If you're going to legally treat corporations the same as actual humans - then tax them the same.
We pay taxes for services we expect from governments, defence, policing, justice, water, sewers etc etc I don;t see why corporations that use all these things shouldn't pay their share
But then it's highly unfair to tax humans on revenue, but corporations on profit.
I think the right answer is VAT + externalities taxes (LVT, Cabon tax, etc.) + UBI, which is both very easy to enforce and perhaps net progressive enough. Re "progressive enough": I don't so much care if BWM owners are screwed over relative to private jet owners on paper, I think reducing work hours and propping up demand at the bottom with UBI will have a trickle-up effect.
There might be room for a wealth tax, but I think it might be less loophole-prone and better theoretically to attack that problem more directly and less monetarily in terms of socializing key natural monopolies, promoting coops, etc. Trying to financialize the big question of "who controls the means of production" I think might be just too difficult.
> But then it's highly unfair to tax humans on revenue, but corporations on profit.
Wow, it's a good thing we don't do that. Good news, the income you spend to further your business is deductible. We include a personal exemption for generic costs, child exemptions, mortgage exemptions, healthcare cost exemptions, retirement savings exemptions, and numerous others.
Additionally, the whole concept behind a progressive income tax is to tax people in a similar way to taxing them on profit. After all, percent of income spent on necessary goods goes down as income goes up.
But I don't think anyone wants a system where this is done by itemized receipts instead of with generalizations.
Huh?
How is it not unfair that, for example I can’t deduct rent from my income? A company would be able to do that.
What about amortizing the cost of my domicile over 30 years?
The personal exemptions are a sham and do not reflect the reality of high cost of living areas.
> How is it not unfair that, for example I can’t deduct rent from my income?
Tax policy isn't set by moral arguments, it's set by government need for revenue which is then tweaked by political pressure groups.
The reason why you can deduct mortgage interest but not rent has nothing to do with fairness, which is undefined and a massively ambiguous term, but because banks, which are the primary beneficiaries of mortgage subsidies, have a lot more political power in Washington than landlords, who would be the primary beneficiaries of national rent subsidies.
For states like the USA that print their own currency and enjoy tremendous global demand for their currency, taxes are less about revenue and more about controlling behavior and unemployment outcomes. Some argue that taxes are just a way to force demand for a currency the government has a monopoly on to ensure it always has _some_ value.
(Note: this is a rather polarizing theory and still somewhat young. The US Fed pulled off printing trillions last year and things haven't gone to hell yet do there's something there )
I get a tax rebate for rent. Maybe it depends where you live.
For a house, your net worth hasn't decreased by the cost of the house. A company wouldn't be able to deduct that. They can deduct for assets that depreciate.
A company cannot depreciate land, but they can depreciate the value of the buildings on top of it over a fixed period of time. So in addition to writing off the mortgage as an expense, you can also amortize it since the value of additions (not the land) decreases.
I'm not sure what you mean here. You can't write off a mortgage. You could write off interest, but not the value of the mortgage.
Real estate tends to appreciate in value, especially in cities. The company would have to get unlucky with their real estate to be able to write off a loss. Buildings don't usually depreciate.
They could allow their buildings to fall into a state of disrepair, hoping it would lower their value. But why would they? The can deduct the repairs. It's a legitimate expense.
As a business I can take out a mortgage and give you a rental for the exact same price. The income and “expenses” cancel out, so the profit of your business is zero. Since this rental is an income producing activity the IRS (and other tax bodies) allow you to depreciate (https://www.irs.gov/publications/p946) the value of additions on the land (I.e the building) on a straight line over a 28 year period. The basis of the depreciation is the value of the property, so you divide that over 28 years and can take that away from the income as well. Now I can transfer that cost to you in rent and the profit of my business is still zero. This is a benefit that is generally only available to corporations. Then there is prop 13 which is yet another mess.
I’m not an accountant, but I’ve studied enough of it in University to be dangerous.
It's fair that you don't pay tax when don't make a profit after taking depreciation into account.
Depreciation isn't a cheat code that lets you avoid tax on profit. If you depreciate the building more than its actual market value depreciation, you owe back what you deducted when you sell the building.
