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Tuesday, May 5. 2009
The US has, I believe, the highest business and corporate taxes in the world. China has no corporate tax because they want to encourage business growth. They aren't stupid.
Heck, if I were a biz, I'd just move my HQ elsewhere if I am not made to feel welcome or appreciated here. The old saying goes "A gentleman knows where he is not wanted."
Am I way off the mark when I observe that taxes on business are indirect taxes on consumers and investors? And that they reduce employment and growth?
And that, by doing so, those taxes will soon reduce the revenue that the government so greedily feeds on? Is this complicated? Isn't basic economics taught in Middle School Social Studies? Or at least in Home Ec?
Good comments below - thanks, y'all.
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No, you are not way off on this, in fact probably spot on. Oh, lets start a tax war. Britain will start tax its companies foreign subsidiaries in this country. Were will this end?
This, actually, is one thing I'd agree with Dems on.
Tax studies, around the world, have shown some interesting things to be true:
1. Lower personal taxes equate with higher wealth distribution AND wealth creation. US scores very well on this mark (ha! Until the Dems decide otherwise)
2. Higher Business taxes do NOT impact wealth creation or distribution significantly and actually improve productivity.
Should business taxes be higher? Depends on what the marginal rates are, but there could be a case for raising them. Are they an indirect tax on consumers? NO, they are not. Since the tax is redistributed by the company into the price of their products or services, a business tax is a DE FACTO Sales Tax - which is actually one of the fairest types of taxes you can institute. People pay for the value of their purchase, so the poor pay less and the rich pay more (luxury items thus having higher marginal rates, etc.).
I'm not necessarily supporting higher business taxes, but it's not the worst idea in the world, either.
I'd like to see some objective evidence for your comments, especially point 2. By the way, point 1 and 2 are contradictory statements.
All business expenses, including taxes, are passed through to customers.
I could go on for a long time here, but I am out of time. Maybe I'll get back later this evening.
I disagree, you are totally overlooking the consequences of corporate taxes.
If US charges higher taxes than other countries, it raises the cost component of production relative to other country competitors. Thus a company will be incented to move production off shore and out of the reach of US taxes.
A more fair system would be a direct sales tax applied equally to all companies, foreign and domestic.
Corporate taxes also distort net present value calculations used to evaluate capital investments options.
Corporate taxes also puts a drag on the economy by siphoning off talent to manage tax liability exposure which is non productive versus having that talent pool focused on net productive activity.
Corporate taxes are a stupid idea promoted by people who have no idea about how business works, i.e., all leftists and a large share of Democrats.
Am I way off the mark when I observe that taxes on business are indirect taxes on consumers and direct taxes on investors? And that they reduce employment?
Bingo!!!! I try to walk my lefty, biz illiterate friends and family through this logic and they just can't get it. There should be no corporate taxes. Taxes should be paid as sales taxes and/or distributions through interest and dividend disbursements. Corporate taxes are always passed on to consumers.
It's a tax on anyone who owns stocks or a 401k. It makes this country less attractive to capital and less competitive against the rest of the world.
It is yet another incremental loss of economic freedom. And, it doesn't work - look at Taxachusetts:
The Wall St. Journal nails it today.
I've yet to see mention anywhere of the fact that corporate taxes amount to multiple taxation. Every cent of increased cost from higher corporate taxes that's passed on to the end consumer is also taxed again with sales tax.
Main point: corporate taxes are passed through to consumers with other costs and may be called a hidden tax, except a lot of us know where they're hiding them. Point valid.
Higher business taxes don't affect wealth creation? Of course they do. Any cost to consumer or business affects wealth creation.
Taxes are necessary. Taxes produce the highest revenues at a relatively low rate that is hard to define. Raising taxes above that rate in the name of "fairness" or for any other reason will reduce revenues. That's why most increases in tax rates are a net loss in revenues.
Some corporate taxes are an appropriate way of cost-sharing the consumer's benefit. That is, I want a new hat that comes from Albuquerque. The factory in Albuquerque is more productive because of law enforcement, transportation, fire protection and other services. The factory supports services with its taxes, and I pay my share when I buy my hat.
Am I way off the mark when I observe that taxes on business are indirect taxes on consumers and investors?
Not at all, taxes are an expense to corporations and are part of cost of goods, which are directly passed on to the consumer. It can be said that Corporations pay no taxes, all taxes are paid by the consumer.
The US is the ONLY government that will send out 'revenuers' all over the world in pursuit of tax revenues. If Obama gets this passed, watch a new "GIANT SUCKING SOUND" as corporations leave the US in droves.
Most multinational US corporations make 50% or more of their revenues today from overseas, this will be the reason they leave the US with their headquarters and this will destoy the white collar workforce. The new population shift, corporations to Bermuda, Grand Caymans, etc...and then Obama can only have the US derived sales and income taxes, this change will decrease revenues to the feds significantly, but it will destroy the states. The states will be lined up with their hands out to the feds if this passes.
Then, the people may revolt...maybe...nah, the smart ones will just move.
Excellent article in Cato above about why tax havens benefit everyone. "The United States, for instance, could be considered the world's largest tax haven. The U.S. government generally does not tax interest and capital gains received by foreigners who invest in America. And since the IRS does not collect data on those payments, there is rarely any information to share with foreign tax collectors."
