Kudos President Obama

[MrDeeds]

Obama Tax Revamp Seeks 28% Corporate Rate - WSJ.com

Lowering the corporate tax rates is an excellent idea.

[John_Brian_K]

I believe lowering the tax rate for corporations is a good thing.

[DaYooperASBDT]

Agreed, we need a cut there. Although I thought this thread was about Obama making a potty all by himself!

[LineCrosser]

I agree, as long as the proposed end of subsidies and insane tax exemptions pass along with it. Certainly, corporations should have a 28% rate and pay that or close to that, rather than have a 35% rate that goes to literally 0% with deductions, exemptions, and anachronistic subsidies.

Unfortunately, Republicans will oppose it by demanding the rate go down, but all other tax provisions remain the same.

[DaYooperASBDT]

15% with no deductions/exemptions - while ending all the damned subsidies, yes.

[chasfh]

I agree, as long as the proposed end of subsidies and insane tax exemptions pass along with it. Certainly, corporations should have a 28% rate and pay that or close to that, rather than have a 35% rate that goes to literally 0% with deductions, exemptions, and anachronistic subsidies.

Unfortunately, Republicans will oppose it by demanding the rate go down, but all other tax provisions remain the same.

A commentator on one of the news shows mentioned that part of the new tax either will be, or should be, a minimum tax due from corporations. Something like, 28% base rate, deductions allowed, but minimum 15% must be paid. Something along those lines.

Of course, this all still favors big corporations who can take proper advantage of deductions and can afford entire departments to help them dodge as much taxes as possible. Which means the burden will continue to fall on the little guy, as designed.

[RedRamage]

A commentator on one of the news shows mentioned that part of the new tax either will be, or should be, a minimum tax due from corporations. Something like, 28% base rate, deductions allowed, but minimum 15% must be paid. Something along those lines.

Of course, this all still favors big corporations who can take proper advantage of deductions and can afford entire departments to help them dodge as much taxes as possible. Which means the burden will continue to fall on the little guy, as designed.

From what I've read about Obama's proposal I think it's a good step. I like the idea of lowering taxes and simplifying the whole process for everyone. I also think it's a good idea to NOT be quite as aggressive as some of the republican plans call for. Let's step down here and see if the intended results come about.

Chas... in your opinion would severely or completely eliminating deductions and just going with a straight rate be better for the "little guy" or worse?

[chasfh]

Actually, this brings up something that has been bothering me since I started ruminating about it a few years ago.

I really hate how corporations can hold states hostage by threatening to move to another state unless they get sweet tax breaks, abatements and outright public investment to directly benefit their private enterprise. I hate even more how it's considered a perfectly acceptable business practice.

In terms of jobs, it might net one state the jobs the other state loses, but in terms of effect to American employment, it's a wash, isn't it? In addition, the private residents of the state get shafted because when these companies end up taking advantage of such awards by the "winning" state -- or the incumbent state, if the company ends up staying in state -- it either increases the share of cost of running the government more toward private citizens, or forces the state to cut services to balance their budget to offset the tax breaks they awarding the company.

Even if the victory of securing the company means thousands of jobs for the "winning" state, the cost to keep or lure the company there gets absorbed by the millions of other residents who do not benefit directly at all. And add to this the state that ends up losing the company, along with its jobs and tax revenue, in the first place. Net net to America: loss of tax revenue to at least one state, and no net jobs gained.

Yeah, I know it's all legal, and it's free enterprise, and all that. But this is one reason why I think the basic idea some libertarians and radical conservatives have of how American government should be structured -- apparently that of a federation of fifty independent states loosely bound together by a weak federal government whose only supposed job is to field a military -- is a terrible concept.

[chasfh]

From what I've read about Obama's proposal I think it's a good step. I like the idea of lowering taxes and simplifying the whole process for everyone. I also think it's a good idea to NOT be quite as aggressive as some of the republican plans call for. Let's step down here and see if the intended results come about.

Chas... in your opinion would severely or completely eliminating deductions and just going with a straight rate be better for the "little guy" or worse?

Not entirely sure. Is the business tax a flat tax or a graduated tax? If it's flat, that helps big business over small business, in the same way flat income tax would favor high income citizens over low income citizens. Conceptually, that might be mitigated by the elimination of business deductions, but that's a wild pie in the sky notion on its face, because there is no way on god's green earth that business deductions are ever going to be eliminated. Business deductions are meant to encourage people to invest in their business to make it grow, and it's an incentive that's been proven to work. So, civilians can grouse over beers at the bar about companies taking tax deductions on business expenses, but no serious discussion of adjusting business taxes will ever include eliminating all deductions for business expenses.

