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Frayed Ends: Business, Economics, and Tax Policy 3.0
- Thread starter dxmnkd316
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Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
It would be like forcing someone to pay an annual tax just because the (paper value) of a piece of art they owned increased. Yes, the market value of their net worth increased, but they did not have any income. What are they supposed to do, sell the art to pay the tax? Same problem as when people are forced to sell their real property because the tax assessment went up.
I know that in your mind(s) the corporations are just supposed to pay out enough dividends to be sure that their shareholders can pay the tax, but that means they have to pay enough dividends to be sure that the stockholder paying the highest effective tax rate can cover his tax - every other shareholder will get paid more than they actually need, so you'll have an unnecessary outflow of cash from the company that now can't be used for additional capital to reinvest in the business, nor can it go to salaries - you'd have even more wealth going to shareholders and less to employees than we have today.
It's a terrible proposal.I am the farthest possible from an expert, but that actually seems like a good proposal.
And I can't wait for corporations to start deflating their earnings statements to encourage more people to buy their stock as a tax dodge.
It would be like forcing someone to pay an annual tax just because the (paper value) of a piece of art they owned increased. Yes, the market value of their net worth increased, but they did not have any income. What are they supposed to do, sell the art to pay the tax? Same problem as when people are forced to sell their real property because the tax assessment went up.
I know that in your mind(s) the corporations are just supposed to pay out enough dividends to be sure that their shareholders can pay the tax, but that means they have to pay enough dividends to be sure that the stockholder paying the highest effective tax rate can cover his tax - every other shareholder will get paid more than they actually need, so you'll have an unnecessary outflow of cash from the company that now can't be used for additional capital to reinvest in the business, nor can it go to salaries - you'd have even more wealth going to shareholders and less to employees than we have today.
St. Clown
Liberal Rebel Scum, apparently
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
How do they reinvest in themselves when what you're proposing will have investors requiring they pay out earnings in order to cover their tax bills from investing in the company in the first place? That's the point I'm making.
How do they reinvest in themselves when what you're proposing will have investors requiring they pay out earnings in order to cover their tax bills from investing in the company in the first place? That's the point I'm making.
FlagDUDE08
Banned
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
Hence why I did a double take on that, and wondered if it was truly a good idea. It might actually be able to be compensated if the company is already buying stuff. The biggest issue with that is that most investors are concerned about a company's cash flow. Perhaps that is one of the risks that needs to be taken if you are going to invest.
Hence why I did a double take on that, and wondered if it was truly a good idea. It might actually be able to be compensated if the company is already buying stuff. The biggest issue with that is that most investors are concerned about a company's cash flow. Perhaps that is one of the risks that needs to be taken if you are going to invest.
dxmnkd316
Lucia Apologist
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
Yeah, I misread what was originally being proposed. However, I still think your reasoning is faulty. They already have to pay taxes, so how is that different than the corporation paying for them and having lower earnings? A corporation could still invest in itself and reduce the tax burden on its shareholders. They already pay taxes that is paid from earnings or even cash on hand. Dollar in, dollar out.
The better argument is what Lynah was saying with the art example. This is more of shifting the paperwork and tax-work to the shareholder than anything. It's more cost-effective if the corporate tax experts handle it.
I thought the original proposal was to remove the corporate tax and include capital gains as regular income.
Yeah, I misread what was originally being proposed. However, I still think your reasoning is faulty. They already have to pay taxes, so how is that different than the corporation paying for them and having lower earnings? A corporation could still invest in itself and reduce the tax burden on its shareholders. They already pay taxes that is paid from earnings or even cash on hand. Dollar in, dollar out.
The better argument is what Lynah was saying with the art example. This is more of shifting the paperwork and tax-work to the shareholder than anything. It's more cost-effective if the corporate tax experts handle it.
I thought the original proposal was to remove the corporate tax and include capital gains as regular income.
