A naieve question: why are businesses, namely corporations, supposed to pay taxes?

[newtothegame]

I fully realize that many, if not most, don't. But my question is why are they supposed to? The money made by a business goes to individual humans, who pay taxes on that income. That human then pays taxes on that money again in the form of sales tax for anything that the money is spent on.

So why exactly is the system setup to tax the money a 3rd time (when it first comes to the corporation)? Why are we taxing entities when we should be focusing on the people who make money from that entity?

[Dappleganger]

1. Well SCOTUS says that corporations are persons now, so they should be paying even more taxes.

[RB TexLa]

91. No court has ever declared anything other than a human being to be a human being.

[Atman]

93. "Human being" or "person." May not be a difference to you, but there is in tax law.

Just sayin'. Look into it.

.

[RB TexLa]

94. they have not be declared a person either. They have to pay income taxes but they aren't persons

and no court has ever said they are. That's why they pay corporate income taxes instead of individual income taxes.

[Captain Hilts]

2. Because they receive tax breaks and legislative boosts to help them succeed nt

[Blue_Tires]

42. not to mention that depending on the industry,

corporations can also have devastating lasting effects on the local environment, utilities and infrastructure

[KittyWampus]

3. They drain resources

[Hannah Bell]

4. your premises are mistaken.

[ProdigalJunkMail]

16. wow...that was helpful...

exactly HOW is the poster wrong?

[ProdigalJunkMail]

82. the sound of your lack of reply

is deafening...

sP

[iris27]

84. Businesses don't pay taxes on the money they pay to their employees.

They are taxed on PROFIT only. The money they use to cover all operating expenses, from wages to supplies to construction of another store, is not taxed.

[theophilus]

87. No, that was just another HannahBell Lecture. n/t

[Statistical]

30. I was expecting more of a response especially from you. n/t

[ProdigalJunkMail]

77. figures... n/t

[Hannah Bell]

96. I thought it was pretty obvious. Businesses aren't taxed on all their income,

& they're not taxed on the money they pay out on salaries/wages to employees.

[Kurt_and_Hunter]

75. .

[DJ13]

5. There was a time when businesses paid all the taxes

And individuals paid no income tax.

But the reality today is that businesses use more government services than individuals, so why shouldnt they shoulder their fair share?

[newtothegame]

12. But a "business" is just a group of people. Why tax the organization when you can tax...

the people that benefit from that organization?

[DJ13]

26. Taxes only work when you tax those with the greatest assets

Thats why our deficits have only grown the last 30 years as the GOP has pushed the bulk of taxes away from the corporations and the wealthy and onto the middle class.

[Statistical]

31. The OP question is why not simply tax the wealthy?

For example if corporations pay 1/3 of the taxes (and system is very gamed with some paying none and others paying a lot more).

Why not simply have no corporate tax rate and tax rich at much higher rate? Say 55% instead of 39.6%?

[DJ13]

46. Corporations use more government resources than individuals

If you or I had a personal failure in a Middle Eastern country we cant get the US to invade the country we have had problems in.

But as weve seen, Exxon or Shell CAN.

Why shouldnt corporations be taxed if they have that kind of leverage?

[Statistical]

48. Taxing the shareholder is taxing the corporations.

Corporations simply funnel and transfer wealth. They transfer wealth from consumers through corporation to the shareholder.


So say you are taxing corporation xyz at 20% on the dollar. They earn $1 in profit = $0.20 in taxes and they pass on $0.80 to the shareholder.

Shareholder gets taxed at 20%. $0.80 in revenue * 20% = $0.16 in taxes.

Total taxes collected = $0.20 + $0.16 = $0.36.

Instead no tax on corporation and double tax on shareholder.

$1.00 to shareholder. Taxed at 40% = $0.40 in taxes. $0.36 vs $0.40.

Shareholders are the ultimate beneficaries. Exxon isn't a person. Exxon didn't benefit when US invaded Middle East. EXXON SHAREHOLDERS benefited. Corporations are simply a wealth transfer mechanism.

Taxing the middle man makes system more complex than necessary and ensures each corporation carves out they own sepcial breaks and exclusions.

1) Eliminate corporate taxes
2) Tax all income (dividends, interest, capital gains) at same rate as income
3) Substantially raise income tax for highest brackets.

