Corporate Tax : Rates vs Loopholes

[logroller]

I read something today about Obama's plans to decrease corporate tax rates and eliminate loopholes, while keeping revenues the same. Assuming revenues stay the same, how would this potentially effect business activities and the economy? Obviously those companies that benefit from loopholes would be opposed, but what positive effects do loopholes have on businesses that decreased tax rates don't? It sounds to me like its a move closer to a flat-tax, which I've always thought is a good idea (and not just corporate either). Any thoughts...

[SassyLady]

Loopholes keep IRS employees and tax accountant's busy. Small businesses cannot afford to pay for the expertise to find the loopholes so I'm for eliminating loopholes.

[red states rule]

Bottom line is corporations do NOT pay taxes - WE do

When the cost of business is increased those costs are passed on to us in the form of higher prices (or reduced overhead I.E. jobs cuts)

All Obama and the Dems will do is hit us with another tax increase

[logroller]

Loopholes keep IRS employees and tax accountant's busy. Small businesses cannot afford to pay for the expertise to find the loopholes so I'm for eliminating loopholes.

I use turbotax (less than $100), and it saves me thousands and helps me to plan for the next year's tax liabilities as well. I only spend around 8 hours doing mytaxes, but I keep records up-to-date quarterly, so thats probably another 15-20hours; but its worth it to me, I'm frugal and I like control. I suppose it's more a question of your time being better spent running your business to increase profits or digging through tax codes to reduce your liabilities. A few years ago there was a taxbreak to small business owners who bought SUVs over ~7000gvw(hmmm..I wonder who benefitted from this--auto manufacturers or end-user businesses). I think tax breaks have less to do with liability reduction than an backhanded subsidization of businesses who can afford to lobby tax law to their benefit; hence most tax breaks only last a few years before another law changes it to something else.

[logroller]

All Obama and the Dems will do is hit us with another tax increase

They'll have a hard time with the GOP House and the "cut as you go" rule; but that's besides the point in this particular discussion-- what's your take on taxbreaks vs flat tax?

[fj1200]

I read something today about Obama's plans to decrease corporate tax rates and eliminate loopholes, while keeping revenues the same. Assuming revenues stay the same, how would this potentially effect business activities and the economy? Obviously those companies that benefit from loopholes would be opposed, but what positive effects do loopholes have on businesses that decreased tax rates don't? It sounds to me like its a move closer to a flat-tax, which I've always thought is a good idea (and not just corporate either). Any thoughts...

As far as BO coming out with that plan I'll believe it when I see it. Nevertheless, the benefits are making tax planning easier for corporations, lessening the compliance costs, and giving a more stable tax planning environment to business. The major benefit though is business NOT having to constantly lobby for next year's crumb from the plate of government; I'm not sure if it's "Thank you sir may I have another," or "Please sir could I have some more?" With any luck it will also make the US more competitive globally and reduce the highest corporate tax rate in the world.

I had a, ahem, discussion in another forum about corporate tax rates and I argued that corporate taxes should be eliminated completely. Redstate is right, businesses don't pay taxes we do so why should we support a policy that raises the price of goods? The interesting thing I found when researching corporate taxes back then was that one of the beneficiaries of a DOMESTIC corporate tax was...





wait for it...





FOREIGN labor. So while we are instituting a back door tax on capital and raising the cost of business domestically we are providing foreign labor with a raise. Just brilliant. I'll have to find that paper and post the link.

So upshot, my proposal would be to eliminate the corporate tax.

[logroller]

OK, I'm dumbfounded -- Am I hearing corporations shouldn't pay tax at all? or are you saying the tax they incur is passed directly onto the shareholders through reduced dividends, to which they, again, are taxed personally -- and you find this a double tax issue that increases inflation?

To address the latter, for all intents and purposes, corporations are individual entities. For example, my home is an individual entity; if I hire a maid, I pay her with my income that has already been taxed and she, likewise must claim what I pay to her as income, on which she is also taxed because she, too, is her own entity. The fact taxes are paid by both most likely will result in A) the value of my clean home being valued higher than if left unclean and B) value added to my home justifies demand for increasing wages to her. This value added explains inflation, right? To which differing monetary policies between jurisdictions (states, nation etc) have a demonstrated effect upon. I don't know which foreign nations you speak of, but I would only assume they have a lower inflation rate b/c they have less value-added exchanges. But even China, who has a purportedly engaged in unfair monetary policies, has begun to experience high inflation rates. I've always thought that inflation was a function of exchange, more exchange of products and services == higher inflation -- it's inevitable.

