If you didn’t catch Glenn Hubbard’s New York Times op-ed, you might want to. It’s a critique of the president’s “bad economic ideas” and a few alternative proposals. I presume that Dr. Hubbard’s op-ed will elicit substantial counter-attacks.
The proposal that caught my attention was his first one:
The first is to move to a simple business tax system, with a lower marginal tax rate and no special industry preferences. There would be no separate corporate tax, only a single business income tax for all businesses. Ideally, investment would be expensed, and its cost deducted in the year it was made, rather than deducted gradually. Businesses would be able to bring back overseas profits free of additional United States taxes. A one-time modest tax on current overseas earning could be used to help finance reform. Such a business income tax would encourage both growth and investment opportunities in the United States, while offering more jobs and higher wages to American workers.
The emphasis is mine. I may be misreading that but it appears to me as though he were proposing that the income of partnerships, S corporations, and sole proprietorships as well as that of C corporations be subject to a business income tax analogous to the personal income tax. Leaving aside the constitutional questions in such a tax which, presumably, would be resolved in how income was calculated, it seems to me that the political backlash from such a proposal would be insurmountable. Every accounting firm, law firm, and medical practice would suddenly be subject taxes they don’t presently have. And it’s something the Congress can understand. Relatively few ever worked for a big company but lots of them are lawyers.
His proposal does have a sort of “if you can’t raise the bridge lower the river” sort of quality to it to the extent that eliminating the corporate income tax appears to be politically impossible however much economic and policy sense it might make. It will result in all income being taxed twice rather than just corporate income. I just don’t think it will fly.
Hat tip: memeorandum
Abolishing the corporate income tax is a case of: “Heads, I win. Tails, you lose.”
Corporations are held to be a person to shield the owners (stockholders) from any liabilities (civil or criminal) the corporation incurs, but they want to be a non-person for tax purposes.
Corporate income is only taxed once. It is then distributed as any person would distribute money. The method that it uses to determine whom and how much it will distribute is of no concern to the IRS.
If I give my neighbors money, that money is taxable for both of us because we are both people (excluding gift limits). The money I give to my dogs is only taxed once because my dogs are not people. (Of course, they have a different opinion.)
The corporate form of ownership is designed to facilitate formation of capital and provide liquidity on a large scale, without a large number of capital providers having to take on the burden of liability, which would render the process unwieldy to the point of being pointless. Liability is left with corporate officers and boards. Only closely held entities can withstand the local corporate liability it creates while creating one of its principle risks – illiquidity.
Oddly, if all entities were passthroughs you could eliminate what you appear to be grousing about, but which Dave in my opinion correctly observes, will only happen when monkeys fly……. Can anyone imagine opening a whole new set of tax and lobbying opportunities to the political class. The only good thing about that is that it would keep the pols busy for awhile and they would forget about global warming in two swishes of a lambs tail…..
Lastly, capital formation is derived from previously earned income. Move your thinking one step back in the process. But thank you for playing.
What you choose to purchase with your income is your choice. Your income was somebody else’s profit, and it was already taxed. Therefore, it has already been taxed. We can play this game all day.
If you choose to provide protection in the form of a corporation, it is a package deal. You do not get to pick and choose which parts you like. If this upsets you or others, you can always form corporations in the EU, Russia, Venezuela, Nigeria, China, or anywhere else.
Don’t let the door hit you in the ass on the way out.
You just don’t like the fact that I correct your poorly thought out, conspiratorial to just plainly ignorant, comments.
Any day now I’m expecting to learn that you have discovered – known only to you and a few select “insiders” – that the world is controlled by six Jewish banking families.
Yes, corporations allow for the formation of capital on a large scale while protecting protecting those in the corporation. It provides a lot of protection of the capitalist class. Hence, it is pretty galling for these same protected people to also have all of the protections and privileges as a corporation that exist for regular people. If corporations want to be treated as people, they should give up their special protections.
Steve
Nothing conspiratorial. It is real easy. You give us yesterday’s tired talking points, and tomorrow, it will be wrong.
You have yet to correct me about anything. With the amount of ink I spill, you should be able to come up with more than a few nitpicks here and there. The reason you cannot is because you do not have a clue how anything works.
You forgot to correct me on my explanation of oil/gasoline price connection.
You spouted the CRA crap for years until the party tune changed, and then, you started spouting GSE’s. You have no more idea of why GSE’s may be more correct than the CRA, but it is what everybody says.
Let me buy you a clue. Whatever the crowd is saying is probably wrong.
I have no intention of convincing you. Others can judge for themselves. Interestingly, six years later my predictions still comport with reality. Your predictions have not quite panned out, but there is always next year.
What is the goal of tax policy WRT corporations? Personally, I think the goal should be to attract capital to to the US and to keep it here. Our present corporate tax system certainly doesn’t do that.
I can think of three:
1. Generating revenue. It does generate some.
2. Mollifying those who hate corporations.
3. Keeping upstarts down. Most of the corporate income tax doesn’t fall on mega-corporations who hire regiments of accountants and tax attorneys to avoid paying tax. It doesn’t fall on mom and pop shops that don’t make any money. It reduces the rate of capital formation on companies in the middle which keeps them from threatening the mega-corporations.
Corporations should contribute to the government like anybody else, and they can complain like anybody else. They use services, and they should pay for those services.
Every contract has the expectation of being enforceable in the US courts, and this is a value. Value for value transactions are the bedrock of a free market system, but if one party extracts its value without paying for it, we call it stealing. Written, verbal, explicit, and implicit contracts should all have a fee paid upfront to be enforceable, or this could be covered by the income tax.
How and what they are taxed is not simple because politicians will not allow it to be simple. Revenue is not the same as profit, and a company can generate positive revenue with negative profits. Taxing revenue would generate an enormous amount of money for the government, and it could be as simple as a 0.5% flat tax.
Therein is the problem. When based upon revenue, the actual percentage should not be high because it does not account for the cost of producing the goods, but nothing about the tax code is fair.
The idea that there are trillions of dollars sitting overseas waiting to return to the US is nonsense. US companies keep funds in local currency to be able to do business without the exchange rate issue. You can purchase goods and pay employees in the local services from revenue generated in the local currency.
Unless you have some type of futures contract, currency transfers are dependent upon the going exchange rate, and there is also a transfer fee.
The dollars that purchase foreign goods have few places to go but the US, and they will eventually be invested in the US. Those dollars are usually invested in the financial sector because of the high return or the government because of the high security.
Hence, the offer to take the dollars and run is empty. Dollars in China are mostly worthless.
With few exceptions, anything done by a US worker can be done by a foreign worker cheaper, and this includes PE fund managers. It does not make much sense to invest in US manufacturing. In the US, there are regulations regarding worker safety, environmental safety, product safety, animal cruelty, consumer safety, minimum wages and more.
The horse has left the barn on these regulations, and anybody claiming to want to invest in US manufacturing is a liar or an idiot.