[DJ13]

53. Taxing the shareholders is taxing the retirement funds of many Americans

Dont get me wrong, Im all in favor of increasing capital gains so that it comes closer to representing the tax rates we charge people who work for a living, but thats a separate issue from whether corporations should be paying taxes commensurate with the amount of government services they utilize.

(Obviously I would still favor tax breaks on shares sold by retirees.)

Taxing shareholders instead of the corporations isnt viable since the tax revenues need to be generated every year, and taxes on shares held arent paid until the shares are sold.

Some people still buy and hold long term.

[Dr.Phool]

59. But, when corporations have too much cash laying around,

Instead of distributing it to the shareholders, which in theory they should do, they use it to become bigger and bigger, buying up all of their competition.

Taxes are a way of keeping them under control.

As their share of taxes have gone down, we've had merger mania.

And to boot, when they buy a competitor, they can use the "excess" funds in the employees pension funds to buy it.

Buy it, loot it, crash it, rinse, repeat.

[laughingliberal]

40. Okay. Let's see the benefits. Then we'll talk tax breaks.

Businesses do nothing to benefit the community unless it benefits them. Many municipalities have now begun rethinking this plan of giving business a tax break so they will locate there and create jobs. Most cases the jobs created have been less than promised and they will lay off as soon as it suits the purposes of the business. Meanwhile they operate off an infrastructure the taxpayers of the community built.

[Born_A_Truman]

58. I am an owner of a corporation

There are four of us that own it. We pay taxes on our paychecks and the corporation pays taxes as well. That's just how it works. We cannot just divide any profits and cut ourselves a check. We have expenses: our vendors have to be paid, rents, utilities, health insurance, supplies, payroll taxes, accountant fees, etc. We also have to keep a cushion for slow periods.

When we first started, none of us had a paycheck for a year. I lived on my vacation and sick pay when I left my former employer to start this business. They gave us 6 months! We are now in our 10th year of business.

[W_HAMILTON]

101. Technically, no.

In the eyes of the law, a partnership is a "group of people" (in an agency relationship). A partnership has the same type of taxation (well, lack thereof) that you are talking about. The partnership is not taxed at the federal level, but the income of the individual partners is.

In the eyes of the law, a corporation is not just a group of people. It is a separate entity. It is why shareholders are not personally liable for a corporation's debt, whereas partners may be liable for the partnership's debt.

I answered you in another post why corporations are taxed the way they are. Basically, if corporations themselves were not taxed, the wealthiest individuals would be able to bypass their highest marginal tax rate by paying much lower qualified dividends and capital gains taxes.

[la_chupa]

6. it depends on how they're structured

if it's a pass through entity like a partnership or S Corp they don't pay taxes

[Lance_Boyle]

7. Because businesses, like individuals, have *income* and as a nation we have decided

that taxing *income* is an appropriate way to fund our Federal government.

Also, you realize that they're not taxed on salaries/wages paid, right?

[tosh]

8. Okay...

The taxable income earned by business is the amount left after costs of goods and expenses. Wages and salaries are expenses. Sales taxes collected by a retail business are not income - it is collected by the business and then turned over to the state and local taxing agencies. It simply passes through that business and has no effect on income.

Humans are taxed on their wages, salaries and other incomes. Businesses are (or should be) taxed on their profits.

[newtothegame]

14. But the business is actually a group of people.

A "business" doesn't collect profits. A business is an idea (regardless of what the supreme court calls it). The collectors of the profits are the owners of the business. We should be focusing on taxing them.

[tosh]

17. A business is an entity

and the profits are not paid to the owners or shareholders until the entity chooses to take that action. Only at that point do those individuals incur a tax liability and the compensation becomes an expense to the entity.

[blm]

29. the 'business' sits on property and uses common resources like roads and water, too, right?

Parking lots and buildings and roadways, oh my.

[rfranklin]

34. In most cases the businesses pay property taxes, either directly or...

through their rent to the landlord. I know, I just got a bill for a property tax increase from my landlord. A direct pass through.

[HuckleB]

50. Yes, but do those taxes cover the costs of roads and other infrastructure needed?

[rfranklin]

61. Yes...as much so as any home owner's property taxes...

There may be Federal subsidies that aren't covered by property taxes but I haven't looked into that.

