What if Corporate Income Taxes Were Zero?

[dragoncar]

Other taxes would go up

[Pointedstick]

Probably what would happen is a lot of foreign corporate inversions. And all the offshore money that US corporations have stashed in the Ireland and the Cayman Islands would come home. All of this would probably lead to more employment and technological improvements and lower prices, but I doubt wages would rise. The corporate culture doesn't seem to be a pro-good-wage culture these days.

[MediumTex]

How much revenue does the corporate tax raise?

[Pointedstick]

How much revenue does the corporate tax raise?

$344 billion, or 10% of total federal tax receipts.

https://en.wikipedia.org/wiki/2015_Unit ... t#Receipts

[MediumTex]

Probably what would happen is a lot of foreign corporate inversions. And all the offshore money that US corporations have stashed in the Ireland and the Cayman Islands would come home. All of this would probably lead to more employment and technological improvements and lower prices, but I doubt wages would rise. The corporate culture doesn't seem to be a pro-good-wage culture these days.

I thought it was great in the debate last night how the candidates did the standard lament about wages being stagnant in recent decades, but they also made it clear that when it comes to the minimum wage, $15 an hour is too high.  Do they think that there is a different dynamic driving wages that are over $15 an hour--i.e., do they not realize that ALL wages are ultimately a function of supply and demand in the labor market?

It's also amazing to me how politicians seem not to grasp that when wages are stagnant inflation is never going to be a serious concern because sustained upward price movements simply create reduced overall demand if they aren't accompanied by rising wages--i.e., when people run out of money they stop spending, which pushes prices down, not up.

[MediumTex]

How much revenue does the corporate tax raise?

$344 billion, or 10% of total federal tax receipts.

https://en.wikipedia.org/wiki/2015_Unit ... t#Receipts

I say get rid of it and bump up capital gains and dividend rates by whatever amount is necessary to make up for the shortfall.  It should be a wash and it would make it a lot easier to do business.

[moda0306]

How much revenue does the corporate tax raise?

$344 billion, or 10% of total federal tax receipts.

https://en.wikipedia.org/wiki/2015_Unit ... t#Receipts

I say get rid of it and bump up capital gains and dividend rates by whatever amount is necessary to make up for the shortfall.  It should be a wash and it would make it a lot easier to do business.

This!

However, I don't think it'll have the "unleashing the uncondomed dick of capitalism" effect that conservatives often predict in a positive way and dems often predict in a bad way. It'll just reduce admin/accounting costs for corporations and probably yield less manipulation by certain industries, but nothing revolutionary.

[Pointedstick]

Probably what would happen is a lot of foreign corporate inversions. And all the offshore money that US corporations have stashed in the Ireland and the Cayman Islands would come home. All of this would probably lead to more employment and technological improvements and lower prices, but I doubt wages would rise. The corporate culture doesn't seem to be a pro-good-wage culture these days.

I thought it was great in the debate last night how the candidates did the standard lament about wages being stagnant in recent decades, but they also made it clear that when it comes to the minimum wage, $15 an hour is too high.  Do they think that there is a different dynamic driving wages that are over $15 an hour--i.e., do they not realize that ALL wages are ultimately a function of supply and demand in the labor market?

I don't think it's so contradictory. The higher the minimum wage, the greater the barrier to hiring low-skill workers. I can't remember who but someone made the point that a $15 minimum wage would just accelerate the replacement of the workforce with machines. But voluntarily high wages are a different beast. A company that feels comfortable paying someone $30 an hour is a company that has decided that business conditions are good and that replacing that employee with a machine wouldn't be cost-effective, or else they'd have already done it. If the economy is better, you don't need a high minimum wage.

[MediumTex]

Probably what would happen is a lot of foreign corporate inversions. And all the offshore money that US corporations have stashed in the Ireland and the Cayman Islands would come home. All of this would probably lead to more employment and technological improvements and lower prices, but I doubt wages would rise. The corporate culture doesn't seem to be a pro-good-wage culture these days.

I thought it was great in the debate last night how the candidates did the standard lament about wages being stagnant in recent decades, but they also made it clear that when it comes to the minimum wage, $15 an hour is too high.  Do they think that there is a different dynamic driving wages that are over $15 an hour--i.e., do they not realize that ALL wages are ultimately a function of supply and demand in the labor market?

