Fortune magazine is reporting that Bush’s latest tax cut will bring the business community’s “share of the national tax burden to its lowest level in decades”:
Economists Alan Auerbach and James Poterba have shown that most of the drop between 1960 and 1985 came from declining corporate profits rather than a falling tax rate. But over the past 15 years the effective federal tax rate for big corporations has dropped sharply, from 26.5% in 1988 to 17.2% in 2003, according to think tank Citizens for Tax Justice. Thanks to loopholes and avoidance schemes, an amazing 61% of U.S. corporations paid no taxes from 1996 to 2000, according to the Government Accountability Office.
So? you may ask…isn’t this a good thing? Not according to some. Robert S. McIntyre, (pdf file) director of Citizens for Tax Justice notes:
“Currently, every dollar we add to our budget shortfall is another dollar that we have to borrow from foreigners… That in turn is another dollar that foreigners won’t use to buy our exports. But rather than cutting deficits, our lawmakers have made things worse, by giving in to pressure from loophole lobbyists and passing a bill that will add even more to our huge budget and trade shortfalls.”
But don’t take his word for it…listen to someone* who actually knows what he’s talking about here:
So who in the business world is paying? Berkshire Hathaway’s $3.3 billion tax bill last year represented about 3% of the total income tax paid by all corporations. And next year, Warren Buffett says, he hopes to pay even more. He, for one, sees higher taxes as the byproduct of a worthy goal: higher profits.
Someone* with integrity that is.
There’s actually a good argument against ANY corporate taxation:
Corporations are owned by shareholders. Shareholders get taxed twice: once when profits are taxed, and again when the profits are passed to the shareholders and reported as personal income.
Take Buffet, for example. He wants to pay higher taxes? He can if corporate taxes were abolished. The money B-H pays in corporate taxes would become profits, which would in turn flow to investors – who would then have higher incomes – and heavier tax burdens.
Weird, huh?
which would in turn flow to investors – who would then have higher incomes – and heavier tax burdens.
Not under Bush…
Scott Kirwin:
What percentage of corporate profits re passed along to shareholders via dividends and taxed as personal income? None at Berkshire Hathaway. I know. I own it. And I like that way.
Look, if I thought pressure to cut personal income taxes was to stop because corporate taxes had been reduced to zero, then I MIGHT accede to it. But it’s a shell game. Once corporate taxes are cut to zero, the Wall Street Journal editorial page will lump corporations in with the other lucky duckies.
And then we’re off to the real game: defunding my government. No!
If the double taxation is unfair (and i’m not sure that it is; after all, the same dollar is taxed again and again as it passes through the economy, both when the dollar represents sales and when the dollar represents income), then i’d think the proper (efficient?) measure would be to eliminate taxes on dividends and keep taxes on corporate income. after all, corporations are “persons” for many purposes under US law, including civl liability, criminal conduct and govt lobbying.
is it “fair” (whatever the hell that word means in the context of taxation and societal power) that a corporation’s income be untaxed? i dunno, but i think not until persuaded otherwise.
Francis
I, for one, welcome our new Sino-Overloads.
“I, for one, welcome our new Sino-Overlords.”
The coming default will hurt them more than it will hurt us. Have trust in your leaders, praktike.
I like how you snuck in that “r,” Bob.
Of course they pay huge amounts of taxes. They should. They take almost no risks. BH companies aren’t discovering new drugs or driving new technology, they sell furniture, jewelry, candy, paint, carpeting and steak.
And, oh yeah, insurance. Most of their revenue and profits come from “”float” which is money that doesn’t belong to us that we temporarily hold”*.
Don’t get me wrong. I respect BH’s results and management very much (and would own a share of stock if I could find the $50K on costs), but don’t compare what they’re doing with companies that build better medical equipment, or create software that better identifies transactions that look like terrorist money-laundering. Companies that do that are taking risks and creating stuff that benefits society. They also tend to create jobs that pay better than a busboy at a steak house.
And now, as I step off the soapbox I ask one thing. Suppose instead of spending the time and effort to create a 8,509 page tax return and paying the IRS $3.3B all that money went instead to give raises to the busboys and phone operators, furniture unloaders and paint store workers. Wouldn’t that be better for them and the economy? Would you trust Mr. Hathaway to do it?
*From BH’s 2003 annual report
I knew I’d be in the minority because I too used to think that getting rid of corporate taxes was a Republican wet-dream.
However, I got to thinking more about it, and over a period of time I began to consider it. I now think it may make sense.