[fj1200]

OK, I'm dumbfounded -- Am I hearing corporations shouldn't pay tax at all? or are you saying the tax they incur is passed directly onto the shareholders through reduced dividends, to which they, again, are taxed personally -- and you find this a double tax issue that increases inflation?

Well your second pp made my head hurt so I'll look at it more closely later. To your points above, my head still hurts but... I AM saying that corporations shouldn't pay taxes because the theory is that corporations DON'T pay taxes, they are basically pass-through entities that EITHER pass on higher costs of goods to consumers OR pass through lower investment gains to owners/investors.

Inflation is not really of issue here.

To your OP, yes lower rates less loopholes are good. I just extend it further to no rates and no loopholes. ;)

[logroller]

Well your second pp made my head hurt so I'll look at it more closely later. To your points above, my head still hurts but... I AM saying that corporations shouldn't pay taxes because the theory is that corporations DON'T pay taxes, they are basically pass-through entities that EITHER pass on higher costs of goods to consumers OR pass through lower investment gains to owners/investors.

Inflation is not really of issue here.

To your OP, yes lower rates less loopholes are good. I just extend it further to no rates and no loopholes. ;)

So in other words; allow all corporations to behave as tax free entities, like an NPO w/profit, whereby only dispersments are taxed at the individual income rates. Wouldn't this merely serve as a tax shelter; like an annuity or IRA, only without capital gains tax. That would be devastating to long-term investments and soleproprietorships.

[fj1200]

So in other words; allow all corporations to behave as tax free entities, like an NPO w/profit, whereby only dispersments are taxed at the individual income rates. Wouldn't this merely serve as a tax shelter; like an annuity or IRA, only without capital gains tax.

I'm not saying there wouldn't be regulations and enforcements regarding shelters, etc. but taxes would be paid by employees when they receive income, taxes would be paid by owners when they receive dividends, and taxes would be paid by lenders when they receive interest on debt.

I envision three things happening; employees receive higher wages, owners receive higher dividends, and cost of goods declines. Which of those three happen when depends on business cycle, unemployment, etc.


That would be devastating to long-term investments and soleproprietorships.

How so?

[fj1200]

To address the latter, for all intents and purposes, corporations are individual entities. For example, my home is an individual entity; if I hire a maid, I pay her with my income that has already been taxed and she, likewise must claim what I pay to her as income, on which she is also taxed because she, too, is her own entity. The fact taxes are paid by both most likely will result in A) the value of my clean home being valued higher than if left unclean and B) value added to my home justifies demand for increasing wages to her. This value added explains inflation, right? To which differing monetary policies between jurisdictions (states, nation etc) have a demonstrated effect upon. I don't know which foreign nations you speak of, but I would only assume they have a lower inflation rate b/c they have less value-added exchanges. But even China, who has a purportedly engaged in unfair monetary policies, has begun to experience high inflation rates. I've always thought that inflation was a function of exchange, more exchange of products and services == higher inflation -- it's inevitable.

No... Your home's value may be influenced by its cleanliness but whether the maid does it or not is not the factor. You have your maid do it because you don't want to or it's more effective to pay her a lower rate compared to your higher earning potential. A business is valuable because of the service it provides, not the fact that you employed someone to keep it clean; I pshaw on your analogy. :laugh:

And no, in my view inflation is too many dollars chasing too few goods, see quantity theory of money, not the value added during the manufacturing process.

[red states rule]

They'll have a hard time with the GOP House and the "cut as you go" rule; but that's besides the point in this particular discussion-- what's your take on taxbreaks vs flat tax?

If I could work my will there would be a flat tax of 15% for EVERYONE. No deductions. No loopholes. Everyone pays 15% of their gross.

This tax would replace the Federal Income tax, the SS Tax, the Medicare tax, and all payroll taxes levied by the Feds

Of course now the howls from the left will come as they blast how this "hurts the poor"

This is at the heart of logic. We have 50% of the people not paying ANY FEDERAL INOMCE TAXES so when libs talk about raising income taxes these people do not care and tune out to the debate

But if they are paying with the rest of us, when they hear a liberal (or a RINO) demanding to raise taxes they will also say "NO" in a loud and clear voice

I have to live on a budget and it is damn time the government learns how as well

DC does not have a revenue problem it has a spending problem

[logroller]

I have to do a little thinking on the long-term investment impacts- specifically those associated with LLP investment - I'll post on this later.

Soleprietorships place all liability risk and financial interest upon one person: the owner. Why would a person absorb this risk if one could incorporate, still reap all the profits, and have no personal liability?

