Corporations: "Tax-es? What Are These Things You Call Tax-es?"

Hope you enjoyed your tax burden this year, because you’re helping carry the weight of loophole-savvy corporations that enjoy many of the legal benefits of real, live human citizens, but exist in a weird, semi-tax-free world.

A 2004 U.S. Government Accountability Office (GAO) study found that 61% of American corporations, including 39% of large companies, paid no corporate income taxes between 1996 and 2000. Last year, corporations shouldered just 14.4% of the total U.S. tax burden, compared with about 50% in 1940.

Stats from the Congressional Budget Office show a trend toward individual citizens paying more in the years to come, and corporate “citizens” paying even less:

The tax burden on individuals is expected to climb from $1.16 trillion in 2007 to $1.21 trillion this year, according to the Congressional Budget Office (CBO), while corporate tax receipts are expected to decline from $370 billion to $364 billion. By 2013, the CBO estimates, ordinary taxpayers’ bills may climb to $1.86 trillion while corporate tax bills drop to $327 billion.

“Are You Paying For Corporate Fat Cats?” [Parade] (Thanks to Michael!)
(Photo: danperry.com)

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  1. cheviot says:

    Remember Voodoo economics and Reaganomics? That’s where this problem came from. The idea that cutting taxes to corporations would allow the wealth to trickle down do the ranks. Instead, all it’s done is allow corporations to get richer while the middle class has nearly disappeared.

    1.2 billion in taxes were paid by individual taxpayers last year. 300 million were paid by corporations. Before Reganomics it was the other way around.

  2. MyCokesBiggerThanYours says:

    Its extremely ignorant to hate corporations. Who’s going to provide jobs and pay for your health care. Just because corporations can find ways to say on income taxes, it doesn mean that they aren’t paying SDI and other social service providing taxes. I swear, you people would cut off your own head to cure a headache. Maybe you should do that. Just after you take your Prozac.

  3. MyCokesBiggerThanYours says:

    @cheviot: What taxes are you talking about? Do you even know? Income taxes? SDI? Real estate and property taxes? Sales tax?

  4. TheUncleBob says:

    Corporations will never pay taxes – I don’t care what laws the idiots in Washington pass.

    If you slap a 50% tax on a company, their products are going to go up by 50% – and the consumers end up paying the tax anyway. Basically, you end up turning the corporation into a tax collector for the government.

    I highly suggest reading Neal Boortz and John Linder’s book about the FairTax.

  5. ConsumptionJunkie says:

    It’s the taxpayers who bail out corporations when they fail. The latest example is the massive bailout of Bear Sterns.

    If you are not happy with this, then you should elect politicians who are accountable to the people. No corporation has a vote. It’s the American people who voted for representatives that support fascist corporations.

  6. hegemonyhog says:

    @TheUncleBob:

    The FairTax book is fantastic.

    Well, if by “fantastic” we mean “steaming pile of crap”.

    The funny part about that fact of passed-on taxation? It’s not passed on. In fact, it can’t be.

    Corporate income taxation is based on net profits. Ergo, their raising the prices (and, within the elasticity for a given item) would either a.) increase their taxes given constant production and sales or b.) reduce their tax burden by virtue of reducing their profits when sales fall.

    But the burden cannot be “passed on” as you say. The tax is levied on post-sale income once business costs are removed – including money from profits reinvested into the company’s operations. Suppose that sales from a company’s product equal one million dollars. Cost of operations equals $850,000. Net profit equals $150,000 and their effective tax rate is 20% – making their final tax payment $30,000. Even if this “lost” $30,000 is passed on to consumers (which it’s not), that just increases the next year’s tax burden. It makes absolutely no sense to “pass the burden on”.

    The FairTax is also a gigantic sham, but that’s another topic altogether.

  7. f3rg says:

    @TheUncleBob: I agree with this entire statement. Thanks for saving me the effort.