FlagDUDE08
Banned
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
Nothing to do with capital gains. It had more to do with owning a portion of a business as if you had owned a full business and were "self-employed", because if you think about it, if you day trade and manage a fund of assets, you truly are self-employed in at least that sense.
Nothing to do with capital gains. It had more to do with owning a portion of a business as if you had owned a full business and were "self-employed", because if you think about it, if you day trade and manage a fund of assets, you truly are self-employed in at least that sense.
St. Clown
Liberal Rebel Scum, apparently
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
How do corporations determine their payout in the new structure you suggest? Currently, they pay a maximum of 35% to the federal government, if they have lousy accountants. Going forward, because each individual is so different, one investor might need 100% of his share of the profits in order to cover his tax bill due to activities outside of investing in Widget, Inc., while another might only desire a payout of what she owes in taxes for that specific investment in Widget, Inc.. Since corporations won't have investors filing 1040 forms with them, they'll be forced to payout more profit than they otherwise would because people are going to demand it. There's even a bit of Game Theory going on for the investors. I'd insist upon receiving my maximum profit payout because I don't know if other investors are going to demand the same or not, which could leave the company in a cashless position.
How do corporations determine their payout in the new structure you suggest? Currently, they pay a maximum of 35% to the federal government, if they have lousy accountants. Going forward, because each individual is so different, one investor might need 100% of his share of the profits in order to cover his tax bill due to activities outside of investing in Widget, Inc., while another might only desire a payout of what she owes in taxes for that specific investment in Widget, Inc.. Since corporations won't have investors filing 1040 forms with them, they'll be forced to payout more profit than they otherwise would because people are going to demand it. There's even a bit of Game Theory going on for the investors. I'd insist upon receiving my maximum profit payout because I don't know if other investors are going to demand the same or not, which could leave the company in a cashless position.
dxmnkd316
Lucia Apologist
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
I figured everyone would get their share of the tax pie based on the shares held and not their other investments.
Either way, I don't like the idea because it's making the tax code more complicated and costly.
I figured everyone would get their share of the tax pie based on the shares held and not their other investments.
Either way, I don't like the idea because it's making the tax code more complicated and costly.
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
Let's look at how current owners of S-corporations currently behave. Basically, the proposal boils down to, "turn all corporations into S-corporations."
First of all, when they reinvest a portion of pre-tax profits back into the company, either they are expensing those expenditures (a valid tax deduction from anyone's perspective, you pay a salary to a newly-hired employee, it's deductible); or they are purchasing capital equipment which generates a future stream of depreciation deductions (again, a valid tax deduction from anyone's perspective).
Then, after that, they have a decision to make: am I more likely to get a higher return on profits by leaving them in the company for future opportunities, or by distributing it? If the potential return is higher to retain it in the company, you pay tax on profits by using other dollars, and the dollars retained by the company become after-tax retained earnings which can always be distributed in the future without income tax a that time since the tax has already been paid currently.
Turning all corporations into pass-through companies would be a tremendous boon to economic efficiency at a macro level. It's a great idea in theory. The only reason Congress / IRS wouldn't like it is because it is simpler for them to collect the tax from one source rather than from thousands of individual sources. Some of that is pure cynicism on their part, and some of that is outdated ignorance of what can be accomplished today with computer technology.
Most of the objections then turn to corporate governance issues. S-corporations now are limited to at most 100 shareholders. They somehow manage to hold annual shareholder meetings and elect a board of directors and vote on other proposals. The single biggest barrier to turning all corporations into S-corporations would be, how to manage a shareholder meeting with tens of thousands of shareholders.
Let's look at how current owners of S-corporations currently behave. Basically, the proposal boils down to, "turn all corporations into S-corporations."
First of all, when they reinvest a portion of pre-tax profits back into the company, either they are expensing those expenditures (a valid tax deduction from anyone's perspective, you pay a salary to a newly-hired employee, it's deductible); or they are purchasing capital equipment which generates a future stream of depreciation deductions (again, a valid tax deduction from anyone's perspective).