One of the biggest problems with corporations, in my humble opinion, is a complete lack of objectivity. Information is the life-blood of any company, yet this precious resource is corrupted by those who are handling it. And when it comes to taxes, corruption is so endemic to the topic that it is impossible to gauge what is or isn’t taxable in any sort of objective fashion. This fact is compounded when we consider that there is little risk to a corporation to cheat on taxes. Besides, the corporate tax structure is so riddled with deductions and loopholes, courtesy of lobbyists, that it is impossible to audit a large, multi-national firm and come up with the same exact tax-bill twice.
The Corporate tax system is broken – and instead of monkeying around with it and having the lobbyists have another crack at it – why not get rid of it? Let the government get its “pound of flesh” from the individuals. Remember: Companies cannot be put in jail for tax evasion, but individuals can. There is much less corruption that will occur among millions of shareholders than at the level of the corporation they own shares in.
No more stunts like moving headquarters to Bermuda. No more branches in the Cayman Islands. The USA would in essence become the largest corporate tax-free zone on the planet.
The result? More clarity, less waste, and increased tax revenues for the state.
I don’t expect readers here to agree with me because a) I’m a “true” conservative and b) it took me awhile to be persuaded myself.
Can somebody remind me what the purpose behind giving these businesses tax breaks is again?
I mean I understand the fundamental principle behind it, but given the trends in ousourcing, layoffs and overseas relocations, are we really getting anything out of this?
I know the LEGITIMATE (got any wood?) small business set is a worthy cause, but from what I can tell, we are in a major transition period structurally speaking and it feels like we throwing dollars at ships leaving port.
They take almost no risks. BH companies aren’t discovering new drugs or driving new technology, they sell furniture, jewelry, candy, paint, carpeting and steak.
There’s plenty of risk in those businesses, Crionna. There are companies in all of them that lose money, even go broke. Do you know what the failure rate for restaurants is?
don’t compare what they’re doing with companies that build better medical equipment, or create software that better identifies transactions that look like terrorist money-laundering. Companies that do that are taking risks and creating stuff that benefits society.
Yes, software and medical equipment companies take risks too. And when they are successful the investors get a big payoff. And that’s when they pay taxes, when they make profits.
It’s incorrect to claim that BH does not “benefit society.” I like having furniture and eating at restaurants. Paint is very useful stuff, and I wish my upstairs neighbor had more carpeting. Lots of people like jewelry and candy too.
instead of spending the time and effort to create a 8,509 page tax return and paying the IRS $3.3B all that money went instead to give raises to the busboys and phone operators, furniture unloaders and paint store workers.
That wouldn’t happen. Those workers are going to get the market wage regardless of BH’s taxes. Do you think that companies that pay little tax give what they save to the janitor? They don’t.
Can somebody remind me what the purpose behind giving these businesses tax breaks is again?
It’s pork for campaign contributors. The Corporate Tax cuts recently passed were special interest, targeted cuts that are likely so byzantine to comply with no small business anywhere will benefit. Which is why I’ll join the chorus for the complete elimination of Corporate taxes.
I’m not quite sure why Edward would rather Corporations be taxed more – to expect anything less that further sluggish employment growth would be completely naive. Berkshire Hathaway may not care as they are a holding company, and probably has a smaller number of employees versus their revenues and profits than most comparably sized companies.
I mean I understand the fundamental principle behind it, but given the trends in ousourcing, layoffs and overseas relocations, are we really getting anything out of this?
Lower costs of doing business in the United States can lead to insourcing for foreign products and services sold within the country.
“I’m not quite sure why Edward would rather Corporations be taxed more”
Regardless of my view of the value of corporate taxes, I don’t think companies should be negatively taxed and I don’t think the tax code should allow many companies to avoid taxes entirely while other companies can’t or won’t.
I’m not quite sure why Edward would rather Corporations be taxed more
More? Define “more.” I’d rather they not have all the loop holes and unfair tax breaks. If taxed at all, they should be taxed fairly.
So the question as I see it becomes should corporations be taxed at all, given that they’re owned by individuals who pay tax on their individual incomes from the corporations.
My answer here is yes.
Regardless of how much profit they make–and hence how much tax their stockholders would pay on that profit, corporations make use of (and arguably control via lobbying and political contributions) the systems our tax dollars fund, such as (as George Lakoff put it):
Of course! And I don’t see any logical reason why shareholders shouldn’t bear that tax burden exclusively, given that they are the ones who own and control the company making use of all of those public goods.
I’m not following you Jonas.
I didn’t suggest shareholders should bear the tax burden exclusively. I argued that if corporations are taxed, and then explained why I believe the should be, they should be taxed fairly.