I don't think it's so contradictory. The higher the minimum wage, the greater the barrier to hiring low-skill workers. I can't remember who but someone made the point that a $15 minimum wage would just accelerate the replacement of the workforce with machines. But voluntarily high wages are a different beast. A company that feels comfortable paying someone $30 an hour is a company that has decided that business conditions are good and that replacing that employee with a machine wouldn't be cost-effective, or else they'd have already done it. If the economy is better, you don't need a high minimum wage.

Right, but what I am saying is that maybe the kid who is making $8 an hour is being paid that amount for the same reason that the guy making $25 an hour is being paid that amount--in each case it is what they are worth.

If the $25 an hour guy isn't seeing his wages rise, maybe it's because he isn't worth more than $25 an hour to the employer.

To me, one of the trade-offs you have to be willing to accept if you are going to enjoy cheap goods from China is that your own wages may not rise as fast as they would if there were trade barriers in place that propped up your wages, but made everything you bought more expensive.  It's just a standard "no free lunch" analysis.

When you already have some of the highest wages in the world, it's hard to make them rise quickly when you are competing against the rest of the world.  As soon as you start seeing nice gains in your income, competition from foreign labor markets start pushing them back down through outsourcing, emigration of skilled workers from foreign countries, etc.

The good thing about the process above is it places structural constraints on sustained inflation, which are beneficial even if at times they seem to suck.

[WiseOne]

How much revenue does the corporate tax raise?

$344 billion, or 10% of total federal tax receipts.

https://en.wikipedia.org/wiki/2015_Unit ... t#Receipts

I say get rid of it and bump up capital gains and dividend rates by whatever amount is necessary to make up for the shortfall.  It should be a wash and it would make it a lot easier to do business.

+1.  Talk about simplifying taxes.  Businesses would incur fewer tax-related costs, too.  It would be nice for coop and condo organizations also btw...business taxes are a small, but noticeable chunk of the maintenance fees.

If offshoring is reduced, leading to more hiring in the U.S., you may not even need to do that.  However, not clear to what extent this would happen as there are other reasons why jobs & manufacturing are farmed out to low-income places, as PS points out.

Alternatively, what about replacing the lost revenues with a national sales tax, to make sure you're penalizing consumption rather than investment.  I really like how this tax would neatly and instantly increase the size of the tax base - you'd collect taxes from the large illegal immigrant population.  To minimize the hit on low-income Americans you could then increase the earned income tax credit.

[MediumTex]

Alternatively, what about replacing the lost revenues with a national sales tax, to make sure you're penalizing consumption rather than investment.  I really like how this tax would neatly and instantly increase the size of the tax base - you'd collect taxes from the large illegal immigrant population.  To minimize the hit on low-income Americans you could then increase the earned income tax credit.

I don't like the national sales tax idea.  It's a mostly regressive tax and will often open the door to taxing both income AND consumption by the taxing authority.  That's what has happened in many states.

A national sales tax also introduces a whole new level of tax reporting and collection by businesses, along with a lot of potential for fraud (e.g., business collects the national sales tax but never forwards it to the IRS, which happens a lot under state sales tax regimes).

There will also be exempt items under a national system, and they most likely won't align exactly with exempt items under every state's sales tax system, which means business will have a whole new set of exempt item codes to keep up with.

If we all agree that it's better not to tax very low wage earners because the taxes collected are just going to be sent back to them in the form of transfer payments, then the question is how do you deal with them in a sales tax-oriented system.  Do you give them some kind of deluxe sales tax credit on their income tax return?  If you do that, you've set up a very complicated system where you have two tax regimes, one of which is taking from them (in the form of the sales tax), and another that is attempting to give back to them (in the form of a beefed up sales tax credit on their income tax return), and all of that generates bureaucratic friction that invites fraud and inefficiency.

It gets messy quick.

[WiseOne]

I should have guessed, but wasn't aware that sales tax is commonly not sent into the tax authority...how widespread is this?

The second tax regime already exists:  the earned income tax credit.  You wouldn't have to add any new type of tax.