[HuckleB]

64. Are you sure the taxes are equivalent between businesses and home owners?

Further, if a business chooses to locate way out in the burbs, thus making infrastructure needs greater, that business really ought to be paying more. Unfortunately, those businesses probably get a free ride from the rest of us.

And if you're going to compare property taxes between individuals and businesses, why would you have a problem with income taxes for both?

[rfranklin]

80. Because they never end up paying the taxes...

Especially the major corporations. They figure out nine ways from Sunday to evade the taxes.

[HuckleB]

92. Yes, they do.

[rfranklin]

103. No they don't...educate yourself

http://reclaimdemocracy.org/articles_2004/corporate_tax_evasion_offshore.html

http://www.nytimes.com/2002/05/14/opinion/14KRUG.html

[Cal Carpenter]

47. But it doesn't operate as a group of people

In fact, the actual people who run a corporation are often protected legally by the shield of the corporation. Think about Toyota and it's drop-in-the-bucket monetary penalties for the recent deaths from its misconduct. If it were just people, there would be criminal charges filed for negligence and murder.

[kenny blankenship]

9. Do those corporations benefit from the protection of US law?

[Oregone]

10. Without taxing profit, you encourage profit

By scooping off some amount of taxes before it is divested to shareholders, you create some type of incentive against just taking all gross revenue and distributing it as capital gains.

By taxing profit, it creates an incentive to reinvest more money into the actual business. This benefits shareholders by having their stock prices rise over time, rather than just getting a liquid payoff by starving their company

[Winterblues]

13. Using your "logic" not taxing Labor would be an incentive to work harder..

:shrug: For Republicans though it is only a one way street..

[Oregone]

19. I dont understand how you can come up with that whatsoever

Increasing "Profit" is not the same as increasing labor or production (which requires *more* of an act). Profit is what is left over when all expenses are subtracted from gross receipts. You simply increase profit by lowering expenses (not giving raises, not hiring, not upgrading equipment, not opening new stores, etc).

By creating an incentive against simply turning all gross receipts into profit (starving the company), the shareholders will gain more wealth by having their stock price increase in a healthy company rather than by getting a quick payoff. This also helps the economy too. If you do not tax the profit, it encourages the company to turn itself in a Kamikazee bomber and deliver its wealth to its owners irresponsibly (which doesn't require more production/labor/work/reciepts, but less sensible business practices)

[Statistical]

32. He isn't saying don't tax shareholders.

Why not have NO corporate tax and tax shareholders at higher rate?

If it is done so that it generates same amount of revenue wouldn't it be simpler to simply tax the final beneficiary = shareholder?

[newtothegame]

52. EXACTLY what I'm saying. Post #37 got it right too. nt

[Oregone]

65. Then you are levying tax that isn't proportional to economic activity

But rather proportional to ownership, right? A company like McDonalds that strains the infrastructure disproportionally should be taxed higher, right? If you only tax on the shareholder end, you completely neglect the actual size of economic activity and net gross that a company produces.

I mean, Id assume that since you abandon corporate tax, you would hit capital gains with some type of marginal rate. Well, then companies that sell stock to more people would be taxed less than one that produces the same profit, and has but a few owners. Then everyone would be asking, why the hell is that

[iris27]

85. +1 n/t

[marmar]

11. For their disproportionate impact on the Commons....

There's a term called "externalities"....Do a Google search and see what comes up.

Oh, and watch the film "The Corporation"....quickly.

[SocialistLez]

18. +1

[Blue_Tires]

43. +1

[noamnety]

15. Because they profit by free use of our public infrastructure

and put more of a drain on it than individuals, whether we are talking road maintenance and new construction, energy (profiting from wars), and they cause ungodly amounts of pollution often cleaned up with tax dollars, and the people they poison through that pollution (air pollution, water pollution, soil pollution) often have to resort to public tax dollars for medical care and welfare support.

When three mile island happens, or the Valdez oil spill, or the 20% lead poisoning rate in Detroit from smelting plants, the damage from their businesses becomes our burden. I have yet to see any of the heirs from the smelting businesses step forward and volunteer to pay the special ed costs for all the kids with lead poisoning in our area. I'm waiting to see the factory owners downriver step forward and pay all the respiratory-related health care expenses from the people who live in those communities.

It's a matter of them shouldering the true cost of running their for profit businesses, instead of the rest of us paying the costs while they pocket the profits.

