The thing that most people fail to realize is that a lower corporate tax rate helps the overall enconomy and all Americans. Companies now suddenly have increased capital to spend on growth (hiring, R&D, and acquisitions).
Additionally it boost earnings which will likely increase most people's retirement accounts and stock portfolios.
Typical that I'm getting downvoted without any rebuttal.
I never understood this argument. I am a business owner. I optimize for personal profit, which is the profit from my business, with some percentage cut out for taxes. When I optimize my business profit, the tax rate is not part of the equation. If I find that hiring someone for $100k / year is a good thing to do for the long term profitably of the company, I will do that. If I need to spend $50k on a machine because it will save me $80k a year in costs, I'll do that. The tax rate is never an issue. It's just some fraction of my already optimized business income that I was able to bring in for the year. Whether that fraction is 15%, 25%, 50% etc makes no difference in any business decision I have previously made. (Unless of course the tax rate is 100%, then there would be no reason for me to work).
A corporate tax rate of 100% wouldn't have any real effect on your personal business. You could still run a business, paying yourself a handsome salary and making a good living for yourself, without ever running a business profit year-over-year.
I am also a small business owner. Agree, everyday expenses I don't evaluate against how much in taxes I am going to pay. However at public companies scale and the rule of large numbers applies. It makes a significant impact to bottom lines and profits of corporations.
I still have yet to hear any concrete ways a corporate tax hike impacts business decisions. I tried doing some research, I found this snippet that attempts to explain it:
"Therefore, when a corporation is forced to pay high amounts of income tax, the company may not be able to grow and offer employment to new employees. In fact, one of the most common ways that corporations respond to large corporate tax hikes or new types of corporate taxes is to begin to lay off workers or employees in order to cut costs and maintain profit margins."
Let's say company ABC makes lawn mowers. Corporate tax rate is 20%. They sell their lawn mowers for $200 each and cost to manufacture each unit is $150 for a $50 profit. They sell 100,000 units in a year, making $5M in profit for the year. At 20% tax, they get to keep $4 million of that. If the tax rate is suddenly bumped to 40%, then they only keep $3 million. But I don't see how that impacts any of their business decisions related to building and selling lawn mowers. Their goal is to maximize profit by building the lawn mowers as efficiently as possible and then selling as many of them at they can at some price point. Expenses and wages to do all of that are all tax deductible. The tax rate does not figure into any of these decisions. That only comes into effect at the end of the year after they've made as much profit as possible from their sales. If they respond by laying off employees, then they should have done so before the tax break, and are probably just using the tax break as an easy excuse to get rid of people they don't want working there anymore. What part of this do I have wrong?
That is the ideal but that isn't reality. The big corporations have large departments devoted to tax avoidance. Where does that saved money go? Usually distributed as dividends to shareholders, executive bonuses, or enormous bank accounts where the money does nothing (e.g. Apple).
The best way to improve the economy is put more money into the hands of normal people so that they will buy more stuff which in turn helps those businesses. Lowering or eliminating income taxes for non-rich people would help far more than a tax break for the rich which includes companies.
While some companies indeed return profits back with stock buybacks or increased divvys, lots of companies do expand and grow their hiring and R&D.
Here is the problem, without corporations and small/medium businesses this entire world that we live in ceases to exist. Jobs are what make this all possible.
Right but just giving more money to companies regardless of size doesn't create jobs. Businesses try to be as efficient as possible with their capital. Hiring people just because is inefficient. However companies will hire more people if they are unable to meet their current demand.
What is one way to increase demand? Increase the number of people who can afford the goods and services which can be accomplished far more effectively by reducing tax on the middle class and poor. If you do that businesses will have no choice but to create jobs in order to meet demand.
That's a mischaracterization of his argument. He's saying that a lower corporate tax rate would help grow companies, and the economy as a whole. We would continue to pay income and payroll taxes (which are the main source of tax income anyway), and that the benefits of a larger economy + more income/payroll tax income would offset the lowest revenue in corporate taxes.
The idea that companies hire linearly with revenue growth should be dying by now no? Is this not hacker news? We think that will continue for the foreseeable future?
Corporate revenue follows a power law distribution, and the top companies are not growing by hiring as many people as they can.
Apple earns about $1M/US employee in profit. Federal tax rate (~30%) on that number is say $300k. Payroll tax is 12.5% of salary (~100k) or $12.5k. So Apple would need to hire 12x the employees overnight to make up the tax shortfall if we suddenly halved their tax liability to $150k. That's if they actually paid the nominal tax rate (they dont).
This is all besides the fact that an inverse correlation between tax rates and economic growth is purely theoretical.
I'm not kidding, and you make a good point! I'd say that-- I really just don't have the numbers to prove this either way. Doing a quick search for "what percent of companies costs are payroll" led me to this http://smallbusiness.chron.com/percentage-business-overhead-... which suggests that 15-30% is common. But let's say a company has $100 more dollars to spend-- sure, $20 (or in Apple's case, $8.33) would go to labor. But the rest would go to other costs, which would further to grow the economy. If the company didn't feel like it needed to expand operations, then it would return its profits to it's investors/founders, who will invest it elsewhere.
