Published On: Tue, Jan 7th, 2014

Yes, we should get rid of Corporation Tax. We need jobs

Share This
Tags

The amount of money raised by corporation tax is tiny, compared to other forms of taxation.  So tiny that it is not worth the cost to society for imposing it.  This chart, from Yahoo finance based on HM Treasury data for 2012/2013, below shows just how little revenue is derived from corporation tax in the United Kingdom: £45 billion out of £592 billion, or 7.6%.

UK tax and spend

The bulk of the UK’s government receipts comes from Income Tax and National Insurance which, for the benefit of non UK nationals, is another form of Income Tax that the government pretends is not Income Tax by calling it National Insurance.   National Insurance is partially paid for by the company and partially paid for by the employee – which makes the employee think the National Insurance tax is lower than it actually is.  Council Tax is a tax on where you live and Business Rates is a tax on your work location.  VAT is a tax that is ultimately borne by anybody who spends money at a retail level as businesses pass through their VAT costs to customers.

Corporation Tax is a tax that corporations are supposed to pay to the government but the amount that is gathered remains stubbornly low at a mere 7.6% of all of the UK Government’s receipts.  Many people on the left of the political spectrum complain that this is too low and a travesty of natural justice.  They complain that companies are using complicated accounting tricks to make their taxable income lower than it should be.

The problem for those on the left, however, is that corporate directors have a fiduciary duty to only pay what they are legally required to pay.  And so they pay armies of lawyers and accountants who work tirelessly to figure out how they can reduce their tax bill via legal means.  This includes lobbying for quirky new laws through Parliament to make their tax payments even lower.  To counter this the state also pays for armies of accountants, lawyers and civil servants to try and increase the Corporation Tax that they receive.

In this arms race between private companies and the state the state always seems to end up worse off.  And if the state gets the upper hand the corporate will simply relocate their headquarters to a more tax favourable nation.

But all of this effort is pointless.  Even counter productive.

Since the bulk of government tax receipts comes from Income Tax, National Insurance and VAT, the best way to increase tax receipts is to have more people in employment paying more tax.  If the UK became a corporation tax free country companies that have left the UK to avoid paying tax would return. Companies that are not from the UK would move from their higher corporate tax jurisdictions to the UK.

Why? The UK is already a “perfect” country for business: due to its time zone and luck of geography it can easily do business with East Asia AND the Western United States in the same day.  Few countries can do that.  English is the international language of business, making it easy for non-native English speakers and their families to relocate.  English law is the effective international law for major international contracts.  This makes it easier for non-UK companies to relocate.   Heathrow is the best airport in the world for flying direct to wherever you want to go and the UK private school system is perfect for the employees of multinationals.

And this employee aspect is the critical part.

When companies “move” to the UK they are effectively moving their head quarters staff. This means that the board of directors will mainly be based in the UK.  The CEO and others in the C-suite will be moved to the UK.  Most of their direct reports will be based in the UK.  All these employees are all paid much better than lower ranking employees.

This is good for people living in Britain. They will no longer need to move abroad in order to get the best paid and most interesting senior multi-national jobs.  This will encourage them to invest more in the UK.  This is great for jobs, and more importantly good, high paying jobs that pay lots of taxes.  Income Tax receipts will go up.  National Insurance tax receipts will go up.  VAT receipts will go up.  Business Rates receipts will go up.  Council Tax receipts will go up.  This should be more than enough to compensate from the loss of Corporation Tax.

All people on the left have to do is get over the fact that “nasty” corporations can get away with not paying corporation tax.

So change the law. Time to get rid of Corporation Tax!

 

 

 


History Future Now, ebook edition, is now available from the Apple iBookstore!  So if you have a iPad or iPhone click on this link to download it.  It is currently on at a special offer of 99c.   The Kindle version has been submitted to Amazon and should be available shortly.
  • disgvnv

    Here in USA we have loopholes for the rich and subsidies for Corps and giant screw for the rest of us

  • Scott M. Webb

    No, we don’t. We owe $17 trillion! The money has to come from somewhere, that’s 110% of our GDP…we’re talkin’real money here. While our Corporate tax rate is indeed high on an International basis anyone unbiased enough knows that through Credits, write offs, and whatever else (I’m not an Accountant) our net tax rate is unbeatable.

    Additionally, the idea that if we lessen, or eliminate, Corporate taxes it will encourage investment by Corporations is a fallacy. They will invest if there is opportunity. Profits have been at historical highs in the last few years…what have they done with them? Mostly buy back Stock…and pay astronomical bonuses to Management.

    No, we need a simplified tax code, I’m all for a flat tax, but I don’t see that happening. The United States is a terrific platform for success, that platform is provided by the people of this Country. That platform costs money to operate, and we’re not makin’enough.

  • Les Aker

    Corporations don’t pay taxes: their customers do in the form of increased prices.

  • Michael Zitterman (WC)

    Although I am unaware of Mr. Tristan’s reservoir of economic talent, he appears to be either naïve or has an axe to grind.

    Reducing corporate taxes to zero would not affect jobs within a corporation.
    It would, of course, be a windfall to the stockholders.

    A concept that we have not utilized is the shift of “above-the-line” (ATL) expenses to “below-the-line”, e.g., health care., i.e., if there were a single payer, there would be no ATL costs.

    Regarding the auto industry, if there were $3,500 of health costs charged to each car, the selling price could be reduced by that amount.

    mz

  • Douglas Buck

    Badmouthing Mr. Tristan already? That’s usually a sign of an insincere argument.

    True, reducing the corporation tax would be a windfall for the stockholders. It would also attract more investment. Companies would expand here; other companies would relocate from overseas. Production would increase and there would be a hiring boon.

    Unlike Mr. Tristan, I have no economic talent. But, if I owned a midsized corporation, I would want to make a profit, and I would try to locate it where I could do so, in places where taxes didn’t take a big bite.