[laughingliberal]

45. Exactly!

And the trade off we were always sold on was that they create jobs. Most of the time they do not create enough jobs to offset the break they get.

[Cleita]

20. How persons pay their taxes.

They pay on gross income, with some deductions and credits allowed, not net profits after taxes, which enables the corporations to use many accounting tricks that make them look like they are barely making their bottom line and therefore paying no taxes at all. I also think corporations should pay taxes on gross revenue, like we pay FICA taxes to fully fund quality education through university for every American child because they are the beneficiaries of an educated work force. Enough of this corporate welfare at the tax payer's expense, especially when they can't get health care or send their kids to college. If corporations paid taxes like persons, then there probably would be no need to tax individuals at all so there wouldn't be a third tier of taxes.

[uppityperson]

21. Let me simplify this.

My employing business gets money paid to them for varied things. They pay out for varied things, including my wages. They get to deduct many of those varied things, including my wages, before figuring taxes.

Rather like I get to deduct things related to my business (license, uniforms) before declaring my income, they get to deduct my wages before declaring my income.

[Jeff In Milwaukee]

22. Just for starters.....

Corporations don't pay taxes on the wages that they pay to real human beings. That is part of the cost of goods sold and is not taxed. So your theory pretty much implodes in the first paragraph. Corporations only pay taxes (when they pay them at all) on the profits that they earn.

[newtothegame]

23. What theory imploded? I asked the question specifically because I didn't know the answer...

? :shrug: ?

[MindPilot]

28. You cannot ask an Innocent question on DU.

You MUST have an ulterior motive usually relating to the advancement of something Libertarian. And if you don't know what your motive is, someone will explain it to you.

Didn't you read the rules? :evilgrin:

[Nye Bevan]

38. "if you don't know what your motive is, someone will explain it to you"

LOL- there are plenty of DUers who will do just that!

[Greyhound]

35. Jeff is pointing out that your statement is based on a false assumption. n/t

[quaker bill]

97. What about the employer's half

of social security withholding? Is this not a tax?

[Jeff In Milwaukee]

100. Yes. And that's not taxable as income either.

Social Security, FUTA and SUTA are not all deductible.

[onenote]

106. it appears you are wasting your breath on the OP

You and many others have made this point but the OP chooses to ignore it.

[MindPilot]

24. Because they use the infrastructure

Roads, airports, the legal system, police and fire protection, the airwaves, electrical grid are all used by corporations and business entities in most cases more than individuals.

[MajorChode]

57. I would go one step farther

A business, corporation, or an individual is part of our society, and as such all owe a debt to that society based on their income and ability to pay.

[EC]

25. They sit on taxable property usually

so they should pay their share of property taxes at least...and tax on profits..

[Swede]

27. To pay for services.

Police,Fire and Emergency,highways,water sewer and on and on.

[Greyhound]

33. Because without the social and municipal community they cannot exist.

Therefore, they must support that which allows them to continue.

[newtothegame]

36. Why don't we just put more taxes on the PEOPLE who make money off that business? nt

[laughingliberal]

41. They need to be providing enough benefit to offset their tax breaks.

In most cases they have not. Many cities and counties just this past year have done away with the tax breaks they gave to business to entice them to locate there. The tradeoff was always supposed to be jobs and very few ever created enough jobs in the area to justify their free use of the infrastructure of the community. Many places are now saying to them: a deal's a deal. Produce the jobs or pay up.

[Greyhound]

63. Perfect example, Boeing moving to Chicago.

Took the money, shed the jobs.

Brilliant.

[Greyhound]

62. Or how about taxing all income as income, period.

The problem with where you appear to want to go is that is it horribly regressive (the people with the least pay a far larger portion of their meager income which is simply a subsidy to those with more).

Companies are not empty shells that $$ pass through, they consume and utilize the society in which they exist, therefore, they must contribute to the building and maintenance of that society. When they don't, as they haven't for almost half a century, we get what we've got, vultures picking over the carcass of a dying infrastructure.

[laughingliberal]

68. +1000 nt

[Nye Bevan]

37. Corporation tax arguably should be abolished

Corporations spend millions going through contortions to avoid it, and when they can't, they simply pass it on to their customers. This tax raises a comparatively small amount of revenue, which could easily be recouped by raising the income tax rate on wealthy individuals. Abolishing corporation tax would also result in reduced unemployment as foreign companies would be more likely to open branches and factories in the US.