  8. ironchef says:

    @MyCokesBiggerThanYours:

    give it a rest. Corporations got away with murder by being able to expatriate their earnings and avoid paying anything.

    I thought it was quite funny that Haliburton decided to open a new headquarters in Dubai…making it really easy to avoid paying any tax.

  9. 1SQ says:

    I’m not sure that hiking corporate taxation would produce the desired results. It would be awesome if big companies reduced their obscene executive compensation packages in order to pay more taxes, but we all know that will never happen. They will probably pull a “Circuit City” and get rid of everyone who provides quality products and services to consumers.
    Second, taxes would impose an extra expense that could drive marginal companies out of business, increasing the market power of those remaining– leading to higher prices and less quality.
    Simplification of the tax code, which would reduce the potential for abuse, would probably provide better results. Getting more taxes from companies does not help us at all– getting more from CEOs would.

  10. krakbuste says:

    omg….you people are idiots. Plain and simple. Halliburton remains a US C Corporation, its corp headquaters are in Dubai, genius. stop reading the Dem Underground and try Financial Times.

    US Corporate tax rate is 35% for C Corps. We are 2nd highest of industrialized nations in the world (Japan is #1). What the hell are you people talking about?

    BTW…80% of corporations are classified as “small business corps” or S-Corps which employ greater than 70% of the workforce in the United States. Are they “fat cats” too?

    go read a book and turn of the TV you morons.

  11. ironchef says:

    @krakbuste:

    [www.marketwatch.com]

    March 13, 2007 (CBS Marketwatch) Halliburton Co.’s decision to relocate its chief executive and corporate headquarters to Dubai has scratched one of Congress’ most sensitive sore spots — suspicion that U.S. corporations are restructuring their operations to shirk domestic taxes.

    Why?…

    Some tax shelters are questionable or even illegal:
    Offshore companies. By transferring funds to a company in another country, one may claim the transfer as an expense, and thus lowering the taxable income. Difficulties in international tax treaties often make the income not legally taxable.

    Financing arrangements. By paying unreasonably high interest rates to a related party, one may severely reduce the income of an investment (or even create a loss), but create a massive capital gain when one withdraws the investment. The tax benefit derives from the fact that capital gains are taxed at a lower rate than the normal investment income such as interest or dividend.

    [en.wikipedia.org]

    [www.csmonitor.com]

    [www.csmonitor.com]

    Dubai Tax Shelters

    [www.shelteroffshore.com]

  12. krakbuste says:

    Ummm….to go offshore doesn’t mean skirting taxes. Sorry guy, placing links to tax shelters next to an evil oil (services) company means nothing.

    As long as income is being reported, then there is no issue, with regards to tax law.

    And you examples are TAX AVOIDANCE or EVASION, which are punishable by law. One has nothing to do with the other.

    I noticed how you skipped all that other info about the 35% rate?

    Should I link to irs.gov ?

    Nah, that would be a waste of time. I mean a Wiki link to tax shelters, wow, that’s damning.

    Hehe.

  13. alice_bunnie says:

    Where do you think that corporations get the money to pay their taxes??? From it’s customers. So in the long run, corporate taxes are a burden on the little people anyway. They just pass that cost on to you.

  14. BStu says:

    And yet, some argue against capitol gains taxes as being “double” taxation since it was already taxes as corporate earnings.

    Yeah, how is that working out again?

  15. ironchef says:

    @krakbuste:
    You seem to gloss over the fact on the article…

    61% of American corporations, including 39% of large companies, paid no corporate income taxes between 1996 and 2000. Last year, corporations shouldered just 14.4% of the total U.S. tax burden, compared with about 50% in 1940.

    Your 35% rate means jack squat. Clever accounting, tax shelters, and offshore headquarters aren’t in the arsenal of the average american taxpayer. Why don’t you try rooting for the working guy for once?

  16. jefffromNY says:

    Close loopholes, lower the top rate to 25%. It just makes sense. But the Dems would never ever lower taxes, and the GOP woon’t close loopholes.

