Welcome to the Zerocovery

[Midpack]

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.

 

[MichaelB]

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.

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

Let’s 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 isn’t 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.

 

[MichaelB]

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.

 

[Midpack]

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.

 

[ERD50]

Let’s 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

 

[MichaelB]

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.

 

[Mulligan]

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.

 

[devans0]

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.

 

[Midpack]

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...

 

[Gone4Good]

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.

 

[Gone4Good]

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?

 

[devans0]

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.

 

[chinaco]

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!

 

[MichaelB]

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.

I’m not sure what your point is. Mine was simply to challenge the oft-repeated belief (unsubstantiated) about business – taxes – jobs. I’m 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 owner’s 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.

 

[Midpack]

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.

 

[HFWR]

I think we've mis-diagnosed the problem in this thread, and therefore are arguing over the wrong cure.

In my view, the acute illness is too much debt, fueled by easy credit and overconsumption, and other imbalances allowed/enabled to fester by short-sided government and private action. There is too much slack, particularly in the housing sector, not only shrinking the employment pool, but all but eliminating the extra consumer "oomph" from using home equity as amphetimine...

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.

A "dividend holiday" of one or two years would allow shareholders to decide if they want some of that money in their pockets. If they decide the company can use it productively, then no special dividend. Otherewise, a few billion/trillion returned to the economy...

Clearly corporate cash and profitability are not constraints to recovery.

I believe this is an accurate statement, at least of short-term reality...

What's not clear is why policy designed to loosen a non-constraint will have any beneficial impact.

However, I can envision a longer-term benefit, if, say, lower rates motivate companies to locate/relocate facilities in the USA.

This is a paradox for me. I'm all for smaller government, and a more balanced budget, in the long run. But the answer must be in the center somewhere. I've heard many on the right call for repeal of Sarbanes-Oxley and Dodd-Frank, for example, to reduce "uncertainty", and stimulate the economy. Along with these legislatives actions, one often hears the EPA, USDA, etc. mentioned as well. Not streamline or improve, mind you, but eliminate. I don't think we need to go that far. I'm not sure how we compete with countries with no pollution controls, child labor laws, and such; do we revert back to that? Is that really where we want to go?

Of course, sifting through all that legislation is tough, and expensive, and fraught with special interest conflicts from all sides, and thus does not make for good sloganeering...

Given the weak economy, and the amount of deleveraging still needed, some classic stimulative actions, like the payroll tax cut, or a sales tax holiday, or government infrastructure spending, are likely needed to help speed the deleveraging process, as well as stimulate demand. This would likely make government deficits at all levels worse in the short- to medium-term, a not-so-popular idea at this time...

 

[ERD50]

Originally Posted by MichaelB
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.

You are going to agree to disagree over simple algebra? MichealB seems to be saying that if X= A+B-T-C, that is isn't true that X= A-T+B-C. As you say, taxes are another expense, they subtract from profits just like any other expense. They can't 'appear' anywhere except as a subtraction.

If a business can't make a decent profit, they attempt to raise prices, and/or cut expenses - if that fails, they go out of business. The prices they need to charge will include taxes as an expense.

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.

Yes, some of them didn't pass this on, but you need to take a closer look to understand why. It was essentially a 'stealth' price increase. I just googled and airline profits are sharply down for 2011, so they were looking to raise prices anyhow. This was just the means they used to do it - it was 'convenient' as it wasn't an immediate out-of-pocket increase for the consumer. So it appeared a little less painful. This 'stealth' price increase might allow them to avoid increasing prices a bit longer.

Again, it's just another expense. In a competitive market, all else being equal, taxes will affect prices just like the cost of materials. We see gas prices go up and down based on these costs, they don't just go up. A tax rise/drop would do the same thing.

-ERD50

 

[MichaelB]

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.

Agree to disagree on many things, but not on absurd, irrelevant and academic Taxes, finance and pricing are complex issues and the theories that describe their behavior do not always coincide with common beliefs. You can choose not to believe them but they are no less relevant.

Taxes affect the behavior of consumers and businesses. The greater problem in the US is not tax rates, which are not high when compared with our history or other developed countries, but tax complexity, which is off the charts when compared to each.

 

[MichaelB]

One final comment. The cost of production is the sum of individual costs, which would include many non-income based taxes (like property tax mentioned earlier). The price of a product is determined by market competition. The decision to produce is a function of the difference between the two factors. In other words, non-income taxes affect the decision to produce.