[Blue_Tires]

44. but they pay next to nothing now, comparatively speaking

[Statistical]

54. some do (mainly few big ones) and most don't (smaller ones with less resources to game system).

Simply eliminate the corporate tax system all together.

All corporate profits ultimately go to shareholders.

Tax the shareholders.
1) Raise tax on dividends & capital gains to be same as wages. All income regardless of source taxed at same rate.
2) Raise tax brackets on rich to compensate for reduction in income from loss of corporate income tax.

Net-net federal govt is receiving same amount of money. System is fairer for smaller corporations vs large corporations, there is no reason for corporations to lobby for breaks & special treatment. Lastly much harder for individual rich people to game the system than multi billion dollar companies.

Simplified example (GAO could run exact numbers needed)

Corporation makes $1 in profit it is going to give to shareholders and currently pays 20% taxes = $0.80 pass to shareholders.
Shareholder pays 20% taxes on the $0.80 = $0.16 in taxes. Total taxes collected from corporation directly & indirectly = $0.36.

Is shareholders paid 40% taxes and corporation paid nothing. $1 in profit = $1 to shareholder = 40% taxes = $0.40.

$0.36 vs $0.40.

Corporations simply exists as a wealth transfer vehicle. They transfer wealth from consumers to shareholders. Corporations don't "benefit" from legislation the shareholders (owners) corporations benefit. Tax the beneficiary directly and make system simpler.

[newtothegame]

49. That's EXACTLY what I'm saying. nt

[quaker bill]

98. Nice theory, but wrong

In most industrialized countries corporations / businesses pay a VAT (value added tax). Tax rates are not the problem and abolishing them is not the answer. Further, foriegn companied have this bad habit of off-shoring the profits which is a drain on the economic cycle and money supply. Lower taxes does not create sustainable employment, the number of examples to prove this are too numerous to count.

See Mike Moore's story of Flint, Michigan and the tax incentives which failed there. In the small berg I visit during the summer, the City now owns 3 empty factories through tax incentives given to lure them there. The tax incentives were not sufficient to compete with the lower wages in third world countries, they never were, and will not become so. This is true even when, as in these cases, taxes are reduced to zero and the government actually gives corporations money to build the factories. There are literally thousands of examples where this notion has failed. It is actually worse than doing nothing.

[laughingliberal]

39. They are supposed to pay taxes in order to contribute to the infrastructure

that allows their businesses to operate. The initial push to lower business taxes was to attract business to an area which would then, in turn, provide jobs for the people of the community. As it is, the citizens of the communities have been shouldering the burden of the infrastructures of the communities and they really never have delivered jobs of the magnitude that would represent an equitable return on our investment. IOW, we build the infrastructures which make business possible with our tax dollars and then get to go beg them for jobs which they create only when it suits their purposes. Buncha fucking freeloaders.

[newtothegame]

51. WTF? Again, you're talking about business like it lives and breathes.

A business is the people behind it. So yes, they are paying for the infrastructure with their personal income taxes...I'm saying forget about taxing this entity we call a "business," and tax the rich people behind it.

[laughingliberal]

55. Well, if the rich people behind it have figured all the loopholes to keep their effective tax rate

at 16% that doesn't help much. The push to do away with corporate taxes is part of trickle down economics and has not worked. I'm way with the communities who recently told the businesses to put up or pay up. IOW, produce the damned jobs you promised or pay your share.

[upi402]

56. Pay to play baby

We provide them this big ass casino for what? Charity? But they shit where they sleep and it will be over soon. Not to worry.

[JVS]

88. The businesses enjoy corporate personhood, they should pay for it.

[Xithras]

60. Because corporations do NOT pay all of their income out as dividends.

If corporations paid out 100% of profits to their shareholders annually, I could actually agree with you. Most corporations, however, roll their profits into activities other than dividend payouts. Some corporations don't pay dividends AT ALL. If we didn't tax the income from these corporations, that money would never be taxed at all.

That said, I do agree with the notion of ending the dividend "double tax". Currently, a major corporation with large sales might pay a 35% tax on its income. If the corporation pays out dividends, those dividends are taxed a second time as income for the shareholder. If the shareholder is paying at a 15% rate, that works out to a 50% effective taxation rate for profit directed to dividends.

