>You'd never want other companies paying as much tax if they didn't have the profit to back it up. It would bankrupt them.
They do have the profit in that the money they make doing things exceeds the money they spend to do the thing, but though a series of tricks of varying legality and ethics they make it so on paper they do not have "profit" and therefore successfully avoid taxes.
Amazon reported losses for the first 10 years while growing to billions in yearly revenue.
>It would bankrupt them.
It really wouldn't have. While Amazon was growing to dominate retail and putting very many competitors out of business, they were paying 0 corporate taxes. Many companies play these tricks and many people want them to pay fair taxes. If you need to be tax free to break even, you should go bankrupt. Especially in the Fortune 500 region.
You seem to be misunderstanding. Amazon paid no corporate taxes because it was reinvesting everything into growth. There's nothing illegal or unethical about that – in fact it's not a bug, it's a feature. We incentivize that because it means that Amazon winds up paying more taxes in the long run. Once it no longer has growth opportunities but is just raking in the profits, it winds up paying tons of taxes. Way more taxes than it would've been paying when it was much smaller. It benefits the tax base to let companies make their own decisions about when to grow and when to turn a profit. The last thing you want to do is to start taxing revenue rather than profit, because that slows down economic growth in the entire country. That would be terrible policy. It's not about tricks, it's literally about maximizing tax revenue over the long-term.
I don't really think we needed to incentivize amazon to grow to dominate the market reaching 40% total retail ecommerce market share and destroying many competitors that weren't trying to race to monopoly. The companies taking profit not trying to conquer the world were doing the right thing and were put to disadvantage by the tax code. Tax revenue is not maximized by allowing rotating monopolies that only pay taxes for the relatively brief period between when they're growing and dying.
For the hundredth time, it is not double taxation.
Money is taxed (generally) whenever it moves between parties. You paid tax on your income; you give (some of) it to someone else for goods or services - they pay taxes on it again. That's not double taxation, that's how tax works.
Money flows to the corporation. They pay some to employees, who pay tax on their income. They (might) pay some to shareholders, who (might) pay tax on dividends or capital gains. What is left (very simply speaking), the corporation pays tax on as its income.
It definitely is double taxation. (1st level: corporation, 2nd level: shareholders).
But the point is that the owners accept double taxation in exchange for the protections of the corporate form, like a legal liability shield, treatment of ownership interests as capital assets subject to lower tax rates on sale, deferral of taxation of shareholders' allocable shares of the business' income (as represented by dividends), etc.
A corporate tax rate is good policy. The answer to how high that tax rate should be has split families and friends for decades. Higher corporate tax rates drive substantially increased R&D spending and capital investments (and it's not even close; its easily 4x-5x the amount invested when corporate tax rates are low). This apparent paradox is quite easy to explain: when corporate tax rates are high, corporations will increase their spending on deductible categories to reduce their taxable income, and thus the tax they pay. When tax rates are low, there's little to no incentive to due that.
Why would I want taxes to paid every single time it moves from entity A to entity B? All you do is decrease economic activity, in the aggregate, in a negative compounding loop
It very much is double taxation and to state otherwise seems disingenuous.
Taxing corporate profits is layering an additional (hefty) tax on its beneficiaries - people.
Search 'double taxation' and you will see this term is generally accepted by financial professionals in many jurisdictions to describe the above scenario where a corporation makes a profit, is taxed at the corporate level and then additional taxes must also be paid by the receiver of the already taxed funds (ex. shareholder, bondholder).
It is generally accepted by financial professionals with a particular political and ideological outlook on the tax system.
You do some work, you earn income, which presumably (or hopefully) exceeds your perception of the cost of doing the work to you. You pay taxes on that. You then give the money to some third party, as a gift, for goods & services, to repay a debt, or whatever reason. Subject to the stipulations of the tax code, the recipient pays taxes on whatever they receive (e.g. for gifts there is a threshold, for debts they will pay tax only on the interest received etc. etc.). Nobody calls this double taxation.
A corporation does what it does, earns income, which hopefully exceeds the cost of doing whatever it is that it does. They pay taxes on that. They then give the money to some third party, as a dividend or bond repayment or whatever other reason. Subject to the stipulations of the tax code, the recipient pays taxes on whatever they receive. Some people try to call this double taxation.
Trying to dress this up with concepts like "the shareholders receive the profit, but taxes have already been paid on that" is just missing the point entirely: our tax system taxes money when it moves, not based on how it is labelled (at least when it works as intended).
