taxes on higher earners and rethink cap gains for people that sell large amounts of assets, but cut corporate taxes to 0%.
I'm trying to think through the ways this could be cheated. For example, if I own a business then instead of paying myself and then donating to a 527 political issue group I could instead have my business donate to the 527. Since the 527 is tax exempt that money never got taxed, but if I had to take the money as income first I'd have to pay income taxes. I'm sure there's other ways to take advantage of a zero percent corporate tax, or indeed even the lower-than-personal corporate tax rate already in place.
I don't see any reason why the Irelands of the world would be amenable to the idea of a minimum corporate tax rate. There are huge economic benefits to be had by luring US and UK companies with favorable tax treatment. Yellen's fantasy about getting every country to apply the same high tax rate against their interests is not helping the US's global competitiveness.
In business, if you find yourself in a "race to the bottom" on price it typically means your product has become a commodity. The antidote to commodification is strong branding. Instead of trying to collude on tax rates like some kind of financial mafioso, somebody in Washington needs to figure out how to rescue the brand of the United States in order to reverse this trend.
It isn't a fantasy if the US and other high tax rate countries apply pressure in the form of holding at stake economic access at stake.
I'm not in favour of the corporate tax, I would rather have a high progressive consumption tax, a progressive inheritance tax, and a land value tax. (yes I recognize this will never happen...) That said, tax arbitrage across borders is the same kind of global coordination problem as climate policy across borders.
Accepting a race to the bottom and resigning to a climate catastrophe are not solutions; we need countries who want to fix these problems to band together and create carrots and sticks to incentivize misbehaving countries to join in.
Whether or not we see such a harmonized tax rate emerge and even if we could find a way to have some governing body “enforce” it, you’d still see countries lowering their effective tax rates to lure firms or bolster growth. I bet there’s a maximum sustainable effective corporate tax rate, but I have no idea what it is (and for all I know it could be zero or negative).
Can these small countries who offer the low rates stand up the US sanctions and tarrifs apparatus. The US has alot of strings to pull to make these tax havens cooperate. Thats a nice export industry you have there, would be a shame if something were to happen to it wink nudge.
The point is that effective tax rates can be really subtle.
For instance, you could have a country change what it considers to be “profit” so that you’re paying $2 on $100 of revenue, whereas in the neighboring country you’d be paying $6. Same nominal tax rate, different effective tax rates.
There are even more ways to play this: “Sure, we tax you at the required 20%, but you can then direct how those funds are used to reduce costs you’d otherwise have to pay directly.”
And this happens a ton— see the WTO and “effective” but not nominal tariffs.
Thanks for the insight, what would be the danger of the happy path solution where these effective vs nominal rates arent factored in. Some countries have a huge advantage in certain industries?
Happy you found it helpful! The final section (imposters) of this [1] simplified exploration of “green beard altruism” might be of interest to you if you want to explore this further. If you’re interested in thinking about things like this generally, these are Nash equilibrium problems and the field is called game theory.
In answer: if we do discard the assumptions of game theory and we imagine nobody would ever think to “cheat,” it could work. But in reality it wouldn’t be just that some countries have huge advantages in some industries— they would have huge advantages in every industry. People and companies looking to maximize their opportunities would flee to the country with the lowest effective (nominal doesn’t matter) tax rate which could also guarantee their safety.
This is actually part of how the US ended up burying the Soviet Union/eastern Bloc with economic productivity— we kept poaching all their best engineers, scientists, mathematicians, and entrepreneurs.
In many countries, vendors from Apple to the guy selling apples on the street-corner collect Value-Added Tax (VAT) from their customers. It's a kind of sales tax that applies to all sales, not just retail sales to end users. It's harder for companies to play the international shell game with sales than it is with cash.
VAT seems to be sufficiently fair, workable, and enforceable. People don't like it, but nobody likes taxes.
The US feds can't do VAT though. It took the 16th amendment to allow the feds to collect income tax from people; it carves out an exception to the Article 1 requirement that all taxes be apportioned among the states by population.
This corporate alternative minimum tax idea seems to be a way to stay within the bounds of the 16th amendment and still collect business taxes.
None of it matters at all unless the tax-audit authorities get more teeth than they now have. Business-tax compliance in the US could easily go down Greece's path, where you're a chump unless you cheat.
My theory is that inequality is simply the result of globalization and it's not necessarily a bad thing.
If you had build the most successful retail business, in 1900 you would own the market in your town; in 1950 in your country; in 2020 you'd own the world (or a big part of it). The opportunity is just a lot bigger now than 50 years ago and that trickles down.
Also technology enables goods and services to be produced from everywhere; that means countries compete globally. Many 0.1%ers had to overcome global competition to make the money they're making. In addition, more and more of them can do it from anywhere (def true for entrepreneurs starting fully remote startups, for instance).