Other entities and individuals also use those systems and should also pay for that use.
Not sure I’m following you here.
Why don’t we tax unions?
Aren’t Unions not-for-profits?
Bernard, I thought we were talking about tax BREAKS, meaning breaks given to business so that they may lower their tax burden so that they may pay for the more risky/difficult/valuable work that they do.
I’m not saying that BH’s businesses aren’t valuable to society (although one less of each* in the world, who would really miss them?), nor that they aren’t somewhat risky, although less so when you know what you’re doing as BH clearly does.
My point is not that businesses shouldn’t pay taxes when profitable, rather that tax breaks shouldn’t go to BH but should go to Amgen or whatever company is working to create a better bomb-detector. So, its no surprise that BH pays a lot of taxes. They should.
You tell me what’s both more risky and valuable to society, the opening of another steakhouse or the attempt to find an AIDS vaccine? It isn’t even close in my mind. Therefore, yeah, BH should get no breaks while others should, no greed involved, just the government doing what it does to us, rewarding through tax-breaks behavior they/we prefer.
Those workers are going to get the market wage regardless of BH’s taxes. So Mr. Buffett isn’t the humanitarian we think he is? 😉 Still, given his businesses place in their markets, wouldn’t his raising salaries have an increasing effect on the market wage?
Do you think that companies that pay little tax give what they save to the janitor? They don’t. My question wasn’t about “companies” it was about BH which had been held up as an example of good. I mean if they would do it, perhaps others would and we could figure out how to make it happen. I’ll just put you in the “Now Way” column yes?
*Except See’s. I’d miss my Toffeettes
er No way column.
Apologies, that’s what I’m suggesting. Makes more sense to leave corporations untaxed and tax the individuals who own it commensurate with the benefits you outlined previously. I prefer this because tax policy winds up making corporations do so completely counterproductive and odd things just to avoid taxes. I’d rather that business went undistorted, and individuals can exclusively play the tax-loophole game – although I’d like to see that simplified to the point where it’s not possible.
(For instance, I was doing some research about job training tax breaks in Connecticut. Turns out I could save more money convincing potential employees to go on welfare first, then join my company for job training than merely offering it to employees. It’s insane.)
OK, Jonas, but I’m a bit fuzzy on the details.
No corporate taxes to avoid the shenanigans that will inevitably ensure. Got it. Tax instead those shareholders who see a profit. Corporations that don’t make a profit will die of their own accord, yes, but they’ll still consume those tax-funded systems before they do, no? Who pays for that?
It’s insane
C’mon Jonas, you know that the spirit of that is to get you to hire and train people off the welfare rolls. Is there a specific amount of time that the hiree had to be on welfare to qualify?
The difficuly Jonas is that I as a shareholder could vote that my company never offer a dividend and use the profit internally to grow the company, hopefully increasing its value. Then, I think that I would be able to borrow against the value of the stock to buy a yacht (for which I would pay sales tax, but not income tax). In fact, I could then claim the yacht as a second home (as long as it had a head and a stove, and, pshaw, what true yaht doesn’t?:) and deduct the interest on the loan I took out.
Crionna,
Will you be my accountant? Please!
Crionna,
It wasn’t made clear how long they had to be on welfare. I was just annoyed that even though I could hire, let’s say, a single-mother who is a high-school dropout and give her job training, I’m getting less if she managed to stay off welfare.
I worry about the unintended consequences of that. I’m veering off-topic here, but I’d like to see what is currently welfare broken up into seperate, anti-poverty programs. There’s no reason why people should have to choose between welfare with free childcare and working without it. I stand by my previous assertion – it’s all insane.
Ah, you are right, that is a good loophole. Which brings us back to Edwards question:
All of us, I guess, and that doesn’t bother me much. A person pays for the FAA regardless of whether they get on a plane, pays for restaurant inspection even if they never eat out. This is only because I’m placing the competitiveness of the economy here as the #1 priority.
“Corporations that don’t make a profit will die of their own accord, yes, but they’ll still consume those tax-funded systems before they do, no? Who pays for that?”
Companies which don’t make a profit don’t pay taxes now.
“The difficuly Jonas is that I as a shareholder could vote that my company never offer a dividend and use the profit internally to grow the company, hopefully increasing its value.”
First of all, a lot of the reason companies cut back on dividends is because of the way the tax structure has changed to value dividends in the past decades.
Second, if the profit isn’t being paid to employees (taxed) and isn’t being paid to stockholders (taxed) and isn’t being used to buy stuff (taxed), what is the ‘increasing value’ that you are talking about? Stock prices for instruments that are bought, sold and taxed?