Actually it's a quadruple tax system since when you give your income to a plumber the plumber pays tax and when the plumber gives the income to his landlord the landlord pays tax.
If shareholders are the same legal person as the corporation, what is the purpose of the corporation?
If the corporation shields the shareholds from many forms of liability, why should the shareholders be able to claim the same personhood when it comes to income and taxation?
If corporations are said to be able to have moral and religious beliefs (thanks, SCOTUS), and yet their shareholders are free to have other, different beliefs, how can they considered the same person?
no. shareholders are not usually the same legal person.
a corporation is a distinct "legal person" because it goes through "incorporation" which breathes a legal life into a concept.
a person does, a corporation has legally perpetual existence because the shareholders can endlessly transfer their shares to other persons and on death the shares are given as inheritance.
In which case, when the company distributes profits to shareholders, that is a transfer between people, and is taxed like other similar transfers. There is no double taxation - the company (one legal person) is taxed on income/profit, the shareholders (different legal persons) are taxed on the money they receive from the company.
I'm no expert, but corporations act as their own legal entities with protected speech. We would have to remove other legal entitlements that benefit them more. They can't have cake and eat it too as they say. I would also like to pay zero tax.
I think this can make sense theoretically and what about cases where companies just horde wealth like Apple or spend it on stock buybacks (like Apple)? I'd want to see some sort of impetus for them to either reinvest or pass it along to their employees.
> I think this can make sense theoretically and what about cases where companies just horde wealth like Apple or spend it on stock buybacks (like Apple)?
Eventually that money is going to come back though - no shareholder wants a company to sit on a massive cash pile for decades.
If a company can’t find a use for the money, then investors will want that cash returned so that they can find a use for it elsewhere.
Apple itself set a goal in 2018 to be net cash neutral:
And when the money comes back to investors, that’s when taxes can be paid and everyone benefits.
Stock buybacks also result in capital gains taxes eventually - it just takes a long time because investors get to choose when to take the gain. If we wanted to fix that, we could just make stock buybacks illegal again like they were before 1982.
Then investors would get dividends again, which results in immediate revenue for the federal government.
It seems strange to me that someone would want to punish a corporation for maintaining a larger reserve with which to handle economic downturns and the like, allowing them to continue to pay and employ those same employees instead of just letting them go.
"Hording cash" sounds like NOT spending on expenses and offsetting profits, and therefore likely involves that corporation being taxed. In addition it sounds a lot more sustainable than wall streets typical obsession with short term gains Uber alles.
Using that money to retain staff during a downturn instead of doing layoffs sounds great and would make sense as something to incentivize through the tax code. There's definitely a point where a company can have an unreasonable amount of cash on hand.
West Germany used huge (60%) corporate tax rates in the near post-war period to force companies to invest into their R&D and CAPEX, which helped Germany rebuild their industrial base much faster than other countries.
If the goal of the USA is to force companies to re-shore, wouldn't this be a better way [0] to proceed than inflating the costs of many goods for the consumer? Large corporations appear to have record cash on hand in recent decades, where as consumers hold record debt.
[0] By better, I mean more much likely to achieve the stated goal.
Yup, only three parties pay corporate taxes; employees with lower salaries, consumers with higher prices, or shareholder via dividends, and all three of those parties are you and me.
This isn’t how it works - for one, you’d be required to be paid a fair wage as an employee. Your employee “benefits” would be taxable income to you personally.
Then, your corporation would quickly be scrutinized on both its income (corporations don’t get W-2’s, you probably can’t just move your existing income to a corp) and its expenses (“reasonable and necessary” is very broadly interpreted, but is unlikely to support what you’re doing).
I've never had to report or been taxed on corporate benefits like free lunches, retreats, or any kind of company event. People very freely classify things as business expenses and not as benefits. Want a tax free corporate sponsored vacation? Make a 2 minute monetized youtube video about the beach you went to! Oh no, you only made 50¢ from youtube? I guess there's a $8,000 loss I can use to offset any tricky to avoid taxed income. Oh, and I need a top of the line MacBook and camera equipment to make those videos so the corp pays for those too.
The problem with taxing individuals is that it's hard and it's complex. Many individuals have zero income and are filthy rich. So then we have to start thinking about wealth taxes, which is apparently communism, unless we do it to the middle class in the form of property taxes, in which case it's good, actually.
