Revenue Measures
First of all, Revenue Measures is typically government-speak for we spent too much and want the tax payers to pick up the tab. With that said, I have seen a few pundits and bloggers express a desire for revenue based taxation for corporations to raise revenues. Their logic is that corporations get a hefty amount of deductions (that coincidentally individuals don’t get) for things thereby reducing taxable income to non-existent levels. For example, a corporation can deduct health insurance costs for employees from income to arrive at taxable income. This same luxury is not afforded to folks who purchase their own insurance.
The problem with revenue based income taxes is that it if a company isn’t profitable to the extent that it’s revenue is taxed, that company cannot survive. Low margin companies (such as various manufacturing firms that make money by cranking out lots of small profit items) would cease to exist unless the revenue tax rate was considerably less than their margin.
I think the country needs some tax reform but don’t think this is the best route. What is? Beats me. Flat tax may be it. Or just mass simplification of the tax code.
January 27th, 2004 at 1:48 pm
I would venture a guess that you would pay much more under a flat tax scheme then you do now unledd you make nore then 200k per year in AGI.
January 27th, 2004 at 1:56 pm
That of course depends on the rate. See post above.
January 27th, 2004 at 2:34 pm
I’m still on the fence concerning a flat tax, but I don’t think it will ever fly. People will be amazingly unwilling to give up their deductions. Also, if you were going to initiate a flat tax, I’d want to see at least a $15,000 per person per year standard deduction, and I would want EVERYTHING (investment income, capital gains, dividends, interest) to be classified as taxable income, no shelters, no “tax avoidance.”
When you’re willing to make those concessions, then I’m willing to talk about a “flat tax.”
January 27th, 2004 at 2:38 pm
The flat tax will never fly for one reason: The accounting lobby, who’s pretty cozy with Leiberman I might add.
January 27th, 2004 at 3:28 pm
I’d argue we should eliminate corporate taxes entirely. Corporate taxes are all paid indirectly by individuals: by customers through higher prices, workers through lower wages, investors through lower returns, etc.
It’s really just a mechanism to help hide from people how much of their money ends up going to the government.
January 27th, 2004 at 3:52 pm
I don’t think that could work, Stormy. Presumably, there are government-provided services from which corporations benefit (e.g. an educated, (somewhat) healthy workforce; roads to and from their offices/plants/whatever; etc.), and I don’t see why they shouldn’t be required to help pay for that.
I suppose you could pass the corporate income tax along to the stockholders, like an S-corp style flow-through, but that would do a great deal to discourage investment, don’t you think?
January 27th, 2004 at 5:17 pm
SD: I disagree with your view that corporate income taxes are largely borne by consumers. They’re not; it’s the investors who get shafted. Regardless of the corporate income tax rate, a properly-managed company will set its prices at the profit-maximizing level, beyond which a price increase will result in fewer profits rather than more. That “sweet spot” is the same whether the company (read: shareholders) gets to keep 100% of its profits, 90%, or any other portion greater than zero.
One exception: in extreme cases, e.g., a corporate tax rate of 98%, it would become extremely unprofitable to do business at all. That would cause companies to leave the market in droves, and the few that remained might gain monopoly/oligopoly powers. That would allow them to charge more than the rates that prevail in a competitive market. Even then, the increase would probably not be enough to offset the corporate income tax.
Tgirsh: the government services you describe benefit the individuals who own or work for corporations; they don’t benefit the corporations themselves. The individuals involved all pay taxes of their own, so the tax on the corporation is just a double tax, nothing more.
Contrary to your comment, S-corporations do not “pass the corporate income tax along” to anyone; they avoid it completely. Allowing C-corporations to do the same would be a huge boon for investment. Given the choice, I’d prefer to be taxed once rather than twice. Wouldn’t you?
January 27th, 2004 at 6:18 pm
Increasing corporate taxation moves the “sweet spot” though. If you hike taxes, the number of companies able to produce at any given prices decreases. This lowers the supply curve, resulting in the supply/demand equilibrium to move up.
January 27th, 2004 at 6:29 pm
tgirsch:
Corporations aren’t people. People have the ability to spontaneously create capital in the form of labor. Corporations, on the other hand, can’t. Any capital they control must have come from some place else.
Your assertion that corporations “[should] be required to help pay” ignores this distinction. A corporation can’t pay for anything, as it has no way of producing capital to do so. All it can do is find an individual somewhere (be it a customer, a worker, an owner, etc.) and take some of their capital and give it to the government.
Why not just directly tax that individual and cut out the middle man? Because taxing the corporation provides a convient way to hide from the individual how much he’s truly being taxed.
January 27th, 2004 at 9:09 pm
I agree that reducing the profits will result in some decrease in the supply, but I think that in most cases that decrease (and thus, its impact on consumer prices) will be negligible. If a monopoly existed before the tax, it will exist after the tax; all that changed is that government is taking a cut of the monopoly rents. If the market was highly competitive before the tax and ends up slightly less competitive after the tax, prices may be expected to increase some, but probably not by nearly as much as the tax collected. From the consumer’s perspective, that’s still a pretty good deal; he pays a little more for the goods he buys, but in exchange he pays a lot less in personal income taxes, and sticks investors with the difference.
January 31st, 2004 at 2:41 pm
Well I’, partial to the Fairtax.org plan myself: replacing the income tax (on individuals & corporations) with a national sales tax. Ya’ll can argue about the advanatages & disadvanatages of a progessive (progressive my ass unless progress is measured by theft!)v. a flat tax, but in the end it’s still the same damn thing. It’s simply a matter of how the protection racket is worked.
But using a sales tax in place of (not in addition to) an income tax eliminates most of the objectionable realities of the income tax plans (progressive or flat). Now I’m not crazy about the rate Fairtax proposes (23% or so)but it’s preferable to the “necessary evils” of the income tax system.