Yeah the whole US mortgage interest exemption is a special US thing, not a natural tax exemption available worldwide
Here in NZ there are NO tax exemptions for normal humans (well there is one single one for low income families with small children) - it means that our taxes are incredibly easy to file - if you have one employer you probably don't need to file at all, if you want to it's 2 pages on a web form, if you don't file and the IRD owes you money they'll probably pop it in your bank for you.
Oh, and our high marginal tax rates are ~10% lower than I was paying in California, and that includes free public healthcare
VAT + LVT + misc. pigeovian taxes probably wouldn't be enough to power society as is, let alone fund a UBI. You could maybe replace income tax with a progressive consumption tax or a wealth tax, but you'd need to replace it with something.
Yeah not sure what GP is saying. VAT can absolutely suck up a huge amount of money. The UBI makes it far less regressive, basically to the point I no longer care.
(VAT + UBI is great for everyone but those 90th percentile luxury-car-and-McMansion-owning inner ring suburb types that are the Democrat's favorite constituency :/)
Coupling a regressive tax with money transfer creates an inverse "V" shaped effective tax rate that will squeeze some part of the society (probably on the middle class).
If the taxes and transfers are diverse enough, one can reduce that problem by making them compensating each other, but if you make VAT + UBI make the lion share of the government's money flow, it will be a really large problem.
Yes the nadir of the V is the inner-ring BMW suburb class, I so disparaged. And I really meant it when I said I didn't care about them.
It might sound like I'm being a culture warrior chest-thumper about those "liberal elites", but I really do mean something more material / economic here. I think most of that classes struggles (and they do take on huge debts) would not be worsened by taking away their money.
- This is the class most thirstiest about getting their kinds into good schools without being able to donate their way in. But the scarcity of "good jobs" that motivates this credentialism relates to inadequate demand of the masses. Giving them more money won't help the fact that the Keynesian feedback loop has broken down, causing the job scarcity. (And really, consumption not work is the goal, we should fix the feedback loop by working less not consuming more, beyond guaranteeing basic needs.)
- This the class hitching lots of their wealth on real estate, but it's precisely because our cultural obsession with owning single family homes that good land (i.e. that with good access to the other good land where people need to go) is in perpetual short supply. Even if they are the "vacation home" winners of the current ponzie skin, the portion of winners will bleed away in successive generations if housing continues to be a "good investment" --- and thus unattainable to increasingly many people.
- Perhaps this class is less affected by expensive healthcare (other than the richer ones above), but would still benefit from it being cheaper. Not a majority of them is doctors or biotech researchers or whoever else benefits from our shitty healthcare system.
So yes, I think even if they are at the tax advantage nadir, they still are benefitting:
- Richer masses fix their job anxieties
- We should separately fix real estate and transit so they can be at peace in condos not mcmansions
- We should separately fix healthcare to their slight advantage.
Also, I sincerely hope and empowered working classes / lower classes will prevent the richest billionaires from emerging (at least more than transiently), so the 0.1% stuff should be far more of a theoretically problem as we get a "thinner vertical tail" power law.
I look forward to the day that we punish corporations by removing their freedom (ability to operate) instead of fining them laughably small percentages of their yearly revenue for serious violations of laws and regulations.
In reality I understand that this would harm the employees and the public to an unacceptable degree so maybe some form of “jail time” whereby all profits go directly to non-executive employees and price discounts would be more effective. Depriving shareholders of dividends may lead investors to “vote with their wallets” and we’d see more of an actual free market instead of what we have today where economy-destroying decisions go effectively unpunished and in some cases are rewarded by bail outs.
Confiscating profits wouldn't work, many companies are reinvesting their profits. Probably the best way would be to just make the fines hurt more, by using a fixed and non-negligible percentage of the monthly/yearly revenue, much like Finland does for traffic fines.
I can’t believe we as a society don’t adopt this idea more. Punishment should be a percentage of taxable income of that year. The impact should equally felt regardless of your current financial status. Extending this to a corporation would simply put them in back foot in a market.. which is indeed the punishment.
In the US, income based fines have questionable constitutional allowability. I fall on the "the seem constitutional" side, but some people apparently think it violates the 8th amendment.
> I look forward to the day that we punish corporations by removing their freedom (ability to operate) instead of fining them laughably small percentages of their yearly revenue for serious violations of laws and regulations.