[fj1200]

I have to do a little thinking on the long-term investment impacts- specifically those associated with LLP investment - I'll post on this later.

An LLP is an investment vehicle not a business, I'm not sure where you're going with that. I think you were onto something with your tax shelter argument.


Soleprietorships place all liability risk and financial interest upon one person: the owner. Why would a person absorb this risk if one could incorporate, still reap all the profits, and have no personal liability?

That is no change from the current, even if you incorporate you will still be taxed based on the salary you take from the business, sole prop or incorporated, it's more of a shifting of tax liability than a tax cut. I think that some of the move to small business (consulting) and away from the large corporations has been due to the tax code, among other benefits of course.

[logroller]

I thought corporations pay tax on their profits before dividends?

Off topic, but I need an outside opinion on something -- I'm going snowboarding with a friend for his bday this coming wkend and was looking into a season pass. I am a full time college student and the website states that college pass discounts are valid only for those 18-25 yrs of age; is that even legal? I'm 33, married w/kids. I think I have more financial strain, not less, than any sub 26y.o. full-time college student; where do they get off telling me discounts don't apply? Grrrrrrrrrrrr. I hope they try to oppress me -- I love defending my rights!:salute:

[fj1200]

I thought corporations pay tax on their profits before dividends?

Off topic, but I need an outside opinion on something -- I'm going snowboarding with a friend for his bday this coming wkend and was looking into a season pass. I am a full time college student and the website states that college pass discounts are valid only for those 18-25 yrs of age; is that even legal? I'm 33, married w/kids. I think I have more financial strain, not less, than any sub 26y.o. full-time college student; where do they get off telling me discounts don't apply? Grrrrrrrrrrrr. I hope they try to oppress me -- I love defending my rights!:salute:

Yes, they do.

As long as you know the law... go in there fully loaded and dare them to stop you... and if we don't hear from you in a few days we'll just surmise that the MAN has taken you down.

[logroller]

Yes, they do.

As long as you know the law... go in there fully loaded and dare them to stop you... and if we don't hear from you in a few days we'll just surmise that the MAN has taken you down.

So if corps pay tax before profits are distributed this gives a sole prop an advantage on realized income, pursuant, IMO, to offset the realized liability risk. If you took that advantage away, sole props would suffer.

Careful with the 'fully loaded' metaphor; the MAN is probably pretty touchy after last wkend.:laugh:

[fj1200]

So if corps pay tax before profits are distributed this gives a sole prop an advantage on realized income, pursuant, IMO, to offset the realized liability risk. If you took that advantage away, sole props would suffer.

Careful with the 'fully loaded' metaphor; the MAN is probably pretty touchy after last wkend.:laugh:

Fully loaded with the facts. Geez, don't shoot the mess... err, don't taze me bro'. ;)

There are ways to deal with liability, I'm not sure why you're getting hung up on that. I'm not saying that there wouldn't be a realignment but IMO it would be undoing years of steady misaligning. I think the benefits FAR outweigh whatever downside, if any, you might come up with.

[logroller]

[QUOTE=fj1200;458606]Fully loaded with the facts. Geez, don't shoot the mess... err, don't taze me bro'. ;)
QUOTE]

Nice recovery.

[PostmodernProphet]

I read something today about Obama's plans to decrease corporate tax rates and eliminate loopholes, while keeping revenues the same. Assuming revenues stay the same, how would this potentially effect business activities and the economy? Obviously those companies that benefit from loopholes would be opposed, but what positive effects do loopholes have on businesses that decreased tax rates don't? It sounds to me like its a move closer to a flat-tax, which I've always thought is a good idea (and not just corporate either). Any thoughts...

loopholes aren't intended to benefit businesses....they are intended to bring about consequences the government deems desirable, such as encouraging oil production........

eliminating "loopholes" then will have an effect on whatever it was the government desired to happen because of it......

[logroller]

loopholes aren't intended to benefit businesses....they are intended to bring about consequences the government deems desirable, such as encouraging oil production........

eliminating "loopholes" then will have an effect on whatever it was the government desired to happen because of it......


If ur city planner came and told you that big house under construction at the end of street isn't going to pay for the $10K sewer connection fee because he's putting in special low-flow toilets that cost $10k; its a wash -- who cares. This example would likely represent a policy of water conservation, and it may succeed to some degree; but does the public benefit outweigh the public cost; could there be more efficient mechanisms which could be implemented, but can't be b/c lobbied loopholes exist? Maybe, maybe not; but I have a hard time trusting current gov't fiscal policy is in my best interests when they fund their policy with our grandchildren's future earnings. I think Congress needs convert their policy's to low-flow, not add more toilets for special interests!