  17. nequam says:

    @krakbuste: The effective tax rate is what matters. Halliburton’s effective tax rate is in the low 20%s. From HB’s Q4 2007 conference call: “Our fourth quarter rate was also favorably impacted by foreign tax credits that we had not previously thought could be fully utilized.”

    Oh, BTW, Financial Times had a piece within the last year, in which an observer predicted that Halliburton’s Dubai moves would lead to its claiming the very foreign tax credits reflected in its Q4 results.

    The foreign tax credits affect HB’s US taxes because, in order to claim those tax credits, the income must be claimed in another country. This means the income is not claimed in the US. The reason the credits could not “previously [be] fully utilized,” was because previously the same income would be US-reported.

    There, I just responded to your “you people are idiots” comment with facts (oh, those stubborn things!) and backed up my points with Halliburton’s own words and the very publication you demanded we read.

    In other words, on behalf of ironchef and others … Eat shit!

  18. ironchef says:

    @nequam:

    Good work. Well said!

  19. nequam says:

    @ironchef: Right back at ya!

  20. barty says:

    @TheUncleBob: You are 100% correct. Businesses view taxes as another cost and one way or another, the individual is who ends up paying them. Either through higher prices, lower wages, fewer jobs (taxes are what most businesses cite as their #1 reason for offshoring jobs, food for thought) and/or inferior quality products.

    So go ahead and put a Socialist-Democrat into office who will jack up taxes on ‘evil’ businesses and see what happens.

  21. nequam says:

    @barty: Read hegemonyhog‘s comment. It’s succinct and explains why corporations cannot effectively pass on their taxes to their customers.

  22. z4ce says:

    Corporate taxes are silly. At the end of the day, only people pay taxes. People own corporations. Under the current system, profit that is distributed to share holders should only be taxed as income to the shareholder. It also has the odd side-effect of encouraging corporations to issue debt instead of equity. See the Modigliana and Miller Theorem.

    All the current corporate income tax system currently does is give corporate interest in sheltering their monies offshore. By eleminating corporate income taxes we could bring all of the “Switzerland” style banking (and dollars) right back to the good old USA.

  23. civicmon says:

    @BStu: Capital gains are an indirect double-tax since the gain is in the perceived value of the investment.

    If Exxon goes up $20 tomorrow, I made $20. Doesn’t mean the company is going to earn more proportionally, it means that was the going rate for the share at the close that day. This is a simplistic example since the $20 gain could be due to a realistic expectation but it doesn’t instantly mean the company is worth $20 * in a real value if liquidated/parted out.

    Share prices, in this case, have little intrinsic value – a share is only worth what someone will pay for it and absolutely nothing more. Of course there is a company backing that share, but as we saw with Enron and Bear Stearns, doesn’t matter how much the stock is worth.. it’s instantly worthless w/o a buyer.

    Thinking otherwise is a fallacy. Anyone trading a Wilshire 5000 stock should have no problem selling their shares on the open market with the internet and trading networks these days. Thinking that you can just as easily sell shares in a supermarket chain in Angola is unrealistic as well.

  24. Trai_Dep says:

    Love the wilted logic that some commentators get, presumably off the Freeper sites:

    * You can’t tax companies since they’ll simply raise their prices, thus consumers end up paying.

    * You can’t tax individuals, since they’ll demand higher wages to offset their income taxes, thus corporations end up paying.

    -> Since you can’t tax individuals or corporations, we’ll fund public initiatives by taxing frolicking puppies and unicorns.

    Geezus, guys. Take a freaken Economics course at your local community college. Or move to a cave on some island somewhere? Please?

  25. FrankReality says:

    My understanding is that some US companies are moving their headquarters overseas is because of the disparity of US tax law.

    US based companies pay income taxes to the US government not just on the income generated in the US, but on the worldwide income generated by the company. The US is one of the few countries that do that.