I agree, but like you mentioned, the externalities on innocent parties would be too great. Also a lot of companies do not issue dividends, so focusing on them would do no good in a lot of cases. I think a threefold strategy would need to be implemented:
1. Direct action against executives in the board (e.g. heavy fines amounting to a large fraction of their total compensation and/or jail).
2. Confiscation of dividends for a period of time.
3. Forced issuance of new shares to dilute existing shareholders, with sale proceeds going to the government.
One issue is that shares can be traded, so it's possible for a shareholder to benefit from some bad action, then avoid any punishment by selling the shares before the punishment is implemented. Maybe such people could be shared a per-share fine based on shares held at a particular date?
>Maybe such people could be shared a per-share fine based on shares held at a particular date?
I think it’s nearly impossible to expect most shareholders to understand the business underpinnings to this degree within the existing system. Think of pensioners with mutual funds, do you think most even understand all the businesses in those funds let alone the operations of those businesses?
To me, this is akin at employees being punished as well. Both benefit from the business operations but it’s hard to expect employees to have knowledge and be responsible for the decisions of the C-suite.
> I think it’s nearly impossible to expect most shareholders to understand the business underpinnings to this degree within the existing system. Think of pensioners with mutual funds, do you think most even understand all the businesses in those funds let alone the operations of those businesses?
That's true, but I don't think that matters. Those same shareholders both profit and lose based on all kinds of other factors they don't understand. Adding new ways to lose tied to illegal activity doesn't really fundamentally change anything.
Also, there's something important to note: pensioners with mutual funds have savvy proxies (fund managers) who should very will understand the business underpinnings to this degree, and vote their shares to avoid losses due to these kinds of fines.
>Adding new ways to lose tied to illegal activity doesn't really fundamentally change anything.
I think it does because it creates a adds a dimension to the loss that will disproportionately affect the assessment that of risk. For one, this added dimension has only a downside. Think of an auto insurance company who operates in no-fault States. Their behavior (and by extension, the policies they offer) is changed because the risk they incur is higher despite their customer being a good driver. (The analogy being a “good” company still gets punished in the form of less investment under the proposed rules because the risk to the investor is increased).
Second, while people are well attuned to think about risk, they are very bad at judging it. That’s why the fund managers are not generally capable of out performing the market for extended periods. They are either not as savvy as you assume or work under such constraints that they can’t use it to their advantage. Behavioral psychology/economics shows that people are disproportionately risk-adverse so if you think increased risk without an even higher commensurate increase in reward, they tend to avoid taking on any extra risk.
You are responsible for your property. If you own stock, you own part of a company so you are responsible for its actions. In the case of mutual funds, it's the funds' job to understand the businesses it invests in for you. There could be an exception for non-voting stock though.
Well this is just false. You are not at all responsible for a company’s actions just because you are a shareholder. HN is evidently quite out of its depth with these kinds of threads.
Just to underscore what was previously stated, I think this philosophy would drastically change the paradigm. I’m guessing it would severely restrict the money flowing into stocks which would have repercussions in other areas like pensions etc. Point being, I don’t think it can just be layered onto the existing system without serious blowback.
As I wrote, there could be an exception for non-voting stock. At least temporarily.
But ultimately, it's supposed to change the paradigm. Because currently the economy is run by paperclip maximizers that no human is held responsible for. Which is not ideal.
Non voting shares are a minority already. Combine that with the fact that literally trillions of dollars would be aligned against such a idea, i fear it unfortunately relegates it to a thought experiment rather than a pragmatic policy proposal.
The difference here is that you would be uniting all business interests. Normally they are a fractured group with competing interests. It would take a truly revolutionary movement to enact that kind of change. Not impossible, but also not no particularly likely.
One of my more radical political views is I'm 100% behind a corporate death penalty, as well as direct personal criminal consequences for company principals that engage in fraud or similar.
The sad reality of the world is that once a business is past a threshold of power, it's nearly impossible to hold them accountable. Craven sociopaths know they can do what they do, and worst case, suffer some bad press while they move on to the next thing, banking 100's of millions the whole way.
Make those people truly terrified of the consequences of their actions and politics will be utterly transformed.
Humans are taxed on their income. Corporations are taxed on their profits (they deduct their expenses).
Corporations can be taxed on the money coming in, that would look like a sales tax or VAT. The problem with that tax is it falls on the consumer (since what really matters is which transaction you tax, not which side pays the tax).