[PostmodernProphet]

If ur city planner came and told you that big house under construction at the end of street isn't going to pay for the $10K sewer connection fee because he's putting in special low-flow toilets that cost $10k; its a wash -- who cares. This example would likely represent a policy of water conservation, and it may succeed to some degree; but does the public benefit outweigh the public cost; could there be more efficient mechanisms which could be implemented, but can't be b/c lobbied loopholes exist? Maybe, maybe not; but I have a hard time trusting current gov't fiscal policy is in my best interests when they fund their policy with our grandchildren's future earnings. I think Congress needs convert their policy's to low-flow, not add more toilets for special interests!

it isn't relevant whether you as an individual agree with the government's intent......you asked what the impact would be if all loopholes were closed and I answered.....the government would lose it's ability to direct action by incentive....the same thing happens on a personal tax level......when the government provides a tax credit for child care do they not provide an incentive for both parents to work outside the home?....is that really something the federal government should be encouraging?......

[logroller]

it isn't relevant whether you as an individual agree with the government's intent......you asked what the impact would be if all loopholes were closed and I answered.....the government would lose it's ability to direct action by incentive....the same thing happens on a personal tax level......when the government provides a tax credit for child care do they not provide an incentive for both parents to work outside the home?....is that really something the federal government should be encouraging?......

I argue that gov'ts role isn't directing individuals' actions, only limiting them.

So far as the child care credit, who's responsibiliy is it to raise this child, gov't or the parent? I like free money as much as the next guy, but these sort of policies are contrary to natural law and personal responsibilty. Personally, I think a child's place is with the parent, and if I decide to stay home and raise my son: I make less money as a result. Less income, less tax; my choice, my result-- how does gov't need to be involved in this choice? Didn't this all start with a child-tax credit, now its a child care credit-- i'm seeing a trend here. I think you'll find gov't really wants to put everybody to work because then they generate more taxes. And this has worked for years, unfortunately, years of dual income families have raised the standard and cost of living to such an extent that raising your kids has become insolvent, and now gov't has to cut even more breaks to make up for their previous action.

I'm sure you're familiar with the puppeteer analogy; The problem I have with it is we aren't dummies, but we've been treated as such for long enough, we're beginning to act like it. I don't need to make decisions for myself because gov't knows best and they'll take care of it. Yeah socialism!!!

[fj1200]

So far as the child care credit, who's responsibiliy is it to raise this child, gov't or the parent? I like free money as much as the next guy, but these sort of policies are contrary to natural law and personal responsibilty. Personally, I think a child's place is with the parent, and if I decide to stay home and raise my son: I make less money as a result. Less income, less tax; my choice, my result-- how does gov't need to be involved in this choice? Didn't this all start with a child-tax credit, now its a child care credit-- i'm seeing a trend here. I think you'll find gov't really wants to put everybody to work because then they generate more taxes. And this has worked for years, unfortunately, years of dual income families have raised the standard and cost of living to such an extent that raising your kids has become insolvent, and now gov't has to cut even more breaks to make up for their previous action.

I think your example there is more reactionary than causative. Rather than wanting people to work our benevolent leaders are providing a credit to make it easier. If they wanted people to work there would be a push to lower marginal tax rates to encourage such.

[PostmodernProphet]

Didn't this all start with a child-tax credit, now its a child care credit-- i'm seeing a trend here.
well, that would probably be a mistake, because the child care credit was around for a lot longer than the child tax credit and they were done for completely different reasons....

[logroller]

well, that would probably be a mistake, because the child care credit was around for a lot longer than the child tax credit and they were done for completely different reasons....
I'm sympathetic to the reasoning, but the long-term effects of such policies, both direct and indirect are what really concern me. I can easily justify the existence of both, but in the interest of social good, I'm driven to challenge the precedent of gov't interference, regardless of motive, because good intentions are so easily perverted. Specifically, the promulgation of a welfare-state; which shouldn't be the intention of such policies. If you're experiencing hard times, the short-term benefits outweigh any long-term costs. Unfortunately, generations have grown up with these policies in effect and have come to depend on gov't, as opposed to themselves. I'm not argueing that raising the tax rates and dropping the loopholes will solve society's problems; if only it were that easy. What I am saying is that gov't subsidies have had the effect ofincreasing public wealth at the expense of our public character to such an extent that we are now less able to solve our own problems and expect gov't to make up for our lack of fortitude.