“Why don’t we tax unions?
Posted by: Sebastian Holsclaw | October 26, 2004 05:14 PM”
Trust S.H. conservatarian knee to jerk reflexively, before considering whether he’s ever heard a headline like: “shares of SEIU fell 2% after contract negotiations ended..”
“What percentage of corporate profits re passed along to shareholders via dividends and taxed as personal income? None at Berkshire Hathaway. I know. I own it. And I like that way.”
There’s an agent/principal argument against the so-called double taxation, which is that taxation of dividends encourages companies to retain earnings rather than distribute them as dividends. So cash generated by profitable operations is more likely to be squandered on value-destroying new ventures or M&As, instead of returned to shareholders for reinvestment. I believe Buffett has made this argument.
Of course, if you made such a change, then you’d want to make it revenue-neutral, as further deficits would put us even further in the hole as far as national savings rates go.
what is the ‘increasing value’ that you are talking about?
There’s a sales tax on a hostile takeover? 😉
What if that “stuff” is another company? I think that the seller pays any tax there, not the purchasing company whose value just increased and of which I hold now more valuable stock.
Ur.S.A.: Yes, Buffet has made this argument. But I’m happy to let Berkshire Hathaway keep all that money and reinvest it as they see fit. I trust Buffet. Enron, on the other hand, should have liquidated at full market value when the going was good.
Sebastian: Tax Unions? Hey, churches, too. At least a nuisance tax on big, ugly buildings.
Crionna: Berkshire Hathaway should pay their taxes and pay their employees more, especially at Dairy Queen and some of the other businesses. I’ll write him and suggest it. You know, you can be a businessman and a Democrat at the same time, without qualifing as humanitarian. Additionally, word has it that Buffet may be looking at pharmaceutical companies with an eye towards taking some stakes. Because the prices are finally at what he deems to be reasonable values.
He’s happy to invest in risk at the right price.
Scott Kerwin: I agree with much of what you wrote. But, why not close the offshore loopholes? Or better, corporations should stop avoiding taxes. Because it’s the right thing to do. What? They don’t want to fund a victory in Iraq? What’s with that?
Also, we should ask ourselves why corruption seems to exist so prevalently in business (on a relative basis. Who told these folks taxes were bad and should be avoided by questionable means?
Their mothers? Some guys at a tea party 230 years ago? You can tell even they were ashamed because they dressed up like Indians to avoid detection.
Pay your taxes!
You know what I hate? Paying for food. But I do it anyway.
Also, Crionna:
You make a superb point in reference to cutting or eliminating corporate taxes. Would this be passed on to shareholders, employees and other stakeholders? Maybe in Buffet’s case, though I’m skeptical. At Enron, Jeffrey Skilling would have lined his swimming pool with chinchilla.
I doubt anyone else would see any of this money.[
That “[” at the end of my last post was the universal symbol for “John Thullen had one too many beers”.
My question on why we don’t tax unions was serious. I thought a discussion on non-taxation of people working together for a common purpose to make more money might be fruitful regarding whether or not we should have a separate corporate tax.
I thought a discussion on non-taxation of people working together for a common purpose to make more money…
If corporations weren’t legally considered entities unto themselves, you might have a point; absent a change in the relevant Supreme Court ruling, though, you’re talking apples to oranges.
[There are other reasons why unions and corporations are fundamentally dissimilar, but I think the individual entity/collective unit distinction is most relevant for the nonce.]
John
You might be amused to learn that I am the founder of the IT Professionals Association of America – a group of 570+ that has been fighting offshoring, labor dumping (through non-immigrant visas like H-1b/L-1 as well as illegal alien amnesties), and corporate abuses that cost people’s livelihoods for over a year now. Puhleez don’t confuse my remarks against corporate taxation with outsourcing.
Corporations are amoral by design (NOT immoral – Amoral), and will never do anything “because it’s the right thing to do.” They will test the limits of legality, push moral boundaries, and in general to whatever they can in the pursuit of one goal: profitability. They will obfuscate whenever possible in order to avoid taxes – which eat into profits, and given the complexity of corporate tax laws, they get away with it.
So my point is to chuck the whole system. Let the corporations pursue profit – and then nail the shareholders when the profits are parceled out.
Possible losers in this scenario: entire levels of accounting and auditing bureaucracies within companies. Tax lawyers. Oh, and the many non-profit entities who benefit from corporate donations – ballet companies to zoos. However the slack could be taken up by individuals.
I don’t agree that taxes area “national burden”. How they are being spent may be an outrage, depending on one’s priorities, but governments need revenue to provide services.