  • Les Aker

    It is also worth noting that if we want an even bigger disaster than what we have already seen with Obamacare then the way to go is single payer. Saying there would be no “above the line” costs compared to the disaster in the making single payer actually is nothing but cutting off your own nose to spite your face.

  • Scott M. Webb

    Douglas,

    Agreed it would be beneficial to Stockholders, but in a Market that just ran up 30% last year does it make sense to feed an already flaming fire?

    But if we were to eliminate Corporate Taxes other Countries would respond in kind. I have said in these threads many times that the most valuable Commodity in the world is Jobs. Every Country in the world is trying to create, save, and, yes, steal them. If the flow of Capital were to change in any sizable amount to the U.S. the response to protect Jobs abroad would be swift…especially in Asia.

    Companies will expand where they see opportunity. Would opportunity increase with no Corporate Taxes? Certainly, but would the benefits out weigh the costs? In this case I don’t believe so. There is a worldwide glut of cheap labor, a ‘hiring boon’ just isn’t in the cards.

  • Douglas Buck

    OK. There are two ways to look at stock. One is in the issuance that brings money into a company for research, development and expansion. The other is in the demand, which determines the market price. The latter fluctuates widely, but has little to do with benefit or loss to the company unless the company buys it back or decides to issue more.

    Yes, there is plenty of cheap labor. I believe if costs to companies were less, including lower taxes, less red tape and fewer obligations like paying for messed up health insurance, they would expand and hire some of that labor. There are plenty of needs to fill, things to make, services to render.

  • Scott M. Webb

    Ok…If you look at the evidence of the last three or four years you will see hundreds of billions of dollars spent on Stock buybacks. If there is indeed “plenty of needs to fill, things to make, and services to render”…aka; opportunities. Why are these firms buying their Stock back instead of Investing in these opportunities?

    Also, no question ACA/Obamacare is poor policy and a colossal screw up in execution. But it was screwed up before ACA/Obamacare. Healthcare was pricing American workers out of work before he started this process. Nothing has changed, it’s still screwed up.

  • Douglas Buck

    Companies are buying back stock because it’s cheap, relatively speaking of course. Inflation is right around the corner.

    Now, there are the large international corporations that seem to be heavily invested in “finance” as well as manufacturing. They play the markets, trade offshore, go where labor is cheapest, engage in multiple agreement with suppliers and customers. Then there are smaller companies that just want to get ahead, make a decent profit and scale up. I don’t know who’s buying back stock, but I suspect it’s the larger companies heavily invested in finance.

    But, most jobs in the United States are created by small and midsize companies. We should give them every advantage, including lower taxes. I believe, if the government eliminated the corporation tax, there would be a great expansion and hiring spree (and lower outlays for unemployment and other benefits). All would be better off. My take.

  • Scott M. Webb

    Stocks are not cheap, they appear to be because Interest Rates are so low, artificially so. You think they are cheap now…wait, they will get much cheaper.

    Inflation is so far off the radar it isn’t a concern in the least. Deflation is a much bigger problem…the Fed knows how to beat Inflation, they are afraid of Deflation.

    I agree with you it is the small and mid size Companies that need the most help and we should whenever and wherever possible. But a Country $17 trillion in debt, and adding to that at a $700 billion clip annually can’t afford to “just eliminate” revenue.

  • Michael Zitterman (WC)

    Douglas B,

    REGARDING: Badmouthing Mr. Tristan already? That’s usually a sign of an insincere argument.
    RESPONSE: I attempt to use the language to describe that which I believe.
    What did I say with which you have a problem?

    REGARDING: True, reducing the corporation tax would be a windfall for the stockholders. It would also attract more investment.
    RESPONSE: If you mean the stock prices should go up, I agree.

    REGARDING: Companies would expand here; other companies would relocate from overseas. Production would increase and there would be a hiring boon.
    RESPONSE: A business will expand if it believes the increase in revenue will exceed costs, i.e., provide additional profits. This is all “pre-tax” activity. The tax structure has no effect upon “pre-tax income”.
    Businesses will not locate here if COSTS to produce goods aren’t reduced.
    Remember “it’s the economy, stupid”?
    It’s the pre-tax income, stupid!!! lol

    REGARDING: Unlike Mr. Tristan, I have no economic talent.
    RESPONSE: I have no problem with that comment.

    RGARDING: But, if I owned a midsized corporation, I would want to make a profit, and I would try to locate it where I could do so, in places where taxes didn’t take a big bite.
    RESPONSE: Please review the above.

    Thanks for your comments.

    mz

  • Richard (Ric) Shorten

    Only IF: every corporate member and every other person in or earning money from that country whether from work, dividends, interest… from every source pays 20% deducted at source or 20% VAT tax on their purchases any where in the world based on Passport Nationality remitted to their country shown. That would work and the debt and deficit would be gone by 2050 or so, for most countries of the world. Any person earning less than $24K or family earning $40Kpays no income tax. TaaDaa!

    Now bring me the next problem please!

  • Les Aker

    Nope. Setting some subjective limit under which a person or family pays no income tax is the type of decision making that has gotten us where we are with more than 40% of the people who file a return pay zero income tax. People that are paying zero income tax have no skin in the game when it comes to just how much all those “free” government services actually cost.

  • Aram Ausky

    I think we need a quick summary of the income statement and its dependencies on the stuff y’all have mentioned. You seem to be talking past each other.