    Most other countries tax the companies based in their countries only on the income generated in their country. Companies based elsewhere pay US taxes only on the income they generate in the US.

    The net here is to encourage corporations to move their headquarters and incorporation to elsewhere.

  26. lonewolf333 says:

    Please for the love of God, No more Cat pictures.

  27. Suttin says:

    How about we raise the tax on the rich, because seriously, who needs 40 million dollars a year to live and it barely get taxed?

  28. chrylis says:

    @z4ce: This is exactly the point that most careless corporation-bashers miss. A corporation isn’t some nebulous entity that just exists out there with an independent existence (except nonprofits, which are another matter entirely). A corporation is a business that is owned by its shareholders–if not you and me directly through stock ownership, then indirectly through mutual funds or retirement plans.

    This is the reason for the (completely legitimate) claim that taxing dividends is double taxation–the corporation pays income tax of 35% on its profits (again, obscenely high; in the EU it’s about 12-15%), and then when the corporation sends that money to its shareholders, they have to turn around and pay taxes on it again. A business can alleviate this problem by becoming an “S” corporation (where the corporation doesn’t pay any income tax itself, but the shareholders add their shares of the profits to their own tax returns as ordinary income), but since this means foreign stockholders would get away without paying tax, S corporations are limited to domestic shareholders.

    @Suttin: FYI, from IRS statistics: For 2005 (the most recent year available), the top 1% of taxpayers collectively paid 40% of all personal income tax, and that share has been steadily increasing. These taxpayers aren’t making $40 million each; the mean AGI here is $1.2 million.

  29. Conan the Electrician says:

    Corporations are ultimately owned by people. If the corporations can’t pass on the higher taxes (which they usually can since a corporate tax increase affects everyone the same way and increases costs across the board, despite the idiotic example above), the people who are hurt by the taxes are shareholders and bondholders. Shareholders and bondholders are not just rich people, but also poorer people who own pension funds, life insurance accumulated accounts, bank accounts (usually invested in corporate bonds), etc. They are school endowments, charitable endowments, and government funds.

    And the reason some corporations pay no taxes is because they make no profits. Smaller corporations tend to lose money. For large profitable corporations, the usual way to lower profits is to reinvest in equipment and wages. If a corporation earns $10 million in profit but then spends that on a business expansion with equipment and wages for new employees, then they pay no tax because they have no net profit. This encourages investment and job creation, which is what everyone wants.

  30. Conan the Electrician says:

    Nice, good to see that @chrylis had the same point. Jinx.

  31. Conan the Electrician says:

    In 2007, according to the IRS the top 1% earned 21% of the nation’s income but paid 39% of income taxes. This means that the top 1% paid more taxes than the bottom 90% of the population. That’s the reality.

    [taxprof.typepad.com]

  32. chrylis says:

    @dabusdriver: Minor note to anyone who sees both our posts: dabusdriver’s referring to the most recent preliminary results (which probably won’t change substantially but may have some minor corrections); the link I posted is to the most recent final audited results.

  33. Astos says:

    I like the fat cat symbolism of the picture and the corporations.

    On a different tact, the corporations will be taxed through the earnings of the shareholders.

    Astos Green lasers rulz

  34. doctor_cos wants you to remain calm says:

    @Astos: Ahh, yes, the shareholders pay taxes. At a rate far less than the workers pay.

    But it’s “fair” no?

  35. mac-phisto says:

    no income tax for corporations? what a great idea! let me know when it happens – i’ll file my corporation papers.

  36. Angryrider says:

    This is why I love America!

  37. RandomZero says:

    It still seems like a lot of people are missing the point here – most of these companies did not pay their taxes for a number of years. It doesn’t matter if their effective tax rate is 20% or 35% or 1% or 100%, if they’re paying $0.

    That said, maybe this is just my evil socialist Canadian perspective, but 35% hardly seems like a raw deal to me. By comparison, the marginal tax rates in my province can hit as high as 46.5%, and the threshhold for that is far lower than the incomes we’re talking about here – you hit that before making 7 figures, and you’re already over 40% before you hit 6 figures.

