Monday, March 24, 2008

We're #1 (Almost)

In corporate tax rates among developed nations. We are working hard on catching up to Japan which is only about .3% higher than our rates. The data are shown on tables at this link.
And no one seems to understand that at less than 100% tax rate, corporations don't pay a dime in taxes. It is just a cost passed on to us the consumer.
The only reason I can see for complaining about corporate tax rates as being too low, is because they are non-human entities and can't complain. The truth is, they don't care. Yes it reduces the amount of dividend to be paid to their investors, but the consumer is always going to be paying the tax, so no big loss right?
Unless you are the consumer.


Max Bucks said...

Yes, an interesting concept that most tax zealots do not understand: Corporations are pass-through entities when it comes to certain costs, income taxes being one example, affirmative action being another.

WolfPack said...

It reminds me of a conversation in the bar I had a while back. A guy was complaining to me about the grossly excessive profits Exxon was racking up. He expected me to chime in but I told him I owned significant (for me anyway) shares of Exxon and I was more than happy with it's success. He then told me he wasn't made at the shareholders but at the F---in corporation. How do you argue with that?

Steve said...

Like you, I luckily got in at around $45 a share. I guess he's just jealous.

Anonymous said...

Exxon is a publicly held company that has been paying dividends forever. There is nothing stopping the whiners from making money off Exxon.

Mark T said...

The idea that corporations pay no taxes is a canard spread by ... corporations, of course. Since they pay no taxes, and are merely pass through entities, why do you care? Why do they care?

You fly in the face of market theory that says that producers always optimize prices. If indeed prices are optimized, then levying a tax on profits will be borne by stockholders.

And the stockholders of Exxon know this. But they have a conflict of interest, and thus look to spearchuckers like yourself to do their work for them.

I wish I had people working for me as gullible as you!

WolfPack said...

Of course corporation pay no taxes, they are paper entities, only people pay taxes. The taxes come out of pre-distributed dividends and then the dividends are taxed again after distribution. What social need is served by taxing the same income twice, once with no regard to the recipient's ability to pay and again based on their ability to pay.

Checker 6 said...

Oh go on, Mark Trotsky. You’ve missed all the best parties on the block because of your commie Puritanism. Now look at you: middle aged, still railing against the world, and thinking about retirement in a trailer park.

PS: I’m short XOM at 89. Ha ha ha…

Steve said...

Checker: You are cruel, but funny.

Mark T said...

Wolfpack - last I looked, wages and earnings of individuals were double-taxed, and dividends get off easy, with special tax rates applied, while corporations carry about only 7% of our tax burden.

What about the argument of optimum pricing? If prices are indeed optimized, then doesn't taxation affect stockholders more than customers?

And isn't that the problem - corporation aren't able to pass these costs along? Isn't that why the debate?

Steve said...

Okay Mark - could you explain to me how this works?
Take a profit of $100 for the corporation. $35 goes to the feds, and $25 goes to the state. Taking over half the profit seems closer to socialism than to good tax policy. But that aside, if the corporation wants to net $40 profit to be paid out to investors, they have to raise their prices for the consumer.
Reduce the taxes to 33% combined, and the corporation could pass on $67 to their investors, or be more competitive, and pass on the savings to the consumer. I know that you seem to believe that they would do the former, but in a competitive world, they would lose market share to those corporations that did reduce their prices.
Thereby lowering their profit, and hence their return to their investors.
Where am I wrong?

Mark T said...

You are wrong in several places.
First the details – no corporation that I know of is paying the rates of tax that you list – no state would dare tax them at 25%. Montana’s rate is 6.75%, and by the time the shell game is done wherein corporations mask profits by moving overhead into the state on the books, very little of that is paid. And few corporations pay the 35% rate – as I mentioned, corporations as a whole pay only about 7% of our tax burden – down from almost half in the 1950’s. Those corporations who find themselves actually exposed to US tax rates can pull a Halliburton – move to Dubai – not for the sake of consumers, who aren’t paying their taxes, but rather for investors, who are.

Second, you have it in your mind that corporations 1) pass on savings to consumers, and 2) arbitrarily raise prices to pass along expenses. The first is not done; the second cannot be done willy nilly in a competitive environment. If companies are charging every penny for their products that the market will bear, then they would be unable to arbitrarily raise prices. The corporate income tax captures profit at its maximized point, where corporations have squeezed the market for every last penny it will yield.

Corporations cannot arbitrarily pass expenses on to consumers, and are not merely revenue collection agencies. If that were so, by definition you would be saying that corporations are not charging what the market will bear. In that case, they are not very good at what they do.

But in fact the whole game of marketing is to squeeze the consumer for all he will give up. They are quite good at it.

Corporate taxes are levied at that point where corporations have squeezed the market for all it will yield. It is paid by investors, as it should be. No one should get a free ride.