    SALES (depends on Aggregate Demand, VAT& other sales taxes )
    -PRODUCTION COSTS (including raw materials, energy costs, producer’s WAGES )
    -TRANSPORT TO BUYER (fuel energy costs )
    ——————————
    GROSS MARGIN
    -WAGES (depends on market wages plus mandated WAGE COSTS like min wage, social ACA)
    -GENERAL EXPENSES and other expenses
    ——————————
    EBITDA (Earnings Before Taxes, Depreciation, Amortization; i.e. “Operational Profit”)
    -DEDRECIATION & AMORTIZATION (depends on fixed assets required by type of business )
    ——————————
    TAXABLE INCOME
    -CORPORATE TAX
    ——————————
    NET INCOME (the “R” in ROI, the “E” in P/E )

    My Comments:
    Scott, you said “Corporate taxes it will encourage investment by Corporations is a fallacy. They will invest if there is opportunity. “. I’m sure you’ll agree that more NET INCOME is an opportunity. The counter argument to this is that it “beggers thy neighboring countries”.
    An opportunity also exists or doesn’t depending on Aggregate Demand, hot product, and non-restrictive regulation.

    Micheal, the external investor is interested in ROI not EBITDA.

    Scott, top managers buy back stock to shore up their own personal holdings in the stock company they manage.

    Michael, “Regarding the auto industry, if there were $3,500 of health costs charged to each car, the selling price could be reduced by that amount. “. You are comparing German cars to US, aren’t you? This is correct. Total production costs in product price need to be competitive or there are less SALES.

    Les, corporations do pay taxes and national taxes are among the things that influence ROI hence inward investment into nation’s market. But yes, taxes are a flow through cost influencing price hence Aggregate Demand in SALES.

    Scott, I get the impression that you are not outraged that P/E has no influence on market capitalization of listed equities.

  • Scott M. Webb

    Aram,

    Yes, more net Income is a good thing. But I do not believe that Income will be put to a more appropriate use than paying off our massive debt. Aggregate demand is not going to increase appreciably because the developed world is awash in debt. Until that debt is serviced aggregate demand will remain weak. “Hot products”, sure that is opportunity. As I said they will Invest if opportunity exists regardless of the tax structure.

    “Top Managers” Are you talking about Corporate Officers? Because they’ve been net sellers of their own Stock for quite some time now.

    I’m outraged that we find ourselves in the same position we were in 2000 and 2008. Retail money is starting to pour into the Equity Market. These are the people who can least afford to play around with the Professionals who at some point will punish them for doing so. No one seems to have learned from 2000 and 2008.

  • Les Aker

    “Yes, more net Income is a good thing. But I do not believe that Income will be put to a more appropriate use than paying off our massive debt.”

    Apples and oranges. It is not the responsibility of businesses to operate for the purposes of paying for the federal debt.

  • Scott M. Webb

    Aram,

    When did you change your name to Les…and why are you wearing his yellow jacket?

  • Douglas Buck

    Some tax revenue, lost by eliminated the corporation tax, could be offset by having capital gains taxed at the same rate as earned income. Earned income should not be taxed at a higher rate than “unearned” income.

    However, the tax on capital gains should be applied after correcting for inflation, but that’s probably a theme for a different discussion.

  • Aram Ausky

    Scott, we’re talking about corporate taxes and their effects on companies. National debt is a “spending gone wild”. State spending is completely divorced from any other aspect of the national economy. They will spend at war time levels irregardless of any indicator.

  • Jennifer Warren

    National debt and Keynesian economics go hand in hand.

  • Douglas Buck

    Hi, Jennifer,

    You always have something provocative to contribute and plenty of good ideas.

    I regret that we are leaving our children and grandchildren a legacy of debt.

  • Jennifer Warren

    Douglas…Being able to think outside of accepted boxes tends to make a lot of people really angry

    Ah well….I expected to be booted from the Republican channel long before it happened.

  • Jennifer Warren

    I have worked out a plan to eliminate the national debt and supercharge the economy.

    The cost and effort are enormous, but I feel eliminating shipping charges and cutting energy bills in half within five years will offset the expense.

    Still…I have no doubt there will be opposition. Change is always frightening, even when its for the best.

  • Douglas Buck

    Wahoo Jennifer!

    Better to put people to work than give hand outs (I’m a died-in-the-wool conservative and hated most of FDR’s policies. He screwed up society, accelerated the demise of our sound monetary system, and prolonged the depression, just like the present Tetrarch (name unmentioned)). But I liked the CCC.

    As I recall, your plan involves the use of nanotechnology, and transforming the country’s infrastructure. I know there are many new applications for carbon, like bucky tubes and single molecule carbon sheets, new ways to collect and transmit energy.

    How will your plan eliminate the national debt?? Finally, something the government could do to help our children and grandchildren?? (Kissing babies doesn’t help much when, behind the scenes, it’s “borrow and spend”, “borrow and spend.”)

  • Scott M. Webb

    Aram,

    I’m not following you. The thread is about eliminating Corporate taxes, which would be nice, but not possible at this point in time because as you say ‘spending gone wild’ of the last thirty years or so…and there is no such word as irregardless’

  • Michael Zitterman (WC)

    DouglasB,

    REGARDING: Some tax revenue, lost by eliminated the corporation tax, could be offset by taxing capital gains at the same rate as earned income. This would remove a common complaint that very wealthy persons are allowed an unfair advantage over middle class working families.
    However, the tax on capital gains should be applied after correcting for inflation, but that’s probably a theme for a different discussion.

    TO WHICH, I OFFER:

    CAPITAL GAINS (LOSSES) TAXATION

    DEFINITION: A capital gain or loss is the difference between the cost of a capital asset and the proceeds received from the sale of that asset.

    DISCUSSION: If one purchased a capital asset in 1955 for $1,000 and sold it in 2012 for $11,000, he or she would have a nominal capital gain of $10,000, but the economic gain would be less.
    The economic gain can be calculated by translating the 1955 dollars into 2012 dollars.
    Assuming the CPI (consumer price index) ratio of the 2012 to the 1955 is 15.0, the adjusted (real) cost equals $15,000 ($1,000 x 15.0), therefore the transaction would have resulted in an economic loss of $4,000.
    If the tax code specified that there would be no distinction for capital gains from other income, the taxpayer would have to pay tax based upon a $10,000 gain. I think that result would fall within the “insult to injury” genre.

