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Old 09-04-2011, 10:08 AM   #21
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I'm with you except the only ones getting away with beating the USA are the large corps. The small ones don't have the resources to get it done. Till it's fair for all GE should be taxed.
OK, but I can't imagine Congress getting the corp tax code simplified to the point that a big corp with armies of experts wouldn't have an advantage over the little guy. And the consumer ends up paying for those armies on top of the tax.

We've seen plenty of debate here on what should be considered personal income. Just look at the back-forth on LT cap gains - is it 'advantaged' because it is capped at 15%, or is it 'disadvantaged' because it doesn't account for inflation ( a 1 year old $100 cap gain is taxed the same as a 50 year old $100 cap gain).

So eliminate corp tax. It's just a needless complexity that will never be 'fair', but it can be equal (at zero for all).

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Companies shouldnít be taxed because they only pass that along to the consumer isnít even a truism, itís an unsubstantiated assertion.
It's seems to argue against basic economics to say that in general, in a relatively free market, that an on-going business does not pass its costs on to consumers. How can it be otherwise? IIRC, former poster 'Emeritus' tried to make this argument, and it seemed to get more and more convoluted the further he got into it. Can you show how it would not be the case?

If I say that if the price of beef goes up, shoppers will choose relatively more chicken or other alternatives - that can be called out as an 'unsubstantiated assertion', as I can't directly prove that it will happen. But it is based on sound, well understood economic principles, and is very, very likely to be true in practice, whether I collect the data to substantiate it or not.

Taxes are just another expense to a business and it affects their COGS.

-ERD50
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Old 09-04-2011, 10:08 AM   #22
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I watch local MegaCorps use their economic muscle to get sweetheart deals that shift their costs to taxpayers. For example, MegaCorp A uses more water than the rest of the city, but pays the lowest cost for water and sewage to make up for it and no local taxes. The city needed to completely rebuild water works, water towers, underground lines as well as sewage lines and sewage treatment. New four lane roads are put in to handle the extra load. If MegaCorp A didn't get what it wanted, it would expand out of state/country. "Its" politicians get voted out and are given cushy advisory jobs that ensure that they do not have to work again. Taxpayers see their water and sewage rates skyrocket by 50 times to pay for it.

MegaCorps are legally considered people too, but blind adherence to political philosophy is blind to their welfare benefits.
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Old 09-04-2011, 10:15 AM   #23
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This means every tax levied is money that could be used for something else. Tax on business is no different than any other.
Taxes are just another cost to business "no different than any other." As with any added cost, business will seek a way to avoid the cost, or pass it on to consumers. They won't just eat the cost, it's naive to think so. The taxes levied will indeed be used for something else, but that doesn't mean the impact is all the same.

Seems we can reduce government spending and/or increase revenues/taxes. On the revenue side we can pay higher individual taxes, or we can increase Corp taxes. But again, the latter will cost us in higher prices for the same goods and services or help hasten moving jobs offshore (acknowledging there are other causes, labor costs). Why not just pay more directly and not risk more jobs, wages, profits going offshore sooner?

The GE tax question is another issue. Like it or not, that's our tax code...
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Old 09-04-2011, 10:24 AM   #24
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Taxpayers see their water and sewage rates skyrocket by 50 times to pay for it.
Incredible, literally...
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Old 09-04-2011, 10:37 AM   #25
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Incredible, literally...
Granted, it was over many years, and the incremental costs also include inflation adjustment, but for fixed income retirees, this is essentially welfare that robs from the poor to pay the rich. MegaCorps have "GNP"s that are larger than most countries in the world (and most states). Why is the actual and I emphasize actual tax rate so low compared to middle class working people?

For the record, I am a fan of smaller government AND smaller corporations.
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Old 09-04-2011, 10:58 AM   #26
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Why is the actual and I emphasize actual tax rate so low compared to middle class working people?
Generally not true though people love to sensationalize the exceptions. Just go look at the annual reports of any public corporation, their revenues, earnings and taxes are all there - actual. You can find the info at your local library if you'd like.

And you can find the collective taxes paid to the US by all corporations, I've posted 2010 online a few months ago.

