Class Warfare Blog

December 5, 2016

Reduce Business Taxes!!

So, President-elect Trump wants to reduce business taxes to keep businesses here in the U.S. Actually I am in favor of that. But for that to be reasonable, there must be an understanding. If we reduce business taxes to 20% or 15% on profits, then there must be an understanding that businesses will actually pay those taxes. Currently, the highest business tax on profits is 35%. That sounds like a lot, but if you look close enough you will see that hugely profitable companies in the U.S., like G.E., either pay no tax at all or actually get a refund from the government. Not only that but the average tax paid by companies is in the low teens of percents. Plus getting a refund for an individual is getting money back from taxes you already paid (that’s what “withholding” taxes are), but if a business get a “refund” it is not their own money coming back, it is money they never paid coming to them, otherwise known as a subsidy or gift of public funds. (Yes, some businesses pay “quarterly taxes” but if it ends up at 0% for the year, I suspect it si 0% for each quarter, too.)

I am willing to consider a lower business tax, even a “flat tax” (that should start conservatives drooling) if it is also a minimum tax, that is it is the very least a corporation will pay, no matter what other perks they get through Congress.

The current system encourages companies to lobby Congress for special tax perks just for themselves and this is where the ridiculous “refunds” come from. In fact, in the “bloated IRS tax code” that conservatives are constantly railing against, the “bloat” is due to special favors for businesses, not for you and me. (Congress creates the tax code and then blames the IRS for it. Now that is chutzpah!) Our section of the code is miniscule compared to the special sections designed to help single companies and industries.

If you are not convinced of the reasonableness of my idea, go back into history and see the fraction of federal income that was due to taxes placed on businesses versus taxes based upon individuals. During several, very rosy periods of U.S. history, the bulk of federal receipts came from corporation taxes, not individuals, so low corporate taxes is not magic juju that makes the economy expand. Due to corporate lobbying (lobbying has a tremendous return on investment; a dollar spent on lobbying generally returns over $20 of perks) the fraction of federal government receipts from individuals has risen (a lot!) and the fraction from corporations has shrunk (a lot). Note Check out the first two columns in the table here.)

Corporations no longer pay anything near to their own fair share.

Please, please do not get confused. Corporations pay taxes based upon profits; individuals pay taxes based upon income. Imagine what your taxes would be like if you, like a business, could “deduct” housing costs (all of them including maid services), food costs, transportation costs, utility costs, bookkeeping costs, etc., etc. before you started “doing your taxes.” Hubba-hubba!

Also, having a “flat tax” on business profits would not harm “Mom and Pop” businesses. All of those businesses end each fiscal year with no profits and would pay no tax on such, unless they are incredibly stupid. At the end of the year, the owner should pay themselves bonuses adding up to all of the leftover funds of the business. They will then pay what we pay on our personal income, but their business had no profit, so it would pay no tax. If they wanted to expand their business, they could then lend their business a sum of money (nontaxable) and then the business could deduct any interest it pays back to the owner and again, no business taxes are paid.

But in order to issue dividends to stockholders in a corporation, there must be a profit. If there is no profit, there is no money to pay dividends. If there are no dividends there are not many stockholders, so dividends are paid, profits are therefore declared to be able to pay them, and if there were a flat tax on profits, taxes would be paid (unlike now).

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2 Comments »

  1. Then how about we just make the corporation to pay taxes on the profit they declare when they pay dividends? If I remember correctly, corporations are allowed to use different accounting methods to determine the income subject to taxes and profit to calculate earnings per share, which is why they can be profitable and still pay no taxes.

    Comment by List of X — December 5, 2016 @ 11:06 pm | Reply

    • There are lots of good ideas for making the tax system more fair, unfortunately the people elected to perform that task have been paid by the corporate class to not do just that … and they won’t.

      On Mon, Dec 5, 2016 at 11:06 PM, Class Warfare Blog wrote:

      >

      Comment by Steve Ruis — December 6, 2016 @ 9:51 am | Reply


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