    If one purchased a capital asset in 2011 for $1,000, and sold it a year later in 2012 for $11,000, he or she would have a nominal capital gain of $10,000, but the economic gain would be less, based upon the “translation” of 2011 dollars into 2012 dollar. Assuming inflation for the year of 2%, the cost would be adjusted to $1,020 ($1,000 x 1.02), thus there would be an economic gain of $9,980 ($11,000 less $1,020).

    In an effort at mitigating this inequity, Congress legislated that capital gains would be treated differently from other income.

    Congress should have legislated that the base cost be adjusted (translated) into current dollars, but it, recognizing the problem and wanting to mitigate the unfairness, took an easy, but illogical and short-sighted route by providing an arbitrary 50% (this has varied – current tax is 15% of the gain) reduction in the amount of the nominal gain that would be subject to income taxes.

    There are short-term and long-term capital gains. Currently, a capital gain is long-term if the sale takes place more than one year after the purchase. Only long-term capital gains qualify for this beneficial tax treatment.

    The current holding period of one year to establish the status of “long-term” appears to create the atmospheric conditions, which might act as a catalyst to stimulate market highs and lows for the purpose of creating long-term capital gains, thereby converting ordinary income into preferentially treated long-term capital gains.
    Artificialities are not good and will most likely be accompanied by unintended consequences.
    One of those “unintended” consequences, which is massive, enables the Mitt Romney’s, Warren Buffett’s, et cetera to pay effective tax rates of 15-20%.
    Another “unintended” is massive as well, i.e., the treatment of the gains on stock options granted to employees of corporations.

    The lure of profit should be sufficient to entice investments in capital assets. This lure is, also, attributable to short-term capital gains.

    CONCLUSION: I, strongly, suggest that legislation be passed to eliminate the current taxation of long term capital gains and to initiate a method of taxation that would index the base cost of a capital asset. The adjusted gain would be taxed at ordinary income tax rates.
    This change would probably eliminate a great deal of the creativity of tax planners and Wall Street, which would be beneficial to our economy.

    mz
    mikiesmoky@aol.com
    10/08/13

  • Michael Zitterman (WC)

    Aram,

    REGARDING: Micheal, the external investor is interested in ROI not EBITDA.
    RESPONSE: I am concerned with the strength of the economy, not the price of a company’s stock (which is a derivative of that company).
    What incremental information are you attempting to provide.
    NOTE: No pre-tax income, no business viability — pre-tax income is job #1

    REGARDING: Michael, “Regarding the auto industry, if there were $3,500 of health costs charged to each car, the selling price could be reduced by that amount. “. You are comparing German cars to US, aren’t you? This is correct. Total production costs in product price need to be competitive or there are less SALES.
    RESPONSE: You “assumption” is grossly incorrect. I am using the auto industry as an example that we are in competition with other nations, and must strive to reduce COSTS, not income taxes.

    mz

  • Douglas Buck

    Michael. I like your post on capital gains. Clear and insightful.
    Thank you for taking the time to put it together.

  • Michael Zitterman (WC)

    DouglasB,

    REGARDING: Michael. I like your post on capital gains. Clear and insightful.
    Thank you for taking the time to put it together.
    RESPONSE: Thank you for your note.
    My Congressman, Brad Sherman, and I had a brief discussion at a “coffee” about a year and a half ago, during which I mentioned my thoughts and he responded that years ago, he had thought about writing a book about the same subject, but has gone on to do NOTHING to advocate for the “correct” treatment of LTCG’s.
    To understand, one must realize that politicians have the ability and need to lie embedded within their DNA (descriptive, unusual, but pretty much on target).
    Almost as important to understand is that they have constituents and “clients” and these groups are not congruous.

    If one goes to bradsherman.com and clicks onto EVENT, I am in the 3rd row, middle with sunglasses. lol

    mz

  • Aram Ausky

    The only thing I stand by in any change to capital gains tax is that the change should be phased in slowly over many years. You don’t want to put the rug out from under standing investment structures. That would be destructive and lead to turbulance.

    I won’t repeat my opinion about whether it’s fair or not. I don’t care about my opinion on that I don’t expect anyone else to care either. It’s the objectivity in my paragraph above that counts.

    Michael, I’m the guy who calculates EBITDA. Trust that I like microeconomics. If EBITDA is more important to you than Net Income, then the top line, SALES is most important of all. Sales depends on the macro environment, Aggregate Demand, marketing and sales management. All of that is out of my hands. All I can do is identify waste in expenses and believe me, the corporate world has a lot of waste. Fine with me; it’s a shareholder problem.

    I do have an emotional reaction to government waste. That’s everyone’s problem.

  • Michael Zitterman (WC)

    Aram,

    REGARDING: The only thing I stand by in any change to capital gains tax is that the change should be phased in slowly over many years. You don’t want to put the rug out from under standing investment structures. That would be destructive and lead to turbulance.
    RESPONSE: Why should the change take place over “many” years?
    How would the rug be pulled from any current holdings?

    REGARDING: I won’t repeat my opinion about whether it’s fair or not. I don’t care about my opinion on that I don’t expect anyone else to care either. It’s the objectivity in my paragraph above that counts.
    RESPONSE: That is one of the major reasons why we are where we are…, i.e., not caring about “fairness”.
    Some might perceive that as being very selfish to the detriment of others.
    We are a greedy lot.

    REGARDING: Michael, I’m the guy who calculates EBITDA. Trust that I like microeconomics. If EBITDA is more important to you than Net Income, then the top line, SALES is most important of all. Sales depends on the macro environment,
    RESPONSE: Whereas sales are critical, without pre-tax income, top line will be meaningless, over time, since the business will cease to exist.