Then, after that, they have a decision to make: am I more likely to get a higher return on profits by leaving them in the company for future opportunities, or by distributing it? If the potential return is higher to retain it in the company, you pay tax on profits by using other dollars, and the dollars retained by the company become after-tax retained earnings which can always be distributed in the future without income tax a that time since the tax has already been paid currently.
Turning all corporations into pass-through companies would be a tremendous boon to economic efficiency at a macro level. It's a great idea in theory. The only reason Congress / IRS wouldn't like it is because it is simpler for them to collect the tax from one source rather than from thousands of individual sources. Some of that is pure cynicism on their part, and some of that is outdated ignorance of what can be accomplished today with computer technology.
Most of the objections then turn to corporate governance issues. S-corporations now are limited to at most 100 shareholders. They somehow manage to hold annual shareholder meetings and elect a board of directors and vote on other proposals. The single biggest barrier to turning all corporations into S-corporations would be, how to manage a shareholder meeting with tens of thousands of shareholders.
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
And include dividend distributions as regular income as well.
Removing the corporate tax would certainly eliminate all the controversy about tax inversions and relocations and everything else. Make all corporations S-corporations in effect.
The tax collection problem isn't very different than now, we already have paycheck withholding, we'd merely add dividend check withholding too. The individual owners would sort all that out on their individual income tax returns.
Most corporate stock is owned by mutual funds and 401k plans today. The IRS would howl like a banshee in the short run, because 401k ownership is tax deferred, but all the participants in 401k plans would see a huge boost in their returns, and in the long run, the IRS would grin like a Cheshire cat because 401k ownership turns capital gains into ordinary income.
And include dividend distributions as regular income as well.
Removing the corporate tax would certainly eliminate all the controversy about tax inversions and relocations and everything else. Make all corporations S-corporations in effect.
The tax collection problem isn't very different than now, we already have paycheck withholding, we'd merely add dividend check withholding too. The individual owners would sort all that out on their individual income tax returns.
Most corporate stock is owned by mutual funds and 401k plans today. The IRS would howl like a banshee in the short run, because 401k ownership is tax deferred, but all the participants in 401k plans would see a huge boost in their returns, and in the long run, the IRS would grin like a Cheshire cat because 401k ownership turns capital gains into ordinary income.
FlagDUDE08
Banned
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
Once again, technology to the rescue. Even "regular corporations" today have conference calls that would be the shareholder meeting, and as for voting on things, I get proxy materials about voting my shares on stocks I own all the time.
Once again, technology to the rescue. Even "regular corporations" today have conference calls that would be the shareholder meeting, and as for voting on things, I get proxy materials about voting my shares on stocks I own all the time.
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
they are both passthrough entities. Business profits flow through to the owners' personal income tax returns.
See IRS form 1120, which then flows into Schedule E, which then flows into IRS form 1040, line 17.
they are both passthrough entities. Business profits flow through to the owners' personal income tax returns.
See IRS form 1120, which then flows into Schedule E, which then flows into IRS form 1040, line 17.
Kepler
Si certus es dubita
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
Doesn't Uncle Sugar pay all PR's bills?
Doesn't Uncle Sugar pay all PR's bills?
ScoobyDoo
NPC
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
He should. Bailout should be a no brainer.
He should. Bailout should be a no brainer.
FlagDUDE08
Banned
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
What does that have to do with the earnings of Bristol MAAAAAAAAAAAAAAAAAAAAAAAAAAAHERS?
What does that have to do with the earnings of Bristol MAAAAAAAAAAAAAAAAAAAAAAAAAAAHERS?
What does that have to do with the earnings of Bristol MAAAAAAAAAAAAAAAAAAAAAAAAAAAHERS?
Good Lord, when I got to the end of line 1, I thought the next word would be Palin.
What was in my breakfast?
FlagDUDE08
Banned
Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
Nails.
FWIW, it was an impersonation of Jim Cramer.
Nails.
FWIW, it was an impersonation of Jim Cramer.
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