    It’s also worth noting that the numbers being bandied abuot re: what percentage of the population pays what share of the taxes COMPLETELY IGNORE the effective burden. My boss, for example, is above the 40% mark. 60% of his income (approx. $72000) goes a hell of a lot further than 75% of mine (approx $23000). The effective burden of an extra few hundred dollars is wildly disproportionate – to me, that could be a month’s rent; to him, it’s a few extra frills. Arguments for “fairness” that assume a dollar is equal in the hands of the poor and rich are inherently flawed.

  38. barty says:

    @nequam: Well damn. I guess my finance education was just totally worthless then.

    Though it is true that corporations are taxed on net income, the look at the tax bill as a cost on next quarter or year’s ledger. It gets rolled back into the price of the goods any way you look at it. His explanation exposes that he knows little to nothing about finance. If you look on an income statement for any publicly traded company, taxes from last year are subtracted from gross revenues immediately after EBIT (Earnings Before Interest and Taxes for the less informed) and only then is net income calculated. So with that in mind, don’t you think that those analysts will take taxes into consideration when they’re determining profit numbers for the year?

  39. sassypizzazz says:

    To all the “double tax” posters:
    Everything is double taxed!!!!! Your earnings are taxed. You use that taxed income to buy goods and pay a sales tax on those goods. If you own a home, you’re using taxed income to pay your mortgage AND you pay a property tax every year. For cars, it’s even worse! You buy a car (with money that has already been taxed) then pay a sales tax followed by yearly property taxes for as long as you own the car. There may be different names for these taxes (income, sales, property) but they are still taxes all the same.

  40. Conan the Electrician says:

    @RandomZero, nobody says the rich and the poor should pay the same dollar amount of taxes. But even with taxing the same percentage of income, the argument for taxing the rich more because they have less marginal utility for money is inherently flawed. Even assuming that you can truly measure marginal utility between people (impossible) and correctly get 15% as the optimal difference in tax rate (far fetched), different levels of income are not the only factor impacting tax burden.

    The effective burden of taxes is higher when a person has less money saved. Your $72k boss might need the money more than you if he has no savings and you have $200k in home equity. So why don’t we tax people more when they have savings, even if they earn the same amount as someone with no savings.

    Young people could use money much more than old people. Young people have half a decade ahead of them and usually have greater utility for money as they can invest it longer and buy it on things that they use longer. So let’s have different rates for age.

    Not to mention cost of living differences. Let’s have the top rate be 25% in New York and 40% in Iowa since money goes farther in Iowa.

  41. z4ce says:

    What is funny is that marginal utility is exactly why CEO compensation is so high. If I am a CEO of a company doing fan-tastic and some company in the doldrums wants me to take over.. they are going to have to offer me a substantial amount of money to make that worth while.

  42. RandomZero says:

    @dabusdriver: I’m not saying you can effectively measure marginal utility. We’ll figure that out right after ethical calculus becomes more thean a gedankenexperiment. I was merely saying that it exists as a variable; any argument that ignores it entirely (effectively setting it to 0) is just as flawed as any one that sets a specific value on it.

    As for the numbers I was tossing out: That 15% difference isn’t an ideal, it’s an approximation of the actual income tax brackets we’re in and our after-tax dollar amounts. He just recently hit about $120k a year, which places him at just over 41% income tax; I’m making $30k, placing me at a hair over 23%. This is why ten-figure incomes being taxed at 35% doesn’t sound so harsh to me.