The problem with this model is that it encourages corporations to keep their profits internally and instead bring value to the shareholder through the expansion of share value. The relentless drive to increase stock prices is behind most of the more heinous corporate activities we see nowadays. If the tax system instead encouraged corporations to give their profit away to shareholders as dividends, those corporations would be pushed towards building more sustainable and consistent revenue models.

[beardown]

69. Same basic issue happens to people too.

I get my income taxed and then buy a house and pay property taxes on it and then more taxes when I sell it if I don't buy another house.

Corporations don't usually pay tax on their income, they pay taxes on their profits. I'd do a lot better if I could write off my food, water, home heating, vehicle fuel and maintenance, and house upkeep from my 'income' and then only pay taxes on the 'profit'.

We've already got the playing field tilted 60 degrees in corporations' favor and we've got a thread concerned about them paying taxes for the disproportionate amount of services they consume compared to a human?

[Xithras]

73. I don't think you understood my point.

The problem is that we've created a situation where it is financially disadvantageous for a corporation to pay out dividends to a stockholder. Because stockholders expect a return on their investment, this forces the CEO's to focus on increasing their stock price, which can only be done through relentless expansionism. If dividends were a larger portion of the stocks future, the CEO's would be forced to look at the long term sustainability of the company, instead of the short term quarter by quarter stock valuations. That's better for everyone.

If you're worried about undertaxing the corporations, the problem could always be attacked from the other end. Just allow the stockholders to deduct taxes from their dividend income at whatever the effective tax rate of the corporation is.

If you own 200 shares of company X, and company X is paying a 35% tax rate, you'll personally pay no income taxes on your dividend payout because the corporation already paid them. If the company is only paying a 5% effective tax rate, and you're personally in the 15% bracket, you'll still owe 10% on the income. As an added bonus, this would also discourage companies from dodging their tax liabilities, because the smaller the corporations effective tax rate is, the more taxes the individual stockholders would have to pay. The stockholders themselves would encourage the corporation to pay its taxes, so the holders wouldn't have to.

[DailyGrind51]

66. Because they use publicly funded services, like the courts to enforce their contracts,

highways to deliver their products, law enforcement to protect them, the U.S. mail to deliver correspondence, etc.

[beardown]

67. Wrong question.

Why don't corporations serve in the military and get crippled or killed in foreign wars that are usually protecting corporate interests?

Why should corporations be economically and legislatively empowered to allow them to treat citizens as serfs and cannon fodder?

Why don't corporations get throw into jail for negligent homicide or reckless endangerment when they allow their products to kill people?

Worrying about corporations, mostly the big ones anyway, paying taxes is way down my list of concerns. If they don't want to pay taxes they can simply pay their workers more wages.


Just a day or two ago an article came out with the information that many large corporations are sitting on historically large amounts of cash while they hold back hiring, providing benefits, or increasing productions. Is that good for the nation or good for the corporation?

Corporations are like fire. They are only good when carefully controlled and can do great harm if not.

[TransitJohn]

70. Because they steal from the commons and leave their 'externalities' for real humans to suffer.

I mean, surely you realize that they make their money by stealing resources from the commons?

[lumberjack_jeff]

71. A) because legally, they're people too.

I don't get to whine about double taxation when the tip I left for the waitress is taxed.

B) corporations are a social construct. We (society) create them because it serves the public interest. They exist at our suffrage. The owners of the corporations want the liability protection that our recognition provides. If they don't want to pay corporate taxes, then they should be sole proprietorships or partnerships, and keep that liability risk.

Roses come with thorns.

[rucky]

72. Profits are taxed - above payroll expenses (which are taxed differently)

So no - not all the money goes to people. Profits are just that - income beyond expenses like payroll. They could be used a number of ways at this point - or just sit there in cash reserves. If they go to capital investments, they're not taxed. If they go to bonuses or dividends, the person is taxed.

But what if the profits are just sitting there, or being used to invest in the stock market? Shouldn't they be taxed?

[W_HAMILTON]

74. Here's an actual answer for you:

We have much lower tax rates on capital gains to encourage investment. Qualified dividends can be taxed as low as 15% for even the wealthiest Americans.

