Suppose that K is $100,000.

If a small corporation with annual net income of $200,000 wants to give K a shot, it must spend $153,000 dollars, or 76.5% of its net income, which is a risky move.

A corporation ten times its size would risk only 7.65% of its net income.

Remove the corporate tax and the numbers become 50% and 5%, so the size factor makes it MUCH less risky for the small corporation and only marginally so for the large business, which functions as a barrier to entry for the smaller corporation.

At some point the barrier becomes merely the inability to fund the new line of business, and the tax rate is irrelevant, but the rate does move that line, and those movements affect the smaller corporation much more than the larger one.

I’m not going to debate whether the inefficiency of the corp income tax outweighs the benefit of additional tax revenues, but I will dispute that the corp income tax functions as a barrier to entry. If after tax profits are only 65% of pre-tax profits, that applies to both large companies and start-ups. Both would have to take the after tax income into consideration in determining whether a project or investment is worthwhile. If the large corp has a lower cost of capital, then that would be the case with or without corp income tax.

There is nothing unfair about the corporate liability shield. The shield exists to encourage putting capital at risk. Given the amount of wealth-creation that can be traced back to the creation of the first joint stock companies, I do not believe that it can reasonably be argued that the shield is not a net positive.

Our business system is set up such that the residual claimants (shareholders) are the ones who bear most of the loss. People who make deals with corporations know that the shareholders are not liable for the debts, therefore the suppliers and lenders account for that when making the deal (for small corporations, lenders or suppliers usually require individual guaranties).

It is not unfair that individuals have unlimited liability. That is the default status. You don’t have liability to anyone whom you don’t make a deal with, unless you commit a tort. Corporations can be liable in tort as well, and the resulting involuntary claimants do present a problem in any system of limited liability, but it is rare that the corporation is actually the tortfeasor (generally a corporation is responsible because of vicarious liability).

[as an aside, the legal capital regime was intended to address this problem, but given that stock today does not even have to have par value, that is no longer effective. A seriously undercapitalized corporation (which is likely to be small) is likely to have the corporate veil pierced in an involuntary claimant situation).

Nonetheless, there is an analogy with a tortfeasor who is unable to pay the claim and declares bankruptcy. While awards for some torts are not dischargeable, a lot of them ARE, and that is hardly fair to the involuntary claimant. Ultimately, the decision has been taken that the risk of unsatisfied involuntary claimants is an acceptable risk compared to the rewards offered by the corporate liability shield. That might be good policy or bad policy, but it’s certainly not unfair when you know the rules going in.

Like I said, the issue is independent of whether a corporation should be taxed at the entity-level. I happen to think the corporation should NOT be taxed at the entity level because the nature of the entity-level tax encourages the corporation not to reinvest in the business, but to pay out as much as it can in ways that offer tax deductions to minimize the corporation’s taxable income. That seems like bad incentive, requiring any new line of business (or expansion of an old like) to be 35% MORE profitable than it would otherwise have to be for a corporation to expand or enter the new business.

Unsurprisingly, that functions as a barrier to entry favoring larger corporations over smaller corporations.

Even if we deem it a fair ‘price’ to pay for this limited liability protection–and thats very debatable given that ridiculously high insurance coverage would cost substantially less than a 39% tax on all income, why is it fair for the government to get this benefit? They certainly aren’t using it to make whole any injured parties. THAT might be fair.

I’ll leave aside arguments regarding increased revenue = increased power = increased injustice.

I also acknowledge that the liability shield and tax are not inherently linked, however I would dispute those who state that corporate tax, or ‘double taxation’, is unfair for corporate investors, as someone upthread suggested. Is it also unfair that corporate investors do not have unlimited liability, whereas individuals do?

As to the efficiency of corporate income tax and the impact of it on companies capital structures, that is an entirely different matter.

The liability shield and the entity-level tax are entirely different issue and there isn’t really a trade-off.

Of course, any of those entities can elect to be taxed as an association, but it’s rare.

Since that is impractical shareholders in corporations have to pay a corporate. It may be too high, but it is quite clearly fair.

If you ask your accountant what 2 + 2 equals and he says 4;

You have the wrong accountant.

But hey wtf do I know except that there is an unending supply of kool-aid for the weak-minded and lazy

One of the biggest complaints about the corporate income tax is that it is in a sense double taxation. The corporation’s profits get taxed, then the profits that get distributed to the shareholders in the form of dividends gets taxed again under individual income taxes.