If tax is assessed on profits (investor income), then tax also affects the decision to invest.

I’m out for the day. Y’all enjoy yourselves.

 

[ziggy29]

Taxes are not passed on to consumers. Some taxes (not income) do represent costs, and like other input costs, affect profit margins.

No?

If the cost of labor doubles, you'd better believe what the businesses sells is rising in price. If the cost of energy or other input to the finished product doubles in price, you'd better believe the cost of the finished product is going up. Why are taxes different?

In this corporate and economic environment, I'm not convinced corporations would slash prices if their corporate income taxes were eliminated. (It's like the relationship between crude oil and gasoline; when crude prices spike gas prices immediately follow; when crude crashes it takes a long time and only when some business in a competitice environment is brave enough to start a price war.) At this point I don't trust large corporations to cut prices or hire people or doing anything with their unprecedented hoards of cash unless they clearly see demand *requiring* them to spend some of it on hiring and expansion.

 

[MichaelB]

No?

If the cost of labor doubles, you'd better believe what the businesses sells is rising in price. If the cost of energy or other input to the finished product doubles in price, you'd better believe the cost of the finished product is going up. Why are taxes different?

In this corporate and economic environment, I'm not convinced corporations would slash prices if their corporate income taxes were eliminated. (It's like the relationship between crude oil and gasoline; when crude prices spike gas prices immediately follow; when crude crashes it takes a long time and only when some business in a competitice environment is brave enough to start a price war.) At this point I don't trust large corporations to cut prices or hire people or doing anything with their unprecedented hoards of cash unless they clearly see demand *requiring* them to spend some of it on hiring and expansion.

Ziggy, I am reaffirming that taxes are costs. Any cost increase will compel a business to want to increase price, but the increase itself depends on competition and market conditions. A business with rising costs but excessive competition gets stuck, keeps the price low, and loses money – but still maximizes revenue in the hope of offsetting somehow. Such is the tale in the US airline industry.

Lower taxes do not lead to lower prices, they lead to higher margins for investors. Lower prices result from greater competition or weakening demand.

The way to lower prices is to encourage competition by lowering input costs evenly for all competitors in an industry. A tax that is applied uniformly across an entire industry, if removed, might encourage competition and drive the price lower in that industry. Taxes are applied very unevenly across US business, however, so such an ‘across the board” effect is unlikely.
[FONT=&quot]
[/FONT]

 

[Midpack]

Lower taxes do not lead to lower prices, they lead to higher margins for investors. Lower prices result from greater competition or weakening demand.

The way to lower prices is to encourage competition by lowering input costs evenly for all competitors in an industry. A tax that is applied uniformly across an entire industry, if removed, might encourage competition and drive the price lower in that industry. Taxes are applied very unevenly across US business, however, so such an ‘across the board” effect is unlikely.

All in the same post? So which is it? Surely you're not suggesting that since taxes are applied unevenly, the correlation between costs (taxes or other) and prices doesn't apply at all. They may be uneven in some respects, but not so much long term, and they certainly aren't randomly applied - the only case I can imagine where prices wouldn't correlate with costs including taxes (rate, actual, whatever). Mark Twain is calling me (again)...

To Ziggy's other point, no question companies are quick to increase prices when faced with cost increases, and they drag their feet decreasing prices when costs fall. How fast it happens is usually a function of how much excess capacity there is, or how much supply exceeds demand. Where there is lots of excess capacity, price decreases happen pretty quickly. I don't want to introduce yet another aspect, but contractual pricing or indexed pricing, which many large companies offer - make price increases/decreases completely automatic and on a schedule (ours used to be quarterly, most are monthly now). Though consumers may not always see prices fall with costs in a timely manner, a lot of business to business transactions have price increases/price decreases indexed to cost and they change quarterly if not monthly. There is no foot dragging for a lot of transactions.

 

[Midpack]

We have several points circulating here, but wherever your quote comes from (link or source?), it talks a lot about how capital deployment decisions are made. And you may recall that I took the position that individuals or workers ultimately pay all Corp taxes. It all starts with revenues for goods and/or services, beginning with individuals.

 

[ziggy29]

Taxes are applied very unevenly across US business, however, so such an ‘across the board” effect is unlikely. [FONT=&quot][/FONT]

Yeah, don't get me started on small businesses being forced to compete with a large corporation which is getting a massive tax break to come into town and compete with them.