NPR this morning pointed out that the tax cuts of 2001 and 2003 effectively forced local governments to raise property taxes everywhere. Local governments get less funds/aid from federal govt than they ever did. But poor districts can raise less taxes than rich districts, so the property tax rates in poor districts is actually higher than in rich districts to offset that.
[sarcasm] So, it makes sense to move into a small property (if you can find one) in a rich neighborhood. You’ll get better roads, schools, police service. Oh, what, you can’t afford the property? What’s the matter with you — didn’t you invest your tax cut in the boom stock market? Shame![/sarcam]
Scott Kerwin: I reread my post from last night and can’t find specific reference to confusing outsourcing jobs with your views on corporate taxation. By “offshore loopholes”, I meant money, accounting, and domicile issues. But it’s my bad anyway because I’m sarcastic. If you mean I find your activities amusing, as in “ironic”, not at all. Go for it.
I know opening the whole “moral/immoral” thing makes Milton Friedman get his rationality into a twist and I never hope to win that argument, but I have one word for “amoral”. Krupp. DESIGN flaw. That’s three words. It comforts no one that Krupp (for example) acted immorally because they thought they were designed to act amorally.
I know, too, that I shouldn’t bring up the political dimension of the matter, by which I mean I’m lectured by certain people that there are moral absolutes, so there. And then the same people (not you) lecture me that we must design an amoral haven for corporations because, look, everthing’s relative.
I’m certainly aware, too, that corporations are “amoral” by DESIGN. And, that they do what they do because .. they do what they do. Like I do. Except I don’t. By design. I pay my taxes and would be happy to see loopholes closed. Except for the fact that then too many folks would be up in arms about paying more taxes. By design, even though they think they were born hating taxes. Sarcastic me, here we go again. 😉
Thought experiment: We force corporations who pollute to bear the cost of cleaning up their messes, which I’m certainly aware are messes made in pursuit of good things. Still, a mess is a mess and cleaning them up is a public good, or moral if you wish. A few corporations don’t like the cost so they sneaky-pete the pollutants down to the local stream at night, usually in barrels for some reason. Perhaps we could solve this problem with amoral polluting the same way we solve the problem of amoral tax avoidance. Get rid of all pollution compliance laws for corporations and let them distribute their pollutants to their shareholders and employees. Then government can go after the individuals for pollution enforcement. Which they do anyway (double pollution enforcement) through taxes to force the amoral corporations to comply with the law and to clean up the local stream polluted by a few other amoral corporations, which I realize are merely voluntary collections of individuals who act morally or immorally under the shield of amorality.
It’s all very confusing (and I’m certainly no help), which is why your instinct to simplify seems very tempting. I’m just saying a majority of individuals may decide they like pollution better than personally paying for properly (too many p’s there) disposing of it
and personally paying for it. Because they’ll decide that amorality saves them money. Or something.
Sebastian: Sorry, I wasn’t trying to stop discussion. But let’s do tax unions and churches. That is my argument. I just thought your instincts for taxing as little as possible (I know you are a reasonable individual) should be countered first by my instincts to tax as much as possible (I’m reasonable, too). Then everyone else can crowd into the middle between the goalposts, where the discussion should go. In my opinion.
Please tax each word in this verbose and sophistical comment and either supply the troops or pay off the deficit.
“personally paying for it”. We can’t have that written twice. That would be triple pollution enforcement.
“If corporations weren’t legally considered entities unto themselves, you might have a point; absent a change in the relevant Supreme Court ruling, though, you’re talking apples to oranges.”
I don’t understand. Are unions not considered legal entities? How do they raise money through dues? How do they collectively bargain. How do they get sued? I’m comparing one legal fiction of calling a group of people working together for a common cause an ‘entity’ to another legal ficition of calling a group of people working together for a common cause an ‘entity’.
John
No offense has been taken by this thread at all. I thought you would find my position ironic considering the populist nature of my “offspring”.
“For every complex problem there is an easy solution, and it’s wrong.” Was that Perot or Mencken?
However in this case the system is beyond mending and is rapidly collapsing under its own weight. Corporations move their “headquarters” offshore to Bermuda. They move money between subsidiaries, some located in islands that just happen to be tax havens. Armies of lawyers and lobbyists are employed to shoot any type of corporate tax reform down or at least, fill it with loopholes. It seems you eventually reach a point where you just got a say, “the hell with it” and start all over.
Likely? Nope. I doubt I’ll see it in my lifetime. However the first step is realizing there is a problem, and that our solutions to that problem may in fact only make things worse.