I also happen to think the whole idea of "simplifying" taxes is overblown. I don't fully understand why this is important to people. Eighty percent of all people do their income taxes through tax software already, and all you have to do is follow the steps. Plus, a high percentage of tax preparers use 1040-EZ, which is a single page. So how much easier can you make it? And simplifying taxes for businesses doesn't affect you or me, and probably no one else in the room here. What do we care whether taxes will be simpler for them?

[rhino]

Actually, this brings up something that has been bothering me since I still ruminating on it a few years ago.

I really hate how corporations can hold states hostage by threatening to move to another state unless they get sweet tax breaks, abatements and outright public investment to directly benefit their private enterprise. I hate even more how it's considered a perfectly acceptable business practice.

In terms of jobs, it might net one state the jobs the other state loses, but in terms of effect to American employment, it's a wash. In addition, the residents of the state gets shafted because when these companies end up taking advantage of such awards by the "winning" state -- or the incumbent state, if the company ends up staying in state -- it either increases the share of cost of running the government more toward private citizens, or forces the state to cut services to balance their budget. Because even if the victory means thousands of jobs for the "winning" state, the cost to keep or lure the company there gets absorbed by the millions of other residents who do not benefit directly at all. And add to this the state that ends up losing the company, jobs and tax revenue from the departing company in the first place. Net net to America: loss of tax revenue to at least one state, and no jobs gained.

Yeah, I know it's legal, and it's free enterprise, and all that. But this is one reason why I think the basic idea some libertarians and radical conservatives have of how American government should be structured -- apparently that of a federation of fifty independent states loosely bound together by a weak federal government whose only supposed job is to field a military -- is a terrible concept.

No, because 50 independent states means, 50 independent states. If you're the governor and you can't afford to run your state because you're "stealing" jobs at a net loss from your the other states, tough luck. You lose your job next election because you can't run to big daddy for money to bail you out. That is how a balance will be reached. Each state runs their own state according to how the citizens who live in that state vote on it. There would be no pork, no favors or earmarks thrown your way to bail out Detroit, Detroit schools or the extended and bloated welfare roles.

Independent baby, just as Jefferson wanted it.

[chasfh]

No, because 50 independent states means, 50 independent states. If you're the governor and you can't afford to run your state because you're "stealing" jobs at a net loss from your the other states, tough luck. You lose your job next election because you can't run to big daddy for money to bail you out. That is how a balance will be reached. Each state runs their own state according to how the citizens who live in that state vote on it. There would be no pork, no favors or earmarks thrown your way to bail out Detroit, Detroit schools or the extended and bloated welfare roles.

Independent baby, just as Jefferson wanted it.

If Jefferson or anyone had wanted independent states, they would have created thirteen separate countries.

They tried a loose articles of confederation to run all the states like independent little countries, in the way you describe it, each with their own military and money and all that. That worked so well, they scrapped the whole idea and went with a constitution that legally unified us into the United States of America, not the Independent States of America.

I don't agree with your apparent vision of every man for himself, anyway. I think that's the wrong vision for America, a dystopian vision in which we strive to put the hurt on Ohio in the same way we strive to put the hurt on China. I think we are -- we should strive to be -- an interdependent American society, not a non-society of ungoverned lone wolves who happen to inhabit the North American continent. If that's what you believe we should be, then that's a core philosophical difference that you and I will simply have to part company on.

Besides, with all due respect to what you might believe, I don't give a flying **** what Jefferson wanted. He's not my god, and I don't feel compelled to accede to his wishes 190 years in the grave. I want a country that works for today's world, not for the world of 1776, a time during which, when it really comes down to it, the whole concept of independent states arose because they were essentially afraid to step on each others toes over the issue of slavery.

[RedRamage]

I also happen to think the whole idea of "simplifying" taxes is overblown. I don't fully understand why this is important to people. Eighty percent of all people do their income taxes through tax software already, and all you have to do is follow the steps. Plus, a high percentage of tax preparers use 1040-EZ, which is a single page. So how much easier can you make it? And simplifying taxes for businesses doesn't affect you or me, and probably no one else in the room here. What do we care whether taxes will be simpler for them?