    REGARDING: I do have an emotional reaction to government waste. That’s everyone’s problem.
    RESPONSE: Waste in government must be a top priority.

    mz

  • Aram Ausky

    Hi MZ, I already said somewhere that capital gains favor is a subsidy from working renters to owners. It’s not fair but I don’t want to harp on that.

    “You don’t want to put the rug out from under standing investment structures. ” Let me explain this. Although I’m not in favor of artificial asset inflation, a sudden rise in US capital gains rules would remove a value support of US real estate and financial assets.

    We don’t want more underwater mortgages, we want to keep owners in their houses and RE related assets are a pillar in bank balance sheets.

    It’s also important that the USA continues to have a capital inflow from abroad at this time. Changing capital gains would hurt the US balance of payments and that could cause a dollar collapse. We want stability.

  • Dick Bonnet

    Corporate taxes affect the flow of capital from one economy to another in our global economy. In the US we have the highest corporate taxes in the world. Even with deductions and exceptions our Net Corporate tax rate is STILL the highest in the world. Therefore capital is flowing to other countries and American multinationals who have retained profits overseas are leaving it there rather than subjecting it to additional US taxes. We need to reduce the tax rate so we are more competitive with the rest of the world. Not to zero but below where it is. Also, it would have a negligible affect on revenue. Corporate taxes are less than 9% of the total revenue.

    Scott,
    We have a $17 Trillion deficit because we SPEND TOO MUCH not because we tax too little. If we get the spending under control the debt will take care of itself. Reduce spending to 2% growth, get the economy to 3% growth and we balance in 10 years and begin to pay down the debt. Reduce spending growth to zero we balance in 5 years.

  • Les Aker

    “But since we owe $17 trillion and we have such a disparity in Income distribution I do believe we can, and should, raise revenue through higher taxes on those who can afford it.”

    Nope. Taking 2011 as an example, the deficit was ~$1.65T. If we had taxes everyone that made >$200K that year at a rate of 100%, i.e. taken everything they worked to earn, it would have generated ~$1.52T. That leaves ~$130B. That makes it clear that moving rates a few percent isn’t going to change anything. The problem isn’t revenue.

    The top 1% already pays >36% of the income taxes paid. The top 5% pay more than the other 95% COMBINED. And it’s not your decision who “can afford it”.

    “When Reagan took Office the top tax rate was about 72% as I remember. ”

    If you aren’t going to compare the differences across the board including deductions you’re not really comparing anything. When Reagan took office I could deduct the interest on things like my car loan and I can’t now. The result being that the effective rate wasn’t anywhere close to 72%, Scott.

  • Scott M. Webb

    Dick,

    I agree we have a spending problem. Where we differ is I also believe we have a revenue problem. When Reagan took Office the top tax rate was about 72% as I remember. That is way too high. But since we owe $17 trillion and we have such a disparity in Income distribution I do believe we can, and should, raise revenue through higher taxes on those who can afford it. That is where you and I differ, we’ve been through this already I know so there is no point in rehashing our differences.

    No one ‘likes’ taxes, I certainly do not, but they are a necessary evil. Spending has to be cut no question. Cuts should be across the board. Balancing the budget is the first step toward getting our Financial House in order. The problem is we have an exceptionally weak Economy that I do not believe is capable of withstanding any substantial change. So it must be done gradually.

    On an unrelated topic Dick, the reports about the Chemical spill in Charleston and the resulting lack of safe drinking water sound pretty bad. Are you close to Charleston?

  • Michael Zitterman (WC)

    Aram,

    REGARDING: Hi MZ, I already said somewhere that capital gains favor is a subsidy from working renters to owners. It’s not fair but I don’t want to harp on that.
    RESPONSE: “It’s not fair” is critical, but you don’t want to “harp” (discuss) that?????
    That is a glaring example why we are where we are. How very sad and intellectually challenged.

    REGARDING: “You don’t want to put the rug out from under standing investment structures. ” Let me explain this. Although I’m not in favor of artificial asset inflation, a sudden rise in US capital gains rules would remove a value support of US real estate and financial assets.
    RESPONSE: How will RE be affected if the change were to be made?
    If one is ill and knows that taking the proper actions, should those actions be done over time or ASAP?
    There will still be LTCG benefits, but they will be rational.

    REGARDING: We don’t want more underwater mortgages, we want to keep owners in their houses and RE related assets are a pillar in bank balance sheets.
    RESPONSE: You appear to be more of a “smoke and mirrors” type of “thinker”.

    REGARDING: It’s also important that the USA continues to have a capital inflow from abroad at this time. Changing capital gains would hurt the US balance of payments and that could cause a dollar collapse. We want stability.
    RESPONSE: We have plenty of capital and liquidity.
    We are much too concerned about stock prices, which is far beyond foolish.
    We must concentrate our effort on the underlying economy.
    Stock prices, employment, et cetera are derivatives of the economy.
    Our leaders’ ignorance has taken the opposite route, i.e., attempting to have asset prices lead the economy.
    Mr. Greenspan started this on Jan. 3, 2001, when he began to create “funny money”.

    mz

  • Michael Zitterman (WC)

    Les,

    I hope the following can affect your “perceptions”:

    INCOME TAXES

    A few TRUISMS (promulgated by “talking heads” and many politicians):
    1. Increasing tax rates would inhibit people from working, since they would keep less per dollar earned.
    2. Tax cuts and tax credits for small businesses would be stimulative to our economics.
    3. Tax increases would inhibit businesses from making capital investments.
    4. During a recession, no income taxes should be increased, including on the very wealthy.
    5. “Death” taxes are unfair and inappropriate, because income taxes have already been assessed.
    6. The rich pay most of the income taxes.