But this brings me to a solution to the corporate tax avoidance issue that has already been figured out by economists, but rarely gets discussed.
This is a simplification, but basically corporations have one place money goes in, and two places it goes out, like this:
sales = expenses + profits
If you tax the sales, but deduct the expenses, this leaves the incidence of the tax on the profits. Unlike profits, it's usually much clearer where the sale takes place so it's much harder to avoid than the existing corporate tax. It's called a border adjustment tax. [1]
Where this gets complicated is international trade - how this works is only domestic expenses are deductible. At first glance that seems protectionist, but apparently the currency exchange rates adjust which balances is it out and although it's not obvious it ends up trade-neutral.
It was actually seriously proposed as part of US tax reform in 2017, but some big companies were against it so it got killed.
Sure, I believe Ohio has something similar. More significantly I think (in percentage terms), there are already sales taxes and VATs.
But when people are discussing the corporate tax and corporate tax avoidance, usually they're talking about the corporate income tax, which is also what the article is about.
With a VAT, the total taxed amount is $10, which is divided up among the companies based on how much value they added (so if they move from $8->$9, they pay tax on $1).
With a gross receipts tax, the total taxed amount is $7+$8+$9+$10=$34. Goods that are produced by many small companies working together will pay a lot more taxes than those produced by huge vertically-integrated ones.
There's some good reasons to use a VAT if you want to tax revenue, and one of them is to avoid problems like this.
With a VAT each layer deducts the tax they pay. The net tax is only on the the value added. The company in the middle pays tax on $7 and collects tax on $8, and forwards the difference.
It's very elegant and fair, but imposes a lot of accounting. Sales tax is easier in that it only collects at the end, but it's actually hard to define "end". (Buy a screw and you pay tax, buy a manufacturer buying the same screw usually does not.)
There are still problems about regressive taxation (are stock profits value add? Services? Plain old labor? What's the difference? Usually poor people end up paying the taxes on everything while rich people buy things that aren't subject to the system). Still, if you want to tax profits on consumables, it's remarkably straightforward.
It does add more accounting, but one advantage of involving the companies in the middle is it makes cheating harder and less lucrative, since a bunch of companies have to coordinate to avoid paying the VAT instead of just one company at the end.
Agree that VAT/sales taxes are regressive and shift more of the tax burden to lower-income people. Although the only US political candidate I can remember recently proposing a VAT was Yang in which case his UBI proposal would probably more than balance out the effects on after-tax income.
I don't know if Yang's math checks out, but I think his proposal was $1000/mo and a 10% VAT. So the breakeven point would be $120k spending on taxable items/yr for an individual, or $240k spending/yr for a couple, with people below that coming out ahead and above coming out behind.
Where you draw the line for "middle class" is somewhat arbitrary - I think you could be middle class and still earn over $120k, especially in a high cost of living area - but probably most people who consider themselves middle class would fall under that. Especially because people who earn $120k are probably not spending $120k/yr once you factor in retirement contributions, income taxes, etc.
A relatively high-profile economist wrote positively about the UBI idea last year. [1]
Not that you couldn't make it more progressive. I think I've seen proposals for a progressive individual consumption tax, which would look something like a progressive income tax but then removing the limits for IRA contributions. The theory being you would put money you want to save in the non-taxable account, then you would only withdraw what you want to spend in a given year, which could be taxed at a progressive rate.
>Where you draw the line for "middle class" is somewhat arbitrary
It’s a convention so, yes, it’s arbitrary (and people tend to change that definition to fit their points, and of course it’s relative to COL) but the most widely used definition is the middle quintiles. I believe this puts the upper bound around $120k for a household (not individual) in the US.
And you’re right, most people do consider themselves middle class. Some studies show as much as 90% of people think they are middle class which, unless we use a very loose statistical definition, is obviously false. The problem is people subjectively compare their life to their own peer group rather than society as a whole, so they are misled about defining the societal norm.
I only meant to say the majority of the middle class would fall under $120k no matter how you (reasonably) draw it (so with respect to that specific VAT/UBI proposal, most of the middle class would see a gain).
For how higher incomes could end up middle class I wasn't thinking of a different threshold, but ways of defining social class that are more qualitative than quantitative.