Because complex taxes = lots of loopholes for one. A simpler tax code would by necessity eliminate many deductions. For two, I simpler tax code would be easier for business to file, meaning less time/money spent preparing and filing there taxes, lowering the business expense.

[apabruce]

15% with no deductions/exemptions - while ending all the damned subsidies, yes.

But 15% of what? Surely you wouldn't expect a corp to pay taxes if they had zero or negative taxable income. It's the calculation of taxable income that is the rub in many instances.

[MrDeeds]

From what I've read about Obama's proposal I think it's a good step. I like the idea of lowering taxes and simplifying the whole process for everyone. I also think it's a good idea to NOT be quite as aggressive as some of the republican plans call for. Let's step down here and see if the intended results come about.

Chas... in your opinion would severely or completely eliminating deductions and just going with a straight rate be better for the "little guy" or worse?

Couldn't agree more with you. There are no political overtones. Unfortunately common sense like this upsets both extremes.

This issues makes me consider voting for 4 more years.

[DaYooperASBDT]

But 15% of what? Surely you wouldn't expect a corp to pay taxes if they had zero or negative taxable income. It's the calculation of taxable income that is the rub in many instances.

Well you could just tax profits, but that might just be an incentive to understate your profit or increase expenses to artifically reduce profits. So I'm inclined to tax gross revenues, and am open to having graduated rates to give small businesses a break. A simplified system would save businesses a lot of time - and time is indeed money.

[apabruce]

Well you could just tax profits, but that might just be an incentive to understate your profit or increase expenses to artifically reduce profits. So I'm inclined to tax gross revenues, and am open to having graduated rates to give small businesses a break. A simplified system would save businesses a lot of time - and time is indeed money.

I'm not trying to be argumentative, but that creates problems too. For example, a company like Kroger, or any grocery business, has a tiny gross profit percentage based on huge revenues. Intel, on the other hand, has a gross profit percentage of more than 50%, but revenues are relatively small compared to net income. This is because a grocery store has little in long term expenses and plant compared to the cost of their raw materials. A computer chip company has massive amounts of money tied up in plant and equipment but very little incremental cost per chip.

I think taxing income (net profit) is the right answer, but you need to get rid of the deductions that have nothing to do with cost of goods sold. The other deductions are created by your and my friends in congress, often with the loftiest of goals, like clean energy or rewarding job creation in depressed areas. Count on it, if congress creates an incentive, lawyers and accountants will figure out legal ways to exploit it in ways unimaginable to the folks who lack imagination, like our elected officials.

We simply have to get rid of the idea that the tax code is to be used for social policy.

[chasfh]

Because complex taxes = lots of loopholes for one. A simpler tax code would by necessity eliminate many deductions. For two, I simpler tax code would be easier for business to file, meaning less time/money spent preparing and filing there taxes, lowering the business expense.

OK, I can see your point. I am less interested in making it simply easier and quicker to file taxes in order to simply save business expenses and time. But the idea of closing off egregious loopholes that exceeds ethical boundaries -- I can see the merit to that.

Of course, one man's loophole is another's man tax break that's critical to maintaining a business. So if the goal is closing off loopholes, it's all going to come down to whose ox is being gored, and the process of negotiating that will be no less political than anything else in the Capitol and state houses. Because one side will want to shift the hurt to private citizens in order to appease business, and the other side will want to squeeze more tax revenue out of business to ease the burden on citizens.

[chasfh]

We simply have to get rid of the idea that the tax code is to be used for social policy.

I'm intrigued by this statement. What do you mean by this, and what examples can you provide in which this occurs?

[rhino]

If Jefferson or anyone had wanted independent states, they would have created thirteen separate countries.

They tried a loose articles of confederation to run all the states like independent little countries, in the way you describe it, each with their own military and money and all that. That worked so well, they scrapped the whole idea and went with a constitution that legally unified us into the United States of America, not the Independent States of America.

I don't agree with your apparent vision of every man for himself, anyway. I think that's the wrong vision for America, a dystopian vision in which we strive to put the hurt on Ohio in the same way we strive to put the hurt on China. I think we are -- we should strive to be -- an interdependent American society, not a non-society of ungoverned lone wolves who happen to inhabit the North American continent. If that's what you believe we should be, then that's a core philosophical difference that you and I will simply have to part company on.