If you do not tax corporations, wealthy individuals could simply use their time and money to accumulate wealth inside these corporations, then have it distributed out to them in a form whereby they only pay 15% taxes on it.

This is why there is a difference in the taxation of partnerships and corporations.

[Kurt_and_Hunter]

76. because businesses can hold cash

If a corporation liquidated everything each year and divvied it up to all the shareholders your comments would be spot on. The corporate profits would be realized as individual income each year and taxed that way.

In the instance where a corporation does pay out profit money to shareholders (dividends) there was a controversy along the lines of what you describe--that the money was being taxed twice. I am sympathetic to that argument, but not the way they resolved it. (They made dividends low-tax for the recipient instead of the more sensible step of making them fully deductible for the corporation. Since corporations often pay no taxes the right side to tax was the individual as straight income, not any kind of capital gain. IMO.)

But only a small amount of corporate profit is distributed to individuals in practice. A corporation can just bank all that money, and they often do. And people buy the company stock because they know the company is sitting on 100 billion dollars. The company has no motive to disburse that cash because their stock is doing fine with no or small dividend.

And that money can sit there for a generation without ever being taxed until it someday, somehow turns into individual income.

That's why we tax corporate profits. Because otherwise corporations would become like hedge funds or something... immense tax havens for capital.

(One quarter during the internet boom Microsoft posted a big profit that was surprising for such a settled corporation. But it turned out that more than half of that huge quarter was profits from the increases in Microsofts stock holdings in other computer companies that were more caught up in the internet boom. Microsoft, a manufacturer, had become a defacto small-cap internet stock fund.)

I don't know that that is all of the reason, but it is some of it.

[donco6]

78. If a corporation is a "person", with all those benefits, then "he" pays taxes.

The corporation profits greatly from all the sundry benefits paid for by acutal, breathing persons. Roads. Infrastructure. Defense. These things make the profit possible. It's not asking too much for them to pay for their share of this.

[noamnety]

79. While I was listening to public radio today

they had a story about GM possibly defaulting on their retirement benefit obligations ... with tax payers having to potentially bail out their retirement program at a cost of billions of dollars.

[Naturalist111]

81. Oh my GoD

[iris27]

83. Um, businesses are taxed on PROFIT only.

They pay no taxes on money paid to their employees as wages (except half of each employee's Social Security taxes)...or in fact on any money used to cover their operating expenses.

[catnhatnh]

86. Actually a pretty good arguement has been made...

that workers have no "income" but instead merely barter part of their life for wages. The arguement continues that putting up X dollars in cash and receiving X dollars + some percentage of additional dollars IS income...and that "income" should be defined as "money (as opposed to people) earning money" and that if this were NOT the case then there would be no difference between the two and the term "wages" would not even exist. This is routinely rejected in court but at very least it shows a disparity when cash accrued is charged a lower rate than a laborer trying to either feed his or her family or to reach the investor class.

[Fool Count]

89. Because if we only taxed individuals and let corporations off

the business entities would never distribute any profits and there would be no taxes to collect, they would just find a way
to give every shareholder corporate housing, corporate cars, corporate food, daycare, etc., write it off as business expenses
and pay no tax at all. Some corporations never (Berkshire Hathaway) or almost never (Microsoft, first time in 2003) pay
dividends to shareholders. They prefer to keep all their profits in corporate accounts (Microsoft) or invest them all (Berkshire),
so the only way for their investors to get income is by selling the appreciating shares, but then this income is taxed at much lower
capital gains tax rate. Even the dividends are taxed at lower rates than salaries. In certain sense, a reasonable corporate tax rate
forces companies into paying their workers decent wages, if only to lower their profits and tax payments. Otherwise, they would
easily come up with some creative "profit sharing" compensation scheme. Besides, if corporations paid no taxes, what is to prevent
any individual from declaring himself a corporation and claiming all his/her expenses as business expenses?

[spanone]

90. i would say MOST do.

[quaker bill]

95. money is taxed until it disappears

It is a cycle. Where you collect the revenue really doesn't matter. Businesses pay you from the proceeds of sales. If individuals pay all the taxes, they have less disposable income to spend, and accordingly sales and profits are smaller. If on the other hand, businesses pay all the taxes, they will factor the taxes into the price of what they are selling, prices rise and the collective disposable income will fund fewer purchases.