    Discussions regarding these “truisms”:
    1. Increasing tax rates on individuals would have the opposite effect, i.e., to maintain one’s standard of living one would have to work more. If one’s take-home is reduced, he or she will have to work longer hours, seek another job, ask for a raise, take a second job, cut standard of living (negative for the economy), et cetera. If one’s take-home pay is increased, due to a tax reduction, some may decide to work less, e.g., spend more time with family.
    2. Tax cuts and tax credits for small businesses would only increase the bottom lines of those businesses, i.e., it would not create additional demand for products and services. Job #1 for any business is to create or find additional demand for its goods and services.
    3. Capital investment decisions are based upon projected “pre-tax” income, i.e., the tax rate is a negligible factor. The ‘test’ to determine if an investment should be made depends upon the projected return on that investment, e.g., if the ROI were insufficient, an income tax rate of zero would not stimulate one to make such an investment.
    4. Obviously, not all income tax increases or decreases are the same. An income tax increase on bottom 90% of the populace would have an adverse effect upon macro demand, thus would be damaging to our economics, whereas decreasing income taxes on that demographic would have a positive effect upon our economics. An income tax increase or decrease on the extremely wealthy (top 0.1%) would have a negligible effect upon our economics, thus should be only used for equity (fairness…., that ship has sailed, long ago) purposes. Therefore, based upon these assumptions, income taxes should be raised on the “wealthy” and recycled to the 90%, which would stimulate our economics and would be beneficial to the “wealthy”, insofar as earnings from management and capital would be benefited. During the past 30 years (since John Hinckley), the reverse has occurred, i.e., there have been massive transfers of wealth from the middleclass to the extremely (top 0.1%) wealthy, which has reduced the capitalistic energies of the middleclass, and has been a critical factor that has contributed to our current economics.
    5. The “Death” tax AKA estate tax is a revenue source and if that source were reduced, all other phenomena being equal, income taxes would have to be increased. Furthermore, the estate tax is assessed upon wealth, which includes assets that have increased in value and that incremental value has never been taxed.
    6. All income taxes, all costs of production of goods and services are paid at the point of purchase. Further, social security and Medicare taxes are income taxes, i.e., they are taxes on income. Congress has legislated a massive shift of wealth from the middle-class to the top 0.1% based upon tax legislation during the past 30 years.

    The above is food for thought.
    I will appreciate responses, thereto.
    Bon appetite……..…

    MZ

  • Scott M. Webb

    I don’t see any utility in responding…but call me stubborn…I’ll do it your way…

    “Nope. Taking 2011 as an example, the deficit was ~$1.65T. If we had taxes everyone that made >$200K that year at a rate of 100%, i.e. taken everything they worked to earn, it would have generated ~$1.52T. That leaves ~$130B. That makes it clear that moving rates a few percent isn’t going to change anything. The problem isn’t revenue.”

    I know what the Budget Deficit was. The common Conservative response to these issues is ‘it won’t make a diference’. In order to solve this rather massive long term debt problem a combination of many things in small doses must be employed. As I said, we have a spending problem no doubt, we also have a revenue problem. It has to be increased, and the top 5% are a great place to start.

    “The top 1% already pays >36% of the income taxes paid. The top 5% pay more than the other 95% COMBINED. And it’s not your decision who “can afford it”.

    It’s because the bottom 95% don’t make any money!…they’ve fallen off the tax scale. We’re turning into the same kind of wealth distribution our ancestors left over the last 500 years. This is not a Kingdom, it ‘s Democracy…Please spare me you incessant response about it being a Republic! One thing you are correct about, it isn’t my decision (who the hell ever said it was!?!), it would be a decision left to the Democratic process (again, spare me the “Republic” rant).

    “If you aren’t going to compare the differences across the board including deductions you’re not really comparing anything. When Reagan took office I could deduct the interest on things like my car loan and I can’t now. The result being that the effective rate wasn’t anywhere close to 72%, Scott.”

    So let’s get this straight, the tax rate was cut by half. Whereas you think your deduction of the Interest on your Car Loan (!?!) makes it the current rate more oppressive!?! The current “effective rate isn’t anywhere near 35% either. Mr. Buffet is a case in point. He paid 17% in ’12. I don’t care how he did it, I care that he can do it…Jeez!

    Dick,

    I wish you and all the people in Charleston all the best through this process. I hope it is cleared up fast. I heard some reports this AM that some of the water is passing inspections. That is good news.

  • Les Aker

    “It has to be increased, and the top 5% are a great place to start. ”

    Nope. That is nothing but a subjective statement that continues to ignore the facts presented in the math. Ignoring the math does not change it or make it go away.

    “It’s because the bottom 95% don’t make any money!…they’ve fallen off the tax scale.”

    Nope. The do make money. This is just another subjective statement that ignores the facts.

    “So let’s get this straight, the tax rate was cut by half. Whereas you think your deduction of the Interest on your Car Loan (!?!) makes it the current rate more oppressive!?! ”

    Nope. This is the way to get it straight. Pay attention to what was originally posted:

    “If you aren’t going to compare the differences across the board including deductions you’re not really comparing anything. ”

    That was the statement, Scott. You can’t grab a tax rate from some period in the past and base your subjective opinion on it in isolation to all of the other things that were in place at the time. If you’d like to say something with substance, drop the subjective nonsense and deal with the facts.

  • Les Aker

    “is not a Kingdom, it ‘s Democracy…Please spare me you incessant response about it being a Republic! ”

    Please stop trying to say that it’s a democracy when it is a Republic, Scott.

  • David Barnes

    HMRC have adequate ways of charging companies who try to limit their UK taxes by unreasonable use of royalties , management fees, or claims that staff work for an overseas division. Corporation tax at a rate of around 20% seems a fair charge to encourage new business and contribute to the country’s tax income.