Besides, with all due respect to what you might believe, I don't give a flying **** what Jefferson wanted. He's not my god, and I don't feel compelled to accede to his wishes 190 years in the grave. I want a country that works for today's world, not for the world of 1776, a time during which, when it really comes down to it, the whole concept of independent states arose because they were essentially afraid to step on each others toes over the issue of slavery.

I think you have a misunderstanding of the classical libertarian thought.

Lao-tzu (6th Century BC) came to this incisive conclusion: "The more artificial taboos and restrictions there are in the world, the more the people are impoverished…. The more that laws and regulations are given prominence, the more thieves and robbers there will be."

The thought is not a lack of compassion for fellow members of society or the complete elimination of a centralized government or the need for national defense, it's simply to maximize monetary and personal freedom.

[RedRamage]

Of course, one man's loophole is another's man tax break that's critical to maintaining a business. So if the goal is closing off loopholes, it's all going to come down to whose ox is being gored, and the process of negotiating that will be no less political than anything else in the Capitol and state houses. Because one side will want to shift the hurt to private citizens in order to appease business, and the other side will want to squeeze more tax revenue out of business to ease the burden on citizens.

Yea... you're right. I guess I'd really just like to see a situation where all excemptions and loopholes and what-have-you's are eliminated. Let businesses thrive or fail on equal footing. But this is probably pie in the sky dreaming on my part and likely wouldn't work in a real world situation.

It's an interesting thought process... If a gov't subsidies farms, for instance, they shift a burden onto the private citizen, no? But at the same time they are lowing costs for the food then, right? So that helps the private citizen... and probably helps the poor more than the rich as a greater percentage of the poors income is spent on food.

If I drop taxes for a manufacturer, I'm shifting the tax burden on to citizens, but ideally that manufacturer would be able to grow their business with less expenses, which would mean more taxes, making up some or all of the tax lost by lowering taxes, and also increasing jobs.

So having a straight rate for everyone isn't necessarily in the best interest of a gov't or it's people. I guess I come back to an idea someone else presented here a long time ago. Why not give the tax breaks to the companies that actually do what we're hoping the tax breaks will do? You add x-number of jobs: Great, here's your tax break. You open a new plant: Fantastic, here's your tax break. Increase over all salary by y-percentage: Wonderful, here's your tax break.

Sorta the opposite idea of a Sin-tax. A good-tax-break?

[Oblong]

I'm not trying to be argumentative, but that creates problems too. For example, a company like Kroger, or any grocery business, has a tiny gross profit percentage based on huge revenues. Intel, on the other hand, has a gross profit percentage of more than 50%, but revenues are relatively small compared to net income. This is because a grocery store has little in long term expenses and plant compared to the cost of their raw materials. A computer chip company has massive amounts of money tied up in plant and equipment but very little incremental cost per chip.

I think taxing income (net profit) is the right answer, but you need to get rid of the deductions that have nothing to do with cost of goods sold. The other deductions are created by your and my friends in congress, often with the loftiest of goals, like clean energy or rewarding job creation in depressed areas. Count on it, if congress creates an incentive, lawyers and accountants will figure out legal ways to exploit it in ways unimaginable to the folks who lack imagination, like our elected officials.

We simply have to get rid of the idea that the tax code is to be used for social policy.

I am on my kindle so I cant easily edit your reply bit I really like the last sentence. It has extra meaningcoming from an accountant

[rhino]

So having a straight rate for everyone isn't necessarily in the best interest of a gov't or it's people. I guess I come back to an idea someone else presented here a long time ago. Why not give the tax breaks to the companies that actually do what we're hoping the tax breaks will do? You add x-number of jobs: Great, here's your tax break. You open a new plant: Fantastic, here's your tax break. Increase over all salary by y-percentage: Wonderful, here's your tax break.

Sorta the opposite idea of a Sin-tax. A good-tax-break?

That's a good idea and may work if there wasn't such a disparity between outsourcing for foreign labor. To build a manufacturing base here again, the international playing field has to be leveled. One way is to not only tax manufacturer's less, but allow people to keep the money they earn by lowering the amount of money paid in not only income taxes but also hidden taxes.

Wayne Crews, vice president for policy at the Competitive Enterprise Institute, combed through the 81,405 pages of the Federal Registry — which contains the nation’s regulations on businesses, and state and local governments — and cites a report showing that regulation cost the economy a whopping $1.75 trillion in 2008.