The idea is that there are a lot of secondary effects of changing the tax rate, and not that payroll/income taxes would be recovered directly by one company, but that it would be recovered by the set of all companies who all are both: Receiving more money because they have a lower tax rate and receiving more money because other companies have more money to spend on them. This is also a compounding effect-- a lower tax rate might not give a benefit the first year, but as the economy benefits from compound growth, it should give a benefit in the future.
At some point the benefits of this would level out-- if it's hard to find useful ways to investment new money. Or at some point we just say "yeah, we know we could grow the economy more, but we simply need money to run the government with".
So, have we already reached the point where the benefit has leveled out? Maybe. But like, you can't deny this trend, it's just basic economics.
I also wasn't trying to argue against you, I just wanted to re-state his argument, since your previous response was just a tangent. The concept of economic growth and ideal tax rates is a different argument than how we spend our taxes, and I think that our advocacy of lower taxes as a way to increase tax income was perceived as a slight against your values.
Because I want to follow HN etiquette and stay civilized even though on HN opposing views are immendiatly squashed and silieneced without proper debate.
There was a Planet Money podcast (or similar) recently that talked about tax cuts to small/medium size businesses. They looked at a few anecdotal cases and small cuts in taxes didn't result in enough money to hire someone or spend large amounts. They just simply weren't paying a ton in tax anyways, so a cut here or there wasn't a big change.
I could ask a similar question, how many businesses would fail with a 0% tax rate. If we reduced that barrier to entry, more people would open businesses, thus creating a ton of competition, which would lead businesses to fail.
Businesses are going to fail no matter what. Sometimes it's the tax rate, sometimes it's the market, the location, the product, the employees, the manager, the owner etc etc etc.
You're getting downvoted because you pretend that a neoliberalist trope ("lower corporate tax rate helps everyone") which has been beaten to death over the past 40 years is something that "most people fail to realize".
Money that a corporation spends on hiring, buying new equipment or anything like that is completely tax deductible and always has been. Not a cent of corporate income tax has ever been paid on such things, and reducing the corporate tax rate actively DISCOURAGES such things. It encourages disinvestment in expansion, by rewarding not growing.
You really need to watch https://www.youtube.com/watch?v=bBx2Y5HhplI if you think that because corporations have to pay less in taxes that they will suddenly spend more on R&D and jobs.
Can you show any proof of this connection? If the goal is to make money then why would they spend more to expand with a lower tax rate than with a higher one?
If anything it would have the opposite affect since the R&D and the salary of new employees would be tax deductible.
Only a small percentage of companies are public and have CEOs making giant bounces off of tax cuts.
This worldview that Bernie Sanders esque people hold, where every business person is a rich multi millionaire, ignores the reality of business... where the vast majority are small and medium sized businesses.
The critique of George Bush's temporary tax credit was that it was used as bonuses rather than stimulating the economy. But a long term tax reduction is something you can actually plan for with expenditures like R&D. I've seen many people comparing the two disingenuously like they are the same. They aren't, that's not how business finance works.
There have also been a number of examples in history where reducing the tax rate has actually increased tax revenue as companies are much more productive and more capital is available to invest in industry.
The more revenue companies generate the more taxable income there is both from the company revenue and the incomes of employees they hire.
> Didn't sanders tax plan involve closing loopholes used by big companies and taxing the wealthy more heavily?
Steve Mnuchin talked about closing these by simplifying the tax code during his senate hearing. This was Ted Cruz primary pitch for his tax plan... and in general on of the staples of tax reform people on both sides of the party.
Bernie Sanders also said he would be comfortable with a 90% top tax bracket too, which completely failed when the socialist party tried to do it in France.
Regardless, the goal should be increasing tax revenue, not tax rates. And the US government already takes in a massive amount of money.
There's probably a million ways for it to be better spent and still dramatically improve the social safety nets and offer public healthcare. Yet whenever these goals are discussed it's always in the context of adding more and more spending.
And re: closing loopholes, the usual result of these efforts such as Obama's various attempts, were to add even more complexity to the tax code. There are many ways to reach a goal. Just because you want lower taxes and a dramatically simplified tax code doesn't mean I'm against social policies.
Wouldn't many such shareholders be Americans as well? Americans who could do something more productive with these payouts than the government might with taxes?
(Non-American shareholders could similarly reinvest these payouts in things which improve the global economy and, by extension, the livelihoods of Americans.)
Shareholder's are speculators, speculators speculate.
Most US public companies do not pay dividends to shareholders. An "investment" in this scenario is not an investment but speculation. You are speculating that you can convince others to pay more for my shares than I paid for them.
Sometimes a company has matured, where it's captured most of it's market and it's been around so long that it's not very innovative. A company can be good at just "doing it's thing", and that's okay. But that means that--- if there is not more of the market that a company can efficiently capture, then it's time for the shareholders to reap their ROI.
I'm sure you've seen lots of instances of failed innovation in big companies. This is a way to avoid it, and put money where it'll have better odds.
Additionally it boost earnings which will likely increase most people's retirement accounts and stock portfolios.
Typical that I'm getting downvoted without any rebuttal.