  • Douglas Buck

    MZ gave a good response on how capital gains are and could be adjusted to compensate for inflation; however, the inequity still remains: Why do Mr. Buffet and Mr. Romney pay a lower tax rate than many working families?

    I am of the opinion that capital gains should be taxed at the same rate as earned income after adjusting for inflation. And the increase in revenue from those in the higher tax brackets should be compensated for by lowering the corporation tax. The 20% rate suggested by Mr. Barns is a good target until we get our spending under control; then it could be further lowered or eliminated.

    Of course, as Aram has said, adjustments should be gradual to maintain stability.

  • Michael Zitterman (WC)

    DouglasB:

    REGARDING: MZ gave a good response on how capital gains are and could be adjusted to compensate for inflation; however, the inequity still remains: Why do Mr. Buffet and Mr. Romney pay a lower tax rate than many working families?

    Mr. Buffett pays 15-16% due to our inequitable treatment of LTCG’s.
    His salary is a mere $100,000 and sells Berkshire stock with 10 cent basis and pays 15%.

    Romney takes benefit from treating “carried-interest” as LTCG, which is wrong and Congress has been giving lip service to legislating an adjustment to treat properly as ordinary income.

    mz

  • Douglas Buck

    MZ, this is good. I was very disappointed in Romney when he recommended a reduction in the capital gains tax during his campaign. I wonder how many ordinary people saw this and were turned off. To me, he had almost everything else going for him; his presidency would have been a boon for the United States.

    I still agree with Aram, however, that the corporation tax should be lowered or eliminated. Let’s lower it from 40% to, say, 20%. Here are some quick and dirty calculations, for simplicity, disregarding inflation.

    $1,000,000 profit at 40% federal tax, yields $400,000 to the feds and $600,000 to the owners. Wealthy owners pay 20% capital gains tax ($120,000) for a net profit of $480,000. Revenue to the feds = $520,000 ($400,000 + $120,000). Lower income owners pay 15% capital gains ($90,000) for a net profit of $510,000. Revenue to the feds = $490,000 ($400,000 + $90,000).

    $1,000,000 profit at 20% federal tax, yields $200,000 to the feds and $800,000 to the owners. Wealthy owners pay the regular income tax rate of 39.6% ($316,800) for a net profit of $483,200. Revenue to the feds = $516,800 ($200,000 + $316,800). Lower income owners pay 15% ($120,000) for a net profit of $680,000. Revenue to the feds = $320,000 ($200,000 + $120,000).

    Wealthy owners get about the same. Earnings for lower income owners are greater. The feds take in a little less revenue, but the INJUSTICE of the present scheme is REMOVED AND an incentive is provided for small and midsized companies to set up shop in the United States. Owners of small businesses, with corporate profits in excess of only $75,000, would be much more willing to start a business here.

    Corporate tax revenues as a % GDP declined from a high of 6% in 1957 to only 1%. I believe the small loss in corporate tax revenues, from reducing the corporation income tax from 40% to 20%, would be inconsequential compared to the gain in business and manufacturing.

    Why did corporate tax revenues as decline so much in 55 years? Have companies figured out cleaver ways to expense their would-be profits? Or, have they moved off shore, setting up operations elsewhere?

  • Michael Zitterman (WC)

    DouglasB:

    REGARDING: MZ, this is good. I was very disappointed in Romney when he recommended a reduction in the capital gains tax during his campaign. I wonder how many ordinary people saw this and were turned off. RESPONSE: I agree. If he doesn’t comprehend the inequitable construction of our current LTCG’s taxation, it would reflect that he was not that well schooled or had an axe to grind.Keep in mind that the greatest human frailty is that one tends to believe that which one wants and needs to believe.REGARDING: To me, he had almost everything else going for him; his presidency would have been a boon for the United States.RESPONSE: His skills were appropriate and I believe he would have done an outstanding job as compared to President Obama, but the bar is pretty low.REGARDING: I still agree with Aram, however, that the corporation tax should be lowered or eliminated. Let’s lower it from 40% to, say, 20%. Here are some quick and dirty calculations, for simplicity, disregarding inflation.RESPONSE: Why do you believe that the corporation tax should be reduced or eliminated? RGARDING: Owners of small businesses, with corporate profits in excess of only $75,000, would be much more willing to start a business here. RESPONSE: Why do you believe that to be a valid assumption?mz

  • Douglas Buck

    “Why do you believe that the corporation tax should be reduced or eliminated?”
    As I tried to explain, it would allow less affluent investors to make a better return. But its reduction must be coupled with removing the inequitable capital gains break for the wealthy. Most importantly, as I see it, a better return from US stocks would encourage investment, in turn leading to business expansion and job growth.

    Regarding: why would small businesses be more willing to start businesses here with the lower corporate tax rate (which jumps to 35% when company profits reach $75,000)? Small business owners, considering expansion, would prefer a standard corporate structure rather than, say, an S-Corp. Small businesses may only have a few owners, who depend on company profits for their livelihood, and would prefer not to hire themselves as laborers in order to reduce the corporate tax.

    However, I did read this interesting article:http://www.usnews.com/opinion/blogs/economic-intelligence/2012/04/04/the-truth-about-corporate-tax-rates

    Here is a quote from it: “Large corporations pay much lower tax rates than small businesses, because they can exploit loopholes and establish offshore operations. However, small businesses provide more new private sector jobs, and function as the main employers in many parts of the country. Further, the tax code shields old industries at the expense of new more innovative sectors, and it protects industries that burden the rest of society.”

    Lowering the corporate tax rate would put small businesses on a more even playing field with the big boys. Bigger problems though seem to be the loopholes, offshore operations and “tax code shields” exploited by large businesses.

    Those with the most money buy the most favors.

    Is there honor left in Washington?

  • Dick Bonnet

    Our nominal corporate tax rate is the highest in the world but our average NET tax rate is also the highest in the world. If I have $1,000,000 in net profits would I not look for a place to operate that took less? .

