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Old 08-15-2010, 11:26 AM   #81
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Some good points clifp, I think I can partially answer some...

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Originally Posted by clifp View Post
As for the Corporate tax being regressive, I am not really convinced. ... Certainly we could structure corporate taxes to be somewhat targeted to rich folks, i.e. a special tax on luxury goods yachts, expensive cars, Coach Bags. Although traditionally when make targeted taxes we do it on particularly dumb fashion,
I agree, I don't like 'targeted' taxes - too many unintended consequences.


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At a macro level a corporate taxes reduce corporate profit, which we discussed/demonstrated in the thread. I contend that main beneficiaries of higher corporate profits are wealthy people in the form of higher stock prices and higher dividend payments. So in that respect I think corporate tax is pretty progressive.
Corporations can't raise their prices now to increase profits, or they would. The reason they can't is because their competition would undercut them and take their business. If we cut corp taxes, we cut their competitors costs too, so they will cut their prices - and as you have pointed out, if we raise taxes on individuals to make this revenue neutral, consumers have less money to spend, so the whole supply/demand curve should balance out at this new lower level.



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ERD point about the cost of corporate tax compliance is a really interesting one which I haven't thought about before (or actually heard). Clearly it is huge, I think Buffett said Berkshires tax return was 50,000 page..
I think the fairtax.org people have some numbers on the cost of compliance, have not looked in a while.



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However, the flip side to reducing or even eliminating corporate income is that will create a new cottage industry in people creating fake corporations to avoid paying taxes.
Hmmm, hadn't really thought about that one. I will need to mull it over, but on the surface it does seem like any money that is taken out of the corp and goes to individuals would need to be taxed. I guess taxing dividends is fair game, as we have now eliminated the 'double taxation' effect. Any salary drawn would need to be considered income. Maybe it gets tricky if someone builds up cash in a corp under the corp name, they would be deferring taxes on that and on the earnings. But they'd pay when they take it out, and with progressive tax rates, it might be better to pay as you go to stay in lower brackets? Maybe this isn't so big a deal, maybe we could make the investment income taxable?

-ERD50
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Old 08-15-2010, 02:12 PM   #82
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Originally Posted by ERD50 View Post
I guess taxing dividends is fair game, as we have now eliminated the 'double taxation' effect. Any salary drawn would need to be considered income. Maybe it gets tricky if someone builds up cash in a corp under the corp name, they would be deferring taxes on that and on the earnings. But they'd pay when they take it out, and with progressive tax rates, it might be better to pay as you go to stay in lower brackets? Maybe this isn't so big a deal, maybe we could make the investment income taxable?

-ERD50
IMO, more than "fair game", I'd say a "necessity". I think it would be a good idea to replace corporate income taxes with an increase in tax rates that brings taxes capital income up to the same rate as labor income.

Partnerships, sole propieters, and S-corps already pass the business income through to the individual return. Maybe there would still be C-corps where we would tax dividends and capital gains when they are received, maybe it would be better to tax all corps on a pass-through basis.
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Old 08-15-2010, 03:14 PM   #83
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IMO, more than "fair game", I'd say a "necessity". I think it would be a good idea to replace corporate income taxes with an increase in tax rates that brings taxes capital income up to the same rate as labor income.
*** If *** corporate taxes were to be eliminated (or if business could deduct dividend payouts as a tax writeoff), then yes -- the justification for preferred treatment of dividends on personal income tax returns would be eliminated and dividends would be taxed as ordinary income. But as long as the corporation has paid taxes on the profits distributed as dividends already, it could be argued there should be *no* personal income tax on dividends. Having said that, I'd rather see it taxed as personal income than as corporate income.
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