But this is all beside the point, ultimately you pay all the corporation taxes by buying their goods and services. In the end, individuals provide all the revenues our governments take in.
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Old 09-04-2011, 11:00 AM   #27
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Taxes are just another cost to business "no different than any other." As with any added cost, business will seek a way to avoid the cost, or pass it on to consumers. They won't just eat the cost, it's naive to think so. The taxes levied will indeed be used for something else, but that doesn't mean the impact is all the same.
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It's seems to argue against basic economics to say that in general, in a relatively free market, that an on-going business does not pass its costs on to consumers. How can it be otherwise? -ERD50
Letís define a term. We are talking about income tax, which in the case of business, is tax on profit. If business can invest to manufacture a product, sell it and make a profit, it will do so. It will always charge the highest price allowed by competition. That is the theory, and it works in real life. Income tax on the resulting profit is paid by the investor. More tax is levied on greater profits. If the investor feels the potential profit after tax is not rewarding enough, he/she will invest elsewhere. Tax affects the investor, not the consumer.

Tax on business profit does affect the decision to invest, just as tax on personal income affects the decision to work. At extreme rates, both investors and workers just stop. When rates are not extreme, however, the propensity to work or invest isnít affected by taxes but other factors, most importantly being the marginal utility of the hour worked or the $1 invested. As long as the marginal utility of investment is positive and greater than the risk-adjusted alternative, investors will continue to invest in business.
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Old 09-04-2011, 11:02 AM   #28
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In the end, individuals provide all the revenues our governments take in.
The US taxes transfers, not individuals. People are not taxed, their income is taxed. Same for business. It is the economic activity.
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Old 09-04-2011, 11:20 AM   #29
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All true, except you fail to draw the distinction between unique cost attributes and common attributes, as Corp taxes are.

The market sets the price as you stated, the floor is where the least competitive company in that industry can remain in business. The other companies enjoy more profits due to unique competitive advantages, higher productivity/lower wages, size, location, etc. that result in lower unit costs for their goods or services. As it should be.

And if you could increase taxes on one company, they would indeed be forced to eat the cost at the expense of profits. Fortunately, that's not possible or at all fair.

OTOH, costs that are common to all the companies, such as taxes drive the overall costs and reduce profits at all companies. If they can't avoid the tax increase, they will all seek to increase prices to maintain profits, the least competitive company will be desperate to do so, possibly facing outright business failure. It can play out many ways, but they all result in higher prices to individuals...

At the risk of confusing the issue (further), crude oil prices and local fuel taxes are essentially common costs, they are passed on very quickly as we see every day.
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Old 09-04-2011, 11:32 AM   #30
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Letís define a term. We are talking about income tax, which in the case of business, is tax on profit. If business can invest to manufacture a product, sell it and make a profit, it will do so. It will always charge the highest price allowed by competition. That is the theory, and it works in real life. Income tax on the resulting profit is paid by the investor.
What is your basis for the statement I bolded?

Income tax is an expense paid by the company, like any other expense. How can it be different? How can it be compartmentalized?

When I own an individual stock, I am not sent a tax bill for the income tax that the company paid. What are you talking about?

-ERD50
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Old 09-04-2011, 02:08 PM   #31
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What is your basis for the statement I bolded?

Income tax is an expense paid by the company, like any other expense. How can it be different? How can it be compartmentalized?

When I own an individual stock, I am not sent a tax bill for the income tax that the company paid. What are you talking about?

-ERD50
The profit accrues to the owner. If there were no tax, it could flow entirely to the investor. The business pays, but the money comes from the owners of the profit - the shareholder.
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Old 09-04-2011, 02:16 PM   #32
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Originally Posted by ERD50

I say make GE the rule, rather than the exception. Eliminate all corp taxes.

What's the point of taxing a Corp? They just pass the cost to the public, and we ALL pay it. Plus, it makes them less competitive worldwide - who does that help? The 'joke' is on us.

This whole 'tax the big evil corps' is just counter-productive class warfare.