Actually I was thinking that the national sales tax would not have any exemptions, and the tax should be offset by businesses lowering prices (hopefully) as their costs decrease.  An increased EIC would provide a bit of extra insurance for the low income folks, and the theory is that people with high incomes (with correspondingly high spending habits) and those who don't currently file income taxes would pick up enough of the slack that the end result won't actually be so regressive.

Taxing dividend/cap gains is more straightforward I admit, but it would shift the burden to a relatively small group of people - albeit a rather more wealthy one.

[MediumTex]

I should have guessed, but wasn't aware that sales tax is commonly not sent into the tax authority...how widespread is this?

Very.

When I was filling out the documents for my admission to the Texas Bar, they asked a series of questions to determine my character.  As I recall, there were only about four questions (plus a background check, of course).  One was whether I had ever been convicted or accused of a crime involving an act of moral turpitude, one was whether I had any undisclosed mental illnesses, one was whether there were any unpaid judgments against me, and one was whether I had ever collected sales tax in Texas and failed to remit it to the state comptroller.

The second tax regime already exists:  the earned income tax credit.  You wouldn't have to add any new type of tax.

There would be the new sales tax and the old income tax, right?  I don't think that anyone seriously believes that we could ever completely do away with an income tax in favor of a sales tax.  There are WAY too many delayed income tax payments tied up in tax deferred accounts, depreciating assets, losses that are carried forward, etc.  That's why I laugh when I hear Fiorina and her clownish "3 page tax code!" nonsense.

Actually I was thinking that the national sales tax would not have any exemptions, and the tax should be offset by businesses lowering prices (hopefully) as their costs decrease.  An increased EIC would provide a bit of extra insurance for the low income folks, and the theory is that people with high incomes (with correspondingly high spending habits) and those who don't currently file income taxes would pick up enough of the slack that the end result won't actually be so regressive.

If there were no federal sales tax exemptions, then business would have juggle two sets of codes because most (or maybe all) states with a sales tax do have exemptions.

Why do you think businesses would lower their prices?  Many businesses pay almost nothing in corporate taxes, so doing away with the corporate tax wouldn't save them a whole lot other than their preparation expenses.

[Libertarian666]

There would be the new sales tax and the old income tax, right?  I don't think that anyone seriously believes that we could ever completely do away with an income tax in favor of a sales tax.

We could easily do away with an income tax in favor of... freedom. All that would be required is to limit the government to its Constitutional roles.

You're welcome.

[WiseOne]

Agree about the 3 page tax form - or a postcard form as Ted Cruz suggested, even more laughably. 

I was not thinking about doing away with income tax entirely, but combining it with a national sales tax.  Many states have both...subject to the issue you pointed out.  Funny about it being one of the four "morality" questions asked by the Texas bar!  It might be that if a national sales tax were imposed, there would be more oversight.

I bet the businesses that pay the least taxes are the huge multinationals that have little presence in the U.S. and manage to hide a lot of their assets overseas.  That wouldn't be grocery and hardware stores.  I expect that between public pressure and competition, many businesses would pass at least some of the tax savings to consumers.

BTW how much of business taxes is payroll tax, and I'm assuming that would be left intact?

[Libertarian666]

Agree about the 3 page tax form - or a postcard form as Ted Cruz suggested, even more laughably. 

I was not thinking about doing away with income tax entirely, but combining it with a national sales tax.  Many states have both...subject to the issue you pointed out.  Funny about it being one of the four "morality" questions asked by the Texas bar!  It might be that if a national sales tax were imposed, there would be more oversight.

I bet the businesses that pay the least taxes are the huge multinationals that have little presence in the U.S. and manage to hide a lot of their assets overseas.  That wouldn't be grocery and hardware stores.  I expect that between public pressure and competition, many businesses would pass at least some of the tax savings to consumers.

BTW how much of business taxes is payroll tax, and I'm assuming that would be left intact?

Yes, of course adding another gigantic tax would fix things right up! Just like it did the last time, i.e., the income tax. 

[MediumTex]

BTW how much of business taxes is payroll tax, and I'm assuming that would be left intact?

None.  Payroll tax is a separate tax unrelated to corporate earnings.

[moda0306]

BTW how much of business taxes is payroll tax, and I'm assuming that would be left intact?

None.  Payroll tax is a separate tax unrelated to corporate earnings.