    Also Corporation don’t pay taxes, their customer do so additional costs by way of taxes are paid for in the cost of goods.

    Capital gains taxes have nothing to do with corporate taxes or corporate profits. I could earn a Capital Gain on my AAPL stock whether or not the company makes a profit or pays taxes. They are not connected.

  • Michael Zitterman (WC)

    DouglasB:

    REGARDING: As I tried to explain, it would allow less affluent investors to make a better return.
    RESPONSE: What does that even mean?? Less taxes on individuals would allow them to have a greater return on their work.
    And it doesn’t benefit the “more” affluent?

    REGARDING: But its reduction must be coupled with removing the inequitable capital gains break for the wealthy.
    RESPONSE: One should have nothing to do with the other (concept).

    REGARDING: Most importantly, as I see it, a better return from US stocks would encourage investment, in turn leading to business expansion and job growth.
    REGARDING: I don’t think so!!
    A stock is separate from the company.
    We are too targeted on the price of stocks rather than the operations of companies.
    A company will expand IF it believes it will do better with expansion.
    The tax rates have nothing to do with a decision to expand.
    Rising stock prices don’t benefit the economy without a parallel advance within the real economy. It only creates funny money and will, eventually, burst.
    Too much emphasis is placed upon stock “prices” (concept)

    REGARDING: why would small businesses be more willing to start businesses here with the lower corporate tax rate (which jumps to 35% when company profits reach $75,000)?
    RESPONSE: It appears that you have an axe to grind.
    A “small” business will not start a business because of taxes.?
    Sorry, but that is, absolutely, ridiculous, i.e., lacking even a modicum of rational thought.
    A small business doesn’t have to be a corporation.
    If one chooses to use the corporate entity, one can elect Sub-S, thus no corporate taxes.
    Most importantly, one starts a business because one believes it will better one’s situation. (concept)

    REGARING: Small business owners, considering expansion, would prefer a standard corporate structure rather than, say, an S-Corp. Small businesses may only have a few owners, who depend on company profits for their livelihood, and would prefer not to hire themselves as laborers in order to reduce the corporate tax.
    RESPONSE: What????????? lol
    Why would a “small” business owner elect a “C” rather than an “S”?
    Confirmed: you have an axe to grind. Come clean and explain your perspective.
    By the way, everyone depends upon his or her bottom-line and would prefer to work less. (concept)

    However, I did read this interesting article:http://www.usnews.com/opinion/blogs/economic-intelligence/2012/04/04/the-truth-about-corporate-tax-rates

    REGARDING: Here is a quote from it: “Large corporations pay much lower tax rates than small businesses, because they can exploit loopholes and establish offshore operations.
    RESPONSE: Valid point, but one wrong is not corrected by another. (concept)
    Congress is responsible for that situation. (concept)
    Congress must “adjust” the previous legislation giving preference to their “clients”. (concept)
    But, of course, that would be like having the pyromaniac firefighter putting out his own fire. (concept

    REGARDING: However, small businesses provide more new private sector jobs, and function as the main employers in many parts of the country.
    RESPONSE: So what?? lol
    They are doing it for themselves! (concept)

    REGARDING: Further, the tax code shields old industries at the expense of new more innovative sectors, and it protects industries that burden the rest of society.”
    RESPONSE: Quite a ubiquitous statement. Can you explain?
    If there are inequitable tax laws, Congress should legislate “adjustments”. (concept)

    (continued)

  • Michael Zitterman (WC)

    DouglasB: (continuation)

    REGARDING: Lowering the corporate tax rate would put small businesses on a more even playing field with the big boys. Bigger problems seem to be the loopholes, offshore operations and “tax code shields” exploited by large businesses.
    RESPONSE: At the risk of extreme redundancy, Congress must make the corrections, acting against its “clients”. (concept)

    REGARDING: Those with the most money buy the most favors.
    RESPONSE: Ah, ha!! You mean to imply that Congress favors its “clients”? lol

    REGARDING: Is there honor left in Washington?
    RESPONSE: Is that an effort at humor? Good one.
    Our Congress is composed of “politicians”, most of whom, if not all, have embedded within their DNA the ability and need to lie. (concept)

    I, certainly, hope your “axe” has been dulled by the above.

    We must target for the goal of equitable treatment. (concept)

  • Michael Zitterman (WC)

    DickB:

    REGARING: Our nominal corporate tax rate is the highest in the world but our average NET tax rate is also the highest in the world. If I have $1,000,000 in net profits would I not look for a place to operate that took less?
    RESPONSE: Much to much emphasis is placed upon tax rates, rather than the cost of operations. (concept)
    If a business or a segment expansion does not have or extrapolate a “pre-tax” income, there will be no business or expansion. (concept)
    All efforts should be directed to reducing “above-the-line” costs, e.g., health care and employment taxes, which would make USA, Inc. domiciled businesses more competitive. (concept)

    REGARDING: Also Corporation don’t pay taxes, their customer do so additional costs by way of taxes are paid for in the cost of goods.
    RESPONSE: Very good. Again………….., ALL COSTS OF PRODUCTION OF GOODS AND SERVICES, INCLUDING “ALL” TAXES, ARE PAID AT THE POINT OF PURCHASE.

    RGARDING: Capital gains taxes have nothing to do with corporate taxes or corporate profits. I could earn a Capital Gain on my AAPL stock whether or not the company makes a profit or pays taxes. They are not connected.
    RESPONSE: Correct, again.

  • Douglas Buck

    MZ. Thank you for your good response. I understand well your argument concerning pre-tax costs and the value of keeping them low. However, because costs of production of goods and services , including taxes, are paid at the point of purchase, higher taxes mean higher costs to the customer. Higher costs mean sales lost to the competition.

    I do like “We must target the goal of equitable treatment.”

HFN on Twitter