The cycle goes like this: When I buy something, I am partly paying the salaries of those who made it and sold it to me. They in turn spend their salaries buying other things paying those who made and sold them those things, the cycle repeats inifintely. At each stage in the cycle, a portion of the funds is collected as taxes, and after so many cycles, what is left of a fixed pile of cash becomes too small to count. This is the economic multiplier they talk about in macroeconomics. The lower the tax rate, the larger the number of times cash can go around the cycle until it disappears.

This effect is offset by government spending which reinitiates the cycle. Government budget deficits can for a period expand the cycle, as money is being spent faster than taxes evaporate it, which expands the money supply in the economy. Surplusses shrink the money supply as spending is slower than the rate of evaporation.

Money is always taxed as many times as it takes to collect all of it, the question is only how and when it is spent. This is just sophomore level macroeconomics, not rocket science.

[TorchTheWitch]

99. essentially, any time money changes hands there is a tax

Sometimes on both the one handing it over and the one receiving it. A businesses profits are it's income, just like your salary from your job is your income, profit that you make in investments is your income, and anything else where you derive a monetary gain from.

Look at it this way... your profit for your labor comes to you in the form of a salary. From that profit you pay your mortgage, utilities, insurance, etc. to entities for the various goods and services you need, yet you pay taxes on that profit for your labor even though most if not all of your profit is going back out to pay for the things you need. A business ALSO pays out of their profits (the businesses income) to pay the salaries of the employees, mortgage, utilities, insurance, etc. just as you do... why SHOULDN'T they pay taxes on their profit just as you do on yours?

[newtothegame]

102. I understand...but who exactly is "they" that is paying taxes? Again, I think the issue on DU...

is that people want to focus on this "corporations are evil" meme. Corporations are not people, regardless of what the SC says. We cannot hurt a corporations feelings. Corporations do not go to jail. Let's go after PEOPLE.

[Tsiyu]

104. If a corporation wants to avail itself

of the services/infrastructure of a "free" society, it is obligated to pay its share of the cost of running that society.

In the US, a corporation might use any of the following:

$the court system (clerks, judges, buildings; Think: The Supreme Court. Who gets to pay for their salaries and health care and offices?)

$transportation (FAA, DOT, roads, interstates, bridges, state troopers;)

$inspectors (food, if it has an event catered, for example, the corporation will want to use a caterer whose facilities are evaluated as safe by the USDA and local inspectors, workplace safety, TSA/NTSB and/or Customs if it uses airlines, building and road inspectors for any buildings or roads it may use;)

$the legislative process (corporations benefit more than any of us from the work of our Reps and Senators - both Fed and State - so why should they object to helping pay for the upkeep of politicians, the buildings they work in, and the cost of printing and updating all the new laws the Corporations get passed?)

$law enforcement: (every corporation will at some point face a theft, a threatening employee, a vehicle involved in an accident) If they use law enforcement in any capacity to make a profit, they owe the law enforcement entities some financial support.

I could go on and on, explaining all the ways corporations suck off the teat of tax-supported entities like schools and utilities and public property, but the bottom line is:

you play, you pay.

[happy_liberal]

105. The question should be 'Why do Individuals pay income tax'

Originally it was only the Corporations that paid taxes and still today, if we taxed the Corporations fairly, income tax is not needed.


"In 1894, Democrats in Congress passed the Wilson-Gorman tariff, which imposed the first peacetime income tax. The rate was 2% on income over $4000, which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions."

[Romulox]

107. Corporations derive enormous benefit from the expenditures of our gov't: (e.g. TARP)

:hi:

[blueworld]

108. They use taxpayer resources. We all use, we all pay

I'm not an authority, but businesses only pay taxes on their "profits". They're given many more tax deductions than we are. Yet they often use more of the taxpayer resources than individuals do. First responders like firemen, for example. And some cause widespread harm in areas far away (acid rain & eastward air quality issues) that burden taxpayers in other states.

They frequently get additional tax breaks in "home" areas desperate to attract employment, and yet unfortunately cause traffic congestion or truck traffic (wear & tear on roads etc.) as part of the equation. Not to mention air & water pollution, extra police patrols and so on.

I think it's simply a matter of paying for the government resources we all use. Unfairly distributed to be sure, but that's the idea. Now I hope to see in my lifetime a corporation that actually pays anything remotely near their "tax rate".