For example you could define middle class as people who live a modest lifestyle financed by selling their labor to a company, and upper class as people who can live off wealth. So someone from a wealthy family living off a trust fund and going to an elite graduate school might count as upper class despite being low or middle income, and an engineer making $120k in the bay area might still count as middle class that way.
Defining it like that would probably produce a small upper class relative to the size of the middle class, but in historical societies where social class was a bigger issue what's considered upper class is usually a pretty small percent of the population, so it wouldn't seem too crazy to me to define it like that.
Exactly this. Imagine a company that has makes X dollars and spends X dollars. So the company pays no tax. What that means is that all the other tax payers pay for all the infrastructure.
And that's fine, but if such a company ever needs to call the police and go to court, etc., they then would have to pay all of that out of their pockets (i.e. the work of the police, the lawyers and judges, and so on).
the fact that streets are illuminate at night and pollice patrols them is using services provided by taxpayer's money.
Uber benefits from streets more than the average citizen.
if corporations had to pay per use, they would prefer to build their private infrastructures and police forces, while public infrastructure would lag behind chronically underfunded.
I don't think building "private infrastructure" in the sense of streets on public ground would make any sense or ever be allowed.
The company could just pay for the usage of the road (in some way) and the government makes sure the roads exist. Besides the bureaucratic overhead, I don't see why that couldn't work.
Well they have a right to petition the government in the US at least. Would you say the same about what citizens prefer does not matter in a representative democracy?
Citizens tend to be all over the place when it comes to taxation. Traditional corporations are pure profit seeking entities. What they would -prefer- is to pay no taxes at all, while benefiting from all tax paid services they can. So I'm not really sure, given we're talking hypotheticals here anyway, that designing a system to tax corporations based on what they -prefer- is really going to get us anywhere. The current system, whereby many major corporations pay nothing in taxes, while benefiting from major government subsidies, directly and indirectly, is already pretty close to what they'd -prefer-.
>would -prefer- is to pay no taxes at all, while benefiting from all tax paid services they can.
I think you could probably preface the above with the word “citizens” and it would still be true. But both citizens and corporations have the right to lobby their representatives in their own interest. It’s the politicians job to try and create policy that balances the interests of all their constituents.
I, personally, would happily pay -more- in taxes, if it meant that, for instance, we stopped all fundraising for elections (and instead candidates had a set amount to spend per race), and also if we provided healthcare to everyone.
Ah, ok I didn’t realize context of “all over the place” meant in terms of reasons for taxation. I do think there is a growing movement in business to have a multi-dimensional focus. B-Corps are one example.
I agree. Just charge everyone a monthly fee for essential gov services. And do I mean essential. If you want extra programs from the gov, you need to pay voluntarily.
But they aren't always treated the same as humans. In some cases they are, but it is not a blanket "corporations are people". In order for me to buy an argument like this, you'd need to dig into the specifics of how the ways in which corporations are treated the same as people justifies the argument. And also consider the ways in which corporations aren't treated the same, why they are treated differently, and how that also impacts the argument.
We don't treat them the same, and we shouldn't treat them the same.
Having a multi layered tax policy is complicated and has proved difficult to enforce. Multinational corporations have shown time after time that they are able to get around the first layer of taxation (corporate tax), so why not just eliminate it and put more of the burden on the second layer (income, capital gains, sales tax, etc).
The general idea is not to raise or lower net taxes, in this particular instance we could keep net taxes the same while allowing for less corporate avoidance and more targeted tax collection.
Companies like Amazon historically have minimized their profit to grow revenue, assets and shareholder value. They barely pay corporate tax while profitable small businesses will pay corporate tax plus the second layer.
1 through 6 already lead to taxes being paid - sales/VAT taxes in most places, individual income taxes, employee social security/retirement contributions and so on.
Share buybacks lead to greater stock value and therefore income when sold for the owners, who in term are taxed as individuals.
You theoretically could have a hold Corp that never paid out anything and instead funded the lifestyle of the owners/employees, but I’m sure there are ways to close that and the current 15% min is a far cry from what most people pay.
> If you're going to legally treat corporations the same as actual humans ...
We don't do that, though, not by a long shot. There are some cases where the rules are the same but many, many cases where they are different. So I don't think that can serve as an argument that they should be taxed the same.
We pay taxes for services we expect from governments, defence, policing, justice, water, sewers etc etc I don;t see why corporations that use all these things shouldn't pay their share