So, for example, a corporation that earns $1 per share in a fiscal year might pay $0.39 in taxes on that dollar, then distributes the rest in dividends ($0.61). Then an individual shareholder receiving that pays tax on the dividends, say at 40% (state and federal, estimate). So, of the original $1 in profit, $0.63 ends up with the government, and only $0.37 ends up with the actual individuals who invested in and took risks on the corporation.

Pretty fair, huh?

1. We already have entities that do not have entity-level tax. They’re called partnerships and are taxed under subchapter K of the internal revenue code. It seems to work out okay, and there is really no justification for treating corporations and unincorporated entities different from a tax standpoint (other than compliance costs for large entities, for whom distributing K-1s would be a royal PIA).

2. You would pay income tax on all the money you got (presumably from the company) to pay those lease payments you’re talking about.

3. If you leased things to yourself at a below-market rate, you would have imputed income.

“If in fact I needed “income” to buy food and toiletries, I would “pay myself” just enough to facilitate those needs. Even still, it would be poverty wages even if I owned a million dollar company.”

4. Partnership treatment removes this incentive (income, deduction, gain, credit and loss are allocated as they happen, whether you make distributions or not).

5. Again, we already have entities taxed under subchapter K (and to a lesser extent, subchapter S) that pay no entity-level tax. Why treat them differently?

“Theory is all well and good but the practical ramifications are at least, if not more, important.”

6. What practical ramifications might those be?

Obama’s tax plan regarding corporations calls for the elimination of certain deductions targeted to specific industries (The bogeyman of choice being the oil & gas industry). As much as I disagree with him on virtually everything else, this is something that is a good idea. Trying to calculate the deductions to which you are entitled under the Internal Revenue Code is virtually impossible for most people who aren’t tax lawyers or accountants (and a LOT of them make mistakes). Removing special entity-level tax deductions is a good idea (the deductions are market distorting). Removing entity-level tax is a BETTER idea.

Increases in corporate taxes cause increases in the cost of supplying products and services. Simple, huh? All else being equal, this causes an increase in prices and a decrease in output. Again, very simple. The difference between the amount x price of output that would have been sold versus the amount x price that gets sold with increased taxes is thus lost. Forever. Production, money, utility, whatever you want to call it…gone. wiped out. To nobody’s benefit. Some of it would have been to the benefit of the corporations, the rest as benefit to consumers. And still some of it would have gone to taxes (that parts lost too).

So not only are x amount of taxes being paid, and y amount being paid for accountants, lawyers, and whatever needs to be spent on complying with tax requirements, and minus z amount for any supposed ‘loopholes’, add the lost profits that the company would have earned. And tack on the lost benefit that consumers would have had in lower prices and more goods and services. Thats the true cost of corporate taxes.

Is it really worth the benefits received by the governments expenditures of those taxes?

So then, is it foolish for a business to move its operations somewhere else when it can see an immediate 10% or more increase in profits, even accounting for increased transportation costs? By the way, that soon translates into decreases in price and increased production, and therefore a competitive edge against companies that still pay the much higher corporate tax rates. Eventually, the companies paying the higher tax rates can’t compete and must close down, causing increased unemployment.

Of course, this is exactly whats been happening in this country for quite a few years now.

And by the way, some of you here really need to read up about business formations and the tax requirements/benefits/disadvantages of the various forms. Its not complicated; wikipedia probably has a simple enough article about it.

It’s easy to dash off a line like “[w]e have the second-highest corporate income tax in the world”, but since it’s not true, a reader who knows this will likely tune out at that point, and lose the benefit of anything of value that may follow.

Even assuming you can do those things you’re talking about, explain to me how that would work with a large corporation. The corporation is going to buy thousands of homes and lease them back to it’s thousands of shareholders? Your logic is seriously flawed.

I guess my point isn’t really the right or wrong of a specific thing but how one thing interacts with another. In that sense, this video (imo) is disingenuous because it simplifies a complex issue and presumably attempts to sway opinion on that simplification and not on the totality of the circumstances (which would probably be a bit much for a Ytube video).

As to your comment about politicians, their first goal is to get (re)elected. To that end, they will act and do what they perceive to be necessary in order to maintain their job.

So if you don’t like high tax rates, which invariably have loopholes, then change how politicians get elected. Right now, it takes a lot of money to run a campaign. Those with the ability to fund those campaigns are the one who get to eat from the trough first and quite frankly get to decide what they eat and what everyone else eats.

(and yes I’m aware that I’ve complained about simplifying and I’ve done the thing I complained about)