They pay the employer side. And FUTA and SUTA.  Funny that gets missed a lot. And even though it's a tax on the business, who is it REALLY a tax on if you look at the supply/demand economics of labor.

[MediumTex]

BTW how much of business taxes is payroll tax, and I'm assuming that would be left intact?

None.  Payroll tax is a separate tax unrelated to corporate earnings.

They pay the employer side. And FUTA and SUTA.  Funny that gets missed a lot. And even though it's a tax on the business, who is it REALLY a tax on if you look at the supply/demand economics of labor.

Well, yes, the employer has to pay the employer portion of the payroll tax, but eliminating the corporate income tax wouldn't affect that.  Two totally different taxes.

[I Shrugged]

Once the Soviet Union fell apart and China got business fever, North American wages were destined to stagnate.  Face it, along with Japan and Western Europe, we benefited greatly from having half the world unable to work productively.  Once they were free enough to start producing, our advantages had to start collapsing.  Everyone here should be smart enough to look past the political talk about getting wages up.  It's nonsense, it ain't gonna happen.  It simply cannot.  There is no way to put the genie back into the bottle.  No matter who is US President.  All we can do is tinker at the margin a little.

[MediumTex]

Once the Soviet Union fell apart and China got business fever, North American wages were destined to stagnate.  Face it, along with Japan and Western Europe, we benefited greatly from having half the world unable to work productively.  Once they were free enough to start producing, our advantages had to start collapsing.  Everyone here should be smart enough to look past the political talk about getting wages up.  It's nonsense, it ain't gonna happen.  It simply cannot.  There is no way to put the genie back into the bottle.  No matter who is US President.  All we can do is tinker at the margin a little.

Do you agree that this means there will be no meaningful inflation in the U.S. for the foreseeable future?

[I Shrugged]

Once the Soviet Union fell apart and China got business fever, North American wages were destined to stagnate.  Face it, along with Japan and Western Europe, we benefited greatly from having half the world unable to work productively.  Once they were free enough to start producing, our advantages had to start collapsing.  Everyone here should be smart enough to look past the political talk about getting wages up.  It's nonsense, it ain't gonna happen.  It simply cannot.  There is no way to put the genie back into the bottle.  No matter who is US President.  All we can do is tinker at the margin a little.

Do you agree that this means there will be no meaningful inflation in the U.S. for the foreseeable future?

I think so.  But as HB said, anything can happen, and nothing has to happen.

[Pointedstick]

Once the Soviet Union fell apart and China got business fever, North American wages were destined to stagnate.  Face it, along with Japan and Western Europe, we benefited greatly from having half the world unable to work productively.  Once they were free enough to start producing, our advantages had to start collapsing.  Everyone here should be smart enough to look past the political talk about getting wages up.  It's nonsense, it ain't gonna happen.  It simply cannot.  There is no way to put the genie back into the bottle.  No matter who is US President.  All we can do is tinker at the margin a little.

Do you agree that this means there will be no meaningful inflation in the U.S. for the foreseeable future?

Would you agree that such conditions would be bearish for gold and T-bills for the foreseeable future, too?

[MediumTex]

Once the Soviet Union fell apart and China got business fever, North American wages were destined to stagnate.  Face it, along with Japan and Western Europe, we benefited greatly from having half the world unable to work productively.  Once they were free enough to start producing, our advantages had to start collapsing.  Everyone here should be smart enough to look past the political talk about getting wages up.  It's nonsense, it ain't gonna happen.  It simply cannot.  There is no way to put the genie back into the bottle.  No matter who is US President.  All we can do is tinker at the margin a little.

Do you agree that this means there will be no meaningful inflation in the U.S. for the foreseeable future?

Would you agree that such conditions would be bearish for gold and T-bills for the foreseeable future, too?

The conditions are bearish for gold, but if the dollar is strengthening I want to own treasuries.

Based on what I know the central bank is going to do in the face of a strengthening dollar, I probably also want to own gold.

[MachineGhost]

It's also amazing to me how politicians seem not to grasp that when wages are stagnant inflation is never going to be a serious concern because sustained upward price movements simply create reduced overall demand if they aren't accompanied by rising wages--i.e., when people run out of money they stop spending, which pushes prices down, not up.

That's just ONE form of inflation.