-ERD50
While, I generally agree with you ERD, and am not wanting to tax corps excessively and potentially hurt economy, I'm not a 100% sure the corporations would pass down the reduced cost of business to consumers if their taxes were reduced. If I remember correctly last month, the airlines caused an uproar when the federal tax on tickets temporally expired, the airlines raised the price exactly to match the taxed ticket cost and pocketed the money themselves.
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Old 09-04-2011, 03:16 PM   #33
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Generally not true though people love to sensationalize the exceptions. Just go look at the annual reports of any public corporation, their revenues, earnings and taxes are all there - actual. You can find the info at your local library if you'd like.

And you can find the collective taxes paid to the US by all corporations, I've posted 2010 online a few months ago.

But this is all beside the point, ultimately you pay all the corporation taxes by buying their goods and services. In the end, individuals provide all the revenues our governments take in.
Hmm, average fed tax 15%, fica (my share and the share paid for me) 15%, state income tax 6%, sales tax 5%, add property tax, and I am north of 40% Since I am in a near average tax state, I don't think I am out of line in my estimates.

Take out property tax, sales tax, fica, because the local MegaCorp is not paying those, nor is it paying unemployment insurance. They are getting the benefit of the upgraded facilities but not paying for them. This is my largest issue with MegaCorp. They use the lion's share of resources, but use economic clout and threats to relocate to not pay their fair share for those resources. Local citizens did not need a four lane road to industrial park, 48 inch water mains, and larger sewage lines, but they are footing the bill for infrastructure upgrades. Did I mention that MegaCorp A is getting tax subsidies from the government for energy creation? Subsidies dry up and they threaten to close their doors. I don't like that 40 % of the populace don't pay taxes, but half of those are retirees. I especially dislike corporate welfare for the companies that don't pay taxes.

Are the average MegaCorps truly averaging that high (40% ++) a tax rate? I still maintain that MegaCorp is not paying their fair share.
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Old 09-04-2011, 06:06 PM   #34
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Take out property tax, sales tax, fica, because the local MegaCorp is not paying those, nor is it paying unemployment insurance. They are getting the benefit of the upgraded facilities but not paying for them. This is my largest issue with Megacorp.
I guess all the companies I worked for were pretty stupid as we most certainly paid property taxes, sales tax on man purchases (but some were exempt), FICA (you must be kidding with that one) and workers comp even though we never had a case in the 18 years I was reponsible for company expenses.

Corp income federal tax rates are 0-35%, states are 0-12%. Actual varies from 0 to the max. Like I mentioned, you can see a public companies taxes are clearly shown. Some pay little (often publicized), some pay very high taxes (surprise-surprise, not publicized even though it's equally easy to find).

A few years ago I remember looking up Exxon when people were outraged at their record profits of $40B for the year. Sure it's a lot, but they had revenues of $400B that year, so their after tax profit was 10% - by no means outrageous. Apple, Microsoft, Starbucks after tax profits were 20-30% the same year - where was the outrage over that?

And Exxon paid $30B in federal income tax that year. But no one acknowledged they paid record taxes that year too. And don't take my word for it, you can see it for yourself.

But again, you're going to pay all Corp taxes in the end anyway...
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Old 09-04-2011, 09:12 PM   #35
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I think we've mis-diagnosed the problem in this thread, and therefore are arguing over the wrong cure.

The general line of thinking seems to be that we can simply cut corporate taxes and then businesses will use that extra money to create jobs. The problem is, businesses are already sitting on record amounts of cash. And yet they aren't investing and they aren't creating many jobs.

Why is it that we think adding a little to the pile is going to change anything?

We might also note that corporate profit margins are also at record highs.

Clearly corporate cash and profitability are not constraints to recovery. What's not clear is why policy designed to loosen a non-constraint will have any beneficial impact.
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Old 09-04-2011, 09:31 PM   #36
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In case anyone is wondering what the trend in inflation adjusted after tax corporate profits per employee looks like, see the graph below. What the graph tells us is that corporations are currently making more on an after tax basis per employee than they ever have in the past.