Here’s the theory: Americans are reminded of their taxes with each paycheck, they watch debates over government spending on the nightly news and hear members of Congress scream about “waste, fraud and abuse” on the House and Senate floors. But how many Tea Party rallies focus on rules concerning the “importation of manufactured wood articles” that raise the price for companies and consumers? The entire language of regulation — which Crews calls the “hidden tax” — just isn’t sexy enough to get anyone riled up, making it easier to stuff the federal code with more rules.

Hidden Tax | government regulation | red tape | The Daily Caller

We consumers pay hundreds of billions of dollars in "hidden" taxes each year. It's estimated that our federal income tax represents less than half of the taxes we pay each year. So let's expose eight hidden taxes you probably didn't even know you were paying...

1. Gasoline tax. Next time you fork over big bucks at the gas pump, remember that you are paying nearly 46 cents per gallon in federal, state and local taxes. That's nearly 15% of the cost of a gallon of gas!

2. Gas guzzler tax. If you are driving an SUV or other large vehicle, you have a tax double whammy. Not only are you paying that big gasoline tax, but you also got socked with a special tax dealers are charged – and pass right along to you on the sticker price – for gas guzzlers. This tax can be as much as $7,700!

3. Hidden taxes on travel. Airfare, hotels, your rental car -- you are paying a hefty tax on each one of them. You pay a 7.5% tax on a domestic ticket and a $3 tax for each segment of a flight. Hotel and rental car taxes vary by state, but can be as much as 40% of your overall cost. Ouch!

4. "Sin" tax on beer, liquor, gambling and cigarettes. The federal tax on a pack of cigarettes is 39 cents, but there are many state and local taxes that increase the price. Tobacco taxes contribute more than $7 billion to the Treasury every year. Almost half of the cost of beer and liquor comes from excise taxes.

5. Catching a fish or two isn't free. A fishing enthusiast pays 10% of the sales price on sport-fishing equipment in taxes. That's enough to make you switch to another sport. Maybe archery? But wait, an archer pays 40 cents tax per arrow. And quivers are taxed at 11%! If you buy a shotgun or other firearm, you'll pay 11% of the sales price in federal tax on the gun as well as any ammunition. Handguns are taxed at 10% of the sales price.

6. State taxes on insurance premiums. This little doozy brings in $9 BILLION in revenue a year! States charge insurance companies a tax on the insurance premiums they receive from customers in that state. And who do you think the insurance companies pass that cost along to? You got it. You and me.

7. Excise tax on imports. The sneakiest of all the hidden taxes that we pay is in the form of excise taxes on many of the products we import. The tax makes the prices of imported products artificially high to make it easier for domestic products to compete.

Here are just a few of the items and the percentage that their prices are jacked up by import taxes:

Bicycles 11%
Brussel sprouts 12%
Cotton hammocks 15%
Infant formulas 18%
Flashlights 18%
Peanut butter 143%
Girdles and panty girdles 24%
Brooms 32%
Plastic school supplies 5%

8. Payroll taxes. Forget about your income tax withholding. When is the last time you looked – really looked – at all the other taxes coming out of each and every one of your paychecks? You've got your Social Security tax, your Medicare tax, your unemployment tax, your workers compensation... It all adds up to a serious percentage of your money going into someone else's pockets.

[John_Brian_K]

Because complex taxes = lots of loopholes for one. A simpler tax code would by necessity eliminate many deductions. For two, I simpler tax code would be easier for business to file, meaning less time/money spent preparing and filing there taxes, lowering the business expense.

And also lowering the number of accountants they employ....or the number of accountants needed period. Independent or working directly for the business.

[chasfh]

Interesting thought about hidden taxes. I know about almost all those taxes and I would have assume that the vast majority of American adults must know about them, too. I mean, who wouldn't be aware of gas taxes, cigarette and alcohol taxes, travel taxes and import taxes?

But then, yesterday I heard a podcast during which they talked about a study that U-M conducted among American adults, and within the study were these three questions they asked the adults:

1. If you have $100 in a savings account and the interest rate is 2% per year, after five years will you have (a) more than $102; (b) exactly $102; (c) less than $102?
2. Imagine if the interest rate on your savings account is 1% per year and inflation is 2% per year. After one year will you be able to buy (a) more than; (b) less than; or (c) the same as you could buy at the beginning of the year?
3. Is this statement true or false: buying a single company's stock usually provides a safer return than buying a mutual fund?

The answers are (a), (b), and false.

The results of the study? Only 5% of respondents got the first two questions correct, and only a third of the respondents got all three right. I mean, no offense intended, but -- these are really basic questions.