So there is both value and necessity in having to compete globally to attract the entrepreneurs and highest producers / best talent. Does it mean 0 tax? No. But it does mean you have to have reasonable taxes and offer a good product (security, laws, culture, talent, whatever it may be).
It also means you don't offend your best 'customers' all the time. All this talk about how 0.1% people essentially unfairly stole their way to their success won't want to make anyone pay more or stick around to higher tax place (city/state/country).
As a government you first want to be efficient with tax money; be reasonable with taxes, even if higher than average (but within the competitive ballpark); show appreciation for the people that end up paying most of your taxes; and stop talking about inequality as being exclusively a bad thing and a result of tax policy.
I know the book and it's an interesting theory. I guess most of the 'rich' people I know / know of are entrepreneurs and they didn't get rich from capital returns but by building a company that created an unthinkable amount of value and also many jobs and success for a lot of people.
In my mind also, the best antidote to that is not taxes but anti-trust (make sure companies don't unfairly stay dominant) and low interest rates (which has been the case for a while) so that people without capital can borrow at reasonable cost.
Taxing a company doesn't make it less dominant. it can be argued that it makes it more dominant because the cost to compete with the dominant company will be higher if corp taxes are higher.
> If you had build the most successful retail business, in 1900 you would own the market in your town; in 1950 in your country; in 2020 you'd own the world (or a big part of it). The opportunity is just a lot bigger now than 50 years ago and that trickles down.
In 1900, thousands would own the markets in their respective towns, in 1950 dozens would own the the markets in their countries, and in 2020 one person would own the entire market. This is not trickling down, this is flooding up.
It's no different than being the big man in your small island culture before the British navy rolls in. If there are no protections in place to preserve you, you will disappear and the Empire will expand.
If you believe that, then your answer is anti-trust -- not taxes. You also need to cut all red tape for small businesses which right now are enormous especially in places like NYC (property taxes alone are a travesty).
All taxes do is make the government a business partner of the 'imperialist' entrepreneur. It won't bring back the small town businesses or anything else about the past that you idealize.
Inequality is simply inherent to capitalism. The free flow of capital, goods and labor will always see concentration happening. The issue is that it should be very possible to eliminate true poverty with reasonable redistribution policy. Capitalism (and Industrialization) have gotten us tantalizing close to a post-scarcity economy. We still need the last 1/3 or so of the world to get on the trolley while addressing our growing ecological crises. Both of which are hard problems to solve, but at this point we actually probably have all the ammunition we need if we can just summon the will. We can reach a point where we still have some absurdly wealthy people, but everyone else down the ladder has food, shelter, health care and dignity available at all times.
I can’t say for certain whether or not this is true but I really don’t think it is. The entire premise of capitalism is that we’re all better off through specialization and trade. It’s the _very_first_thing Adam Smith writes in The Wealth of Nations.
We use the word “inequality” a lot at the moment but I think, in some ways, it’s a bit of a misnomer because the true issue the term “inequality” attempts to describe is that people aren’t getting the “better off” end of the deal that capitalism promises. For a lot of people participating in capitalism there isn’t any action in their set of available actions where they’re economically better off than they were before.
It sounds like you're just saying "pareto happens in any resource allocation scheme" which isn't specifically inherit to capitalism and is kinda just what happens when people have resources. I'm not convinced that people can live without resources. Sure, there are concerns when the distribution becomes too long tailed, but what you're describing is inherit to any system (we haven't seen a system where this hasn't happened). Stop creating a boogieman, let's have a good faith conversation instead.
I did not at any point imply that inequality was unique to Capitalism. And I'm not sure what you mean "live without resources". My point is that we have enough resources for everyone to live well even if some people have much more than others. I'm not trying to blame Capitalism for anything. I'm actually trying to say that we can achieve stability and social justice without having to abandon it. We just need a modicum of Socialist policy sprinkled in.
In the current climate the way you phrased things comes off very similarly to the common "capitalism bad, socialism good" argument that lacks a lot of nuance between those opinions. The specificity of capitalism in your statement seems fairly irrelevant to what you have expanded upon, and this likely will just lead to fighting (and I suspect is the reason for your downvotes). It definitely comes off as if you are trying to blame capitalism for the problem, but that may not have been your intent and just that I (many of us?) am primed this way. So I'm trying to pull the conversation away from this "Capitalism v Socialism" argument because it is difficult to have a real conversation when we even approach this framing, even on HN these conversations divulge to a race to the bottom really quickly.
FWIW I don't think the majority of people reject the idea that we need some amounts of regulation, some amounts of social policy/protection, etc. The argument is how much, but we use bad terms to discuss this and definitions people refuse to agree on nor recognize that others are using different definitions.