What this also tells us is that if corporations thought they could sell more product but needed to hire folks to produce it, they'd be idiots not to hire - even if that means paying taxes at existing rates.

If, on the other hand, corporations don't believe they can sell more product, they'd be idiots to hire people to produce more - even if corporate tax rates were lower.

Which problem does it look like we have?

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Old 09-04-2011, 09:36 PM   #37
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I took some time to research the corporate tax rates actually paid. There was a lot of partisan tripe that had to be filtered. I tried to stick to trusted sources such as the GAO.

According to the GAO, ranges varied from 1/3 to 2/3 of major corporations paid no federal income taxes through the mid '90s through 2005. The time trend was lower tax rates in later years.

What was most interesting was the methods that these were achieved and how they came about. To paraphrase, the tax rates are among the highest in the US, Germany, and Japan. This rewards companies to 'offshore' their taxes to countries that are cheaper. Just as individual taxpayers are paying the largest share of taxes, US corporations are paying a largest share of world taxes. To compete, they must move money out of high tax countries or be outbid by corporations in countries with lower taxes. Among the GAOs findings, the companies that had the lowest tax rates worldwide were multinationals and small businesses.

GAO recommendations were to close tax 'loopholes', and lower overall corporate tax rates.

I can choose to pay or not pay corporate taxes in the end. I don't have to buy from any one of them or invest in them.
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Old 09-05-2011, 04:49 AM   #38
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Changing corp taxes in any meaningful way would require complete restructuring of our tax system.

Plus, I do not think it will fix our current problem?

Taxes will not.... absolutely will not... fix our global competition issues!

That is not to say that it could not be improved. But our current situation should be stabilized before we embark on a path to completely restructure anything that complex.

Be careful of what you are fed by PACs and political mouthpieces.

There are only three possible political motives:

  1. Save all of us
  2. Save me
  3. Give me an advantage (at the expense of someone else)

I have no problems with 1 or 2... but I am very suspicious of most of the rhetoric and grand ideas being push out there today because they usually masquerade as 1 or 2 but are really motivated by 3!
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Old 09-05-2011, 07:43 AM   #39
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All true, except you fail to draw the distinction between unique cost attributes and common attributes, as Corp taxes are.

The market sets the price as you stated, the floor is where the least competitive company in that industry can remain in business. The other companies enjoy more profits due to unique competitive advantages, higher productivity/lower wages, size, location, etc. that result in lower unit costs for their goods or services. As it should be.

And if you could increase taxes on one company, they would indeed be forced to eat the cost at the expense of profits. Fortunately, that's not possible or at all fair.

OTOH, costs that are common to all the companies, such as taxes drive the overall costs and reduce profits at all companies. If they can't avoid the tax increase, they will all seek to increase prices to maintain profits, the least competitive company will be desperate to do so, possibly facing outright business failure. It can play out many ways, but they all result in higher prices to individuals...

At the risk of confusing the issue (further), crude oil prices and local fuel taxes are essentially common costs, they are passed on very quickly as we see every day.
Iím not sure what your point is. Mine was simply to challenge the oft-repeated belief (unsubstantiated) about business Ė taxes Ė jobs. Iím not advocating any policy but would like to see a civil discussion based on real theory. So, to summarize, aggregate demand is the driver for jobs. Tax on business profit is tax on the ownerís investment income. Prices are set in a competitive marketplace and reflect supply and demand dynamics. Taxes are not passed on to consumers. Some taxes (not income) do represent costs, and like other input costs, affect profit margins.

That said, IMHO tax code reform without changing effective rates would have an enormous positive impact on business productivity that would lead to greater international competitiveness. It would also have a negative effect on a few individual businesses that have taken advantage of the tax code, and in these cases shareholders would suffer.
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Old 09-05-2011, 08:02 AM   #40
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Taxes are not passed on to consumers. Some taxes (not income) do represent costs, and like other input costs, affect profit.
That's absurd, where the various taxes and other costs appear on the income statement is irrelevant, they all flow from the top line revenue - from customers. You've pointed out several "real theory" distinctions in this thread that while true, they're academic in the end so I guess we'll have to agree to disagree, no problem.
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