The kicker? The respondents were all Americans over the age of 50, which means almost all of them had engaged in several complex financial transactions during the course of their lifetimes.

Speaking as a consumer advocate, that's scary to me. But speaking as a financial business, that's music to my ears.

[CMRivdog]

Interesting thought about hidden taxes. I know about almost all those taxes and I would have assume that the vast majority of American adults must know about them, too. I mean, who wouldn't be aware of gas taxes, cigarette and alcohol taxes, travel taxes and import taxes?

But then, yesterday I heard a podcast during which they talked about a study that U-M conducted among American adults, and within the study were these three questions they asked the adults:

1. If you have $100 in a savings account and the interest rate is 2% per year, after five years will you have (a) more than $102; (b) exactly $102; (c) less than $102?
2. Imagine if the interest rate on your savings account is 1% per year and inflation is 2% per year. After one year will you be able to buy (a) more than; (b) less than; or (c) the same as you could buy at the beginning of the year?
3. Is this statement true or false: buying a single company's stock usually provides a safer return than buying a mutual fund?

The answers are (a), (b), and false.

The results of the study? Only 5% of respondents got the first two questions correct, and only a third of the respondents got all three right. I mean, no offense intended, but -- these are really basic questions.

The kicker? The respondents were all Americans over the age of 50, which means almost all of them had engaged in several complex financial transactions during the course of their lifetimes.

Speaking as a consumer advocate, that's scary to me. But speaking as a financial business, that's music to my ears.

I admit missing the first question. But, I was mentally factoring in "service fees" on the account. I figured my $100 would be in the low 90s

[chasfh]

It's an interesting thought process... If a gov't subsidies farms, for instance, they shift a burden onto the private citizen, no? But at the same time they are lowing costs for the food then, right? So that helps the private citizen... and probably helps the poor more than the rich as a greater percentage of the poors income is spent on food.

If I drop taxes for a manufacturer, I'm shifting the tax burden on to citizens, but ideally that manufacturer would be able to grow their business with less expenses, which would mean more taxes, making up some or all of the tax lost by lowering taxes, and also increasing jobs.

You'd think that, wouldn't you? But then, that assumes that the subsidized businesses would respond to the tax break by artificially lowering their price to the consumer, instead of charging as much as the free market will allow and maximizing profit for the company and shareholders.

So having a straight rate for everyone isn't necessarily in the best interest of a gov't or it's people. I guess I come back to an idea someone else presented here a long time ago. Why not give the tax breaks to the companies that actually do what we're hoping the tax breaks will do? You add x-number of jobs: Great, here's your tax break. You open a new plant: Fantastic, here's your tax break. Increase over all salary by y-percentage: Wonderful, here's your tax break.

Sorta the opposite idea of a Sin-tax. A good-tax-break?

I can't claim to know all the tax breaks provided to all the businesses, but I think the tax break-for-performance concept you're referring to is already in place for many breaks, if not most breaks. I think the whole thing is probably a little more complex than we can lay out here, but I'm pretty sure a lot of those breaks probably already do that.

Which comes back to the whole thing about tax breaks and abatements in the first place: in theory, they are intended to produce an beneficial outcome for the overall economy, whether it's more jobs, more capital investment, more tax revenue, etc. In other words, government in theory uses tax breaks to elicit behavior out of people and businesses that serve the common good.

The $64 question is whether all tax breaks actually do that, and if not, which ones do and do not?

[apabruce]

I'm intrigued by this statement. What do you mean by this, and what examples can you provide in which this occurs?

I didn't quote Oblong but he made a similar comment. I can't provide a specific example off the top of my head, but it seems to me businesses have received special deductions or credits for renewable energy devices, locating in depressed areas, creating jobs, buying equipment (the old Investment Tax Credit), and many others.

Take the old Investment Tax Credit as an example. Businesses got a tax credit* for buying new equipment. Fine on its face, but there was an entire cottage industry of creating tax shelters solely around this credit. Some shelters were ultimately disallowed, but the point is that exploiting the tax law created an industry that did nothing for job creation or any other social goal other than avoiding taxes.

If we want to, say, encourage energy independence, let's write a law giving cash for the thing we want people to do, rather than burying it in the tax code. This will highlight the issue in question so voters can more easily decide whether they want government to spend this money. It will also make it easier to evaluate which corporation pays how much in tax, and why.