Isn't that just called a dividend? Or are you suggesting that shareholders owe tax liability for all earned corporate profits, regardless whether any of that is paid to them as a dividend?
Or this has nothing to do with "ideology". And it's meant to reduce the unfairness in tax rates between individuals (who pay taxes on worldwide income) and corporations (which do not).
I believe that the pandemic will make world politics lean to the left. It's inevitable. Such a gigantic crisis will force society into mutual help, and will make it harder for values like independence and individualism to really thrive and endure. No man is an island. It's true that trade and entrepreneurship are a form of mutual help, but competition bring the worse, and it becomes the economy of the survival of the fittest.
When governments inject money into private banks, it's impossible to deny that capitalism doesn't work without state intervention. Capitalism has been dying since 2008. In my view it started dying after the end of the cold war. An ideology without rival slowly becomes irrelevant because it's unchallenged.
And yet, it didn't do that with the US. I'm frankly shocked that so many anti-maskers and covid-hoaxers are so adamant, because this was the perfect case for universal health care in the US. And yet, you hear NO ONE calling for it. It's like learned helplessness. There's almost half the population that actively rejects it, which is mindboggling to me.
IDK if you noticed, but half the population watches brainwashing "entertainment" disguised as "news", which actively pushes conspiracy theories and disinformation down their welcoming throats.
That doesn't seem fair to the smaller (sovereign) countries who want to set their own tax laws to incentivize companies to do business there. In fact, it seems fundamentally outrageous that one country should be able to dictate anything about tax laws in another country. Wars have been fought over such abuses of power.
> "We're working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom."
The race to the bottom Yellen refers to is corporations playing one country off another, as in "lower your taxes or we'll move our profits to Ireland." The proposed solution - countries agreeing with each other not to lower the corporate tax rate below some limit - is an example of sovereign nations working together in a way that benefits both sides, not one sovereign nation dictating policy to another.
I don't think it's fair to assume harmonized tax rates are mutually beneficial. Taking Ireland as an example, how many of the companies that shifted profits there for favorable tax treatment would continue to do that if they had to pay the same as they would in the US? My guess is relatively few would remain. So Ireland would likely lose revenue without that discount as an incentive drawing in these companies.
Without a harmonized tax, Ireland could also lose all of its corporate tax receipts to some other country that's willing to stoop even lower.
More generally, this is a variant of a mutual coordination problem in game theory, in which it is everyone's interest for everyone to cooperate, but in each individual's interest to be the only party that doesn't cooperate. Those are notoriously tricky to induce/enforce agreement on, but it has been done.
So it is fair that one tiny country sets a near-zero capital tax, and enjoy free trade of food and services with all the big countries around it. Any corporation would move to the tiny country, of course, where nothing happens except tax and accounting.
You're confused about the incentives here, I think. Traditionally the conflict in this space has been smaller nations wanting to tax economic activity within their borders (by larger multinational corporations) and being prevented from doing so by coercive foreign policy. You really think that Ecuador or wherever wouldn't like a bigger cut of the oil they're shipping out?
The news here is that US policy seems to be moving to align with smaller powers, not the reverse.
No... countries like Ireland explicitly set lower tax rates to attract companies to open HQ there. You think Apple has an HQ in Ireland just because they like the whiskey?
But it’s not global it’s whoever the allies are, which I guess is OECD and co. They’re just trying to avoid having companies move (tax jurisdiction shopping) and do reverse mergers to shirk tax responsibilities, etc.
I presume it would be via some convention which allows tit for tat reciprocity and so on.
Panama has full right to set its own tax rates. Developed countries have full right to deny Panama's corporations from entering their markets, and even forbid their own corporations from dealing with their Panama counterparts.
Or, more realistically, the developed countries will pull any of the dozens of levers to make non-cooperative countries' life miserable.
Yes, as long as Panama wants to continue doing business with the US. Guess what, most companies that are incorporated in a tax heaven do nothing there except tax and accounting, so they will pressure Panama to agree to the US' demands so they can keep enjoying their privileges.
It's not about rights, it's about ability. If Panama wants to trade with the US or it's vassals, it will do what the US says. China doesn't have to listen to the US, if Panama wants to defy Yellen, it can deal with China - although China may not see Panama as worth it, I don't think that tax breaks are an export that China is desperate for.
edit: think of it like this - you have the "right" to eat meat. But if I refuse to be friends with people who eat meat and you need my friendship, you can't eat meat.
I don't think it's valid to say that the parent has misunderstood how the world works without saying what you believe that misunderstanding to be. It seems perfectly logical to think that a corporation would be attracted to places with lower corporate tax rates to use as a tax shelter.