Eliminate the US tax haven and the 12 Trillion dollars of foreign capital invested in the US will also go away.
Being in manufacturing, here is how the conversation works:
"So our taxes are going up."
"What does that add to the cost of product X?"
"Are all of our competitors paying this?"
"Good then we'll just raise our prices."
Same conversation happens when raw materials spike, labor spikes, and so on. It's part of the cost of every product. It really is that simple.
What blows me away is the infantile notion that "the corporations can afford it" which does not acknowledge that a) the corporations employ us (some of us) and b) the corporations profits are derived from sales. Some people have NO IDEA where "corporations" get their money or what they do with it.
Tim Worstall at his blog has written extensively on this topic, "Tax Incidence".
It seems that everybody eats a share of corporate taxes. Employees get lower wages. Shareholders get worse returns. Consumers pay more. There are plenty of arguments over who eats more of it but that's just learned dispute about angels and pinheads.
Governments love it because it's invisible.
Another reason I despise it is that it brings all laws, particularly tax laws, into disrepute. Tax evasion is on the upswing, and in my judgment is no longer a crime with "shame" attached to it. Geithner cheats and the attitude is "Of course he did, who wouldn't?"
My predictions: The war between the state ruled by the yapping classes and the people grows worse. Cash is outlawed. New forms of cash develop in an underground banking system run by the mafia, which behaves with ruthless honesty and efficiency for a 1/3 vigorish. Gold re-appears as a medium of exchange. There is a true parallel economy. The tax collectors live in crenelated fortresses and are murdered whenever possible.
It seems Rome is corrupted and the usual results are occurring.
Jeez, sorry to be so gloomy over something so apparently trivial as stupidly high corporate taxes, but theft is theft and an indicator of serious rot.
Isn't basic economics taught in Middle School Social Studies? Or at least in Home Ec?
I received an MSEE degree from Stanford University, and I never took a course that covered any economics whatsoever -- not in middle school, high school, undergraduate University, or graduate school. I received my last degree 33 years ago, and I doubt things have gotten any better since then.
Isn't that amazing? Just a few years before your experience I at least had high school accounting and the basics of budget keeping. Some swift changes took place I think.
Give Obama a break...he's trying to fill a ten trillion dollar hole that he is digging. These new taxes which the complicit press love to call "closing loopholes" will garner something like 200 billion over ten years. He only needs another nine thousand eight hundred billion to pay for his deficit...
Obama and all of his "Tom Friedman the world is flat and economics is a zero sum game" friends will never learn.
The projected deficits will be much higher in reality. Reason one is spending is always underestimated. Show me a government program that comes in under budget. Reason two is the macro-economy will perform worse than projected because capital will not take the risk without the reasonable expectations of return. For example, the biotech and pharma space will wither under central planning and it has been a sector that has held up somewhat in the current environment. The sum total of all of this will be lower economic growth than Obama's rosy projections.
Higher than expected spending combined with lower than expected revenue will cause larger than expected deficits.
Even the Communist Chinese know this and have sharply curtailed purchases of US Treasuries. Why do you think the Chinese have floated the idea of a reserve currency other than the US dollar?
Obama and his ilk will play out the same sad story told by the history of socialism. There is nothing new here, except a narcissist in the White House who is dumb enough to think he is smarter than everyone else. The real risk is how ruthless is he.
We have the spending issue covered...slow Joe Biden is charge with making sure no trivial and innapropriate spending occurs. I feel so much better now.
John P ... Yep -- you got cheated big time by the NEA and the tenured fools of academia. This is what they've been doing since the 1960s. Fortunately, I graduated from college in 1951, before those dam lazy fools got a strangle-hold on the curricula. Both my husband, who is 84, and I, who am 81, had high school civics classes and college classes which covered basic economic theory, and so did the rest of our contemporaries. I fear for the young folks of America, who are being denied in schools and universities the basic tools to understand the free market system.
But nothing stops us from pursuing our own private curricula of studies. And nothing should stop us from proselytizing for free enterprise in every encounter we have each day.
Meta had a wonderful idea in one of the comments today, that those who try to teach the young folks something about how our system works could try. She suggested that after a teaching session [or it could be an informal encounter where a discussion of the recession took place,] that one could casually take out some money, like 5 twenties, and give it to the person with whom one had the discussion, praising him for his success, etc. Then one could take back three of the bills and put them back in your pocket, saying something to the effect that it would be fairer if people who hadn't worked and achieved could have those bills.
Sounds like it would cause an epiphany of sorts, doesn't it?
Had I not gotten my Comp. Sci. degree through the College of Business, I could have gotten a B.S. with never having had an economics class. It was only in Eco 101 (OK ECO 2010 IIRC) that I was taught conclusively (and probably for the first time) that economics was not a zero-sum game. This, I believe, is the greatest misunderstanding that underlies our economic problems. People behave in eat-the-rich ways because they are ignorant of this fact. Treating these people as being malicious (as a great many conservative attacks do) instead of ignorant only reinforces their belief and does nothing to solve the problem.