The states use these deductions/credits as much or more than the federal tax code.


* I should point out the difference between a credit and a deduction. A deduction reduces your income upon which the tax is based. So, if you're paying at a 35% rate, a $100k deduction means you save $35k. A credit is a direct dollar for dollar reduction in your tax payment. So, if you get a $100k credit you get it regardless of your tax rate. Much more benefit to the corporation, and greater reduction of tax revenue for the government.

[DaYooperASBDT]

I'm not trying to be argumentative, but that creates problems too. For example, a company like Kroger, or any grocery business, has a tiny gross profit percentage based on huge revenues. Intel, on the other hand, has a gross profit percentage of more than 50%, but revenues are relatively small compared to net income. This is because a grocery store has little in long term expenses and plant compared to the cost of their raw materials. A computer chip company has massive amounts of money tied up in plant and equipment but very little incremental cost per chip.

I think taxing income (net profit) is the right answer, but you need to get rid of the deductions that have nothing to do with cost of goods sold. The other deductions are created by your and my friends in congress, often with the loftiest of goals, like clean energy or rewarding job creation in depressed areas. Count on it, if congress creates an incentive, lawyers and accountants will figure out legal ways to exploit it in ways unimaginable to the folks who lack imagination, like our elected officials.

We simply have to get rid of the idea that the tax code is to be used for social policy.

Great points, yeah I didn't even think about margins - I should have remembered that from helping with my parents' books (liquor sales vs. food sales)

[DaYooperASBDT]

RR - I do like the idea of simple business tax rates, no deductions except incentives for increasing payroll. I would avoid "per capita" formulas as they could just add a bunch of minimal wage flunkies like myself.

How about: In year zero, each company declares its total payroll (less the bosses making over 250K). In future years, any inflation-adjusted payroll above that year zero baseline gets a 50% tax credit (cap credit at 50% of expected tax bill).

Also - I know we hated Carter's "windfall profits tax", but I'd like to see incentives or disincentives, for "non-banking" companies to move their excess cash. Either give some back to shareholders, re-invest in the business, raise salaries/hire, or pay a tax.

Maybe some of the experts here could explain to me why these companies are sitting on this, to name a few:

GE - 82 billion cash on hand
Apple - 60 billion
Microsoft - 41 billion
Google - 39 billion
Cisco - 40 billion

[apabruce]

Maybe some of the experts here could explain to me why these companies are sitting on this, to name a few:

GE - 82 billion cash on hand
Apple - 60 billion
Microsoft - 41 billion
Google - 39 billion
Cisco - 40 billion

I don't know specifically about these companies, but in general I can think of a couple of reasons.

1) If the corp makes money its stock value will go up, thereby enriching stockholders without having to declare dividends. Dividends are now taxed at the same rate as capital gains, but you can do tax planning by timing when you sell stock and realize capital gains, which you could not do with dividends.

2) Hoarding cash for future acquisitions, or for paying down debt. For example, in the case of GE, they have about $118 billion in short term debt/current portion of long term debt.

[DaYooperASBDT]

When a business is acquired, do most of the former company's shares get sold off by stockholders, or do they tend to just
settle for shares in the "takeover company"?

[apabruce]

I'm intrigued by this statement. What do you mean by this, and what examples can you provide in which this occurs?

As far as specific examples of tax incentives as social policy, here is a link to pages of energy related tax incentives: Corporate Tax Incentives | Open Energy Information

Note there are about 50 or 60 state and federal tax incentives on the subject of energy, if this list is accurate. So, the social policy goal appears to be alternative energy.

I'm not speaking against any of this stuff as policy, but I think it's too easy to simply add something to the tax code rather than enacting specific legislation. Also, I think it creates an atmosphere or perception of unfairness when multiple companies pay entirely different tax amounts based on identical net income.

[apabruce]

It's easier to see social policy in individual taxes than with corporate taxes. For example, take three 35 year old professionals earning identical incomes. One is single, one married with no kids, and one has 4 children. They will pay different amounts of tax because of their marital/family status.

You can get a tax deduction for mortgage interest and property taxes, but a renter does not get the same itemized benefit.

Capital gains income is taxed at different rates than wages. Even types of capital gains are taxed at different rates. You pay higher capital gains taxes if your art or wine collection is sold than you would selling your stock portfolio. I can sort of see why stock investments are taxed at a lower rate, but art?

Our tax law creates winners and losers everywhere you look.