  43. mac-phisto says:

    @dabusdriver: there are already many precedents of taxing “marginal utility” though, so what you are suggesting (or rather what randomzero is suggesting & you are debating) is not outlandish. luxury items are taxed at a different rate than necessities. retirement income is tax-deferred to be taxed a different (presumably lower) rate sometime in the future. properties are taxed based on their marginal utility (developed land is taxed higher than empty land, “living space” is taxed higher than, say, a basement, in commercial property, sales space is often the only square footage taxed or it is taxed higher than storage space, & in industry, manufacturing equipment is taxed at a higher rate than dead space).

    also, tax deductions are based on this very premise. income spent on mortgage interest, charitable donations, education, medical expenses etc., etc. are all non-taxable b/c of their marginal utility.

    using the framework of our current system of taxation, there’s plenty to argue taxing the rich at a much higher rate & forcing them to prove their marginal utility.

    or, let’s eliminate marginal utility all together – how’s that? seems much more outlandish to me.

  44. jeffjohnvol says:

    I think the majority of corporations are titled “S corp” compared to “C corp”. My company is an S corp which means any tax income after expenses goes to my personal SSN. So my corporation doesn’t pay the taxes, I do. I wonder if this is the reason.

  45. humphrmi says:

    I’m just thinking out loud here, but did anyone else notice that the time period for the report ended eight years ago? And the study was published four years ago?

    I’m suspicious of any article that has to quote a four-year-old GAO study to make its point.

    Yeah, maybe the data is the same or worse now – so why don’t they use a more current report? It seems like there’s something hiding here.

  46. Snowblind says:

    @ironchef:

    Get out the dictionary, look up “suspicion”

    I think you will find you cannot support your claim they are doing it, because it is only a suspicion.

    @Astos:

    No, if you take it as income, you pay it at the same rate as income, which includes, you know, workers.

    Unless it is in a tax sheltered investment, like a 401K or IRA, etc.

    Lastly, take a look at your pay stub. In addition to a payroll tax, they also match the SSI/SDI Medicare taxes to the government.

    They pay taxes, but they don’t pay income tax. No properly run business does, because the incentive is to take the profit and invest it, rather than disperse it and pay taxes on it.

  47. Conan the Electrician says:

    Marginal utility is useful when you are taxing different things. Taxing yachts more than cars, for example. But income is income. I am fine with taxing sales income differently from manufacturing income, but that’s not the case here. The analogous example would be to tax a $40k car at 20% sales tax and a $20k car at 10% sales tax, regardless of what kind of car or what the car will be used for.

    And since marginal utility is so important, let’s get back to my other examples. Obviously, people who have savings need income less. So do people who are old or live in cheap states. But we’re taxing those people at the same rate and effectively setting the marginal utility for age, savings and cost of living to zero. Why are you ignoring marginal utility there? Pretty flawed if we follow your logic.

  48. Conan the Electrician says:

    Let’s take the marginal utility argument in another context. Say that you go to a restaurant with ten friends. When you split the bill, do insist that your friends with more money/income (i.e., less marginal utility for money) pay a greater tip percentage and twice their share? They can certainly afford to. Obviously not because that would be perceived as unfair, and you want to keep your friends.

    The alternative argument is that rich people use more government services so they should pay more, but that is a completely different point of the richer-have-less-marginal-utility argument. It also argues for taxing wealth (savings) rather than income.

  49. RandomZero says:

    I don’t believe I’ve expressed myself well, and I apologize for that. I’m not saying the system is not flawed as it stands, in Canada or the US – I don’t think anybody believes that, including the RevCan agents I’ve discussed the matter with informally. Rather, I’m saying that to claim it is biased to be harder on the rich than the poor – as some earlier posters seem to do – is a very shaky argument at best. I do not assert that it is a vicious lie spread by black-souled monsters who kick puppies for fun. I simply claim that to present it as fact – which some people have been doing – based solely on the raw percentages is to commit a major logical fallacy.

  50. ARP says:

    While it may be true that increasing taxes to corporation (assuming they pay them and don’t loo-hole), may result in them passing them on to us. But the extra money can be used as an equalizing force. For example, provide health care (I know, another debate), improve public school education (or at least the underfunded portions), etc. These will “equalize” the opportunities and quite frankly give the working class less to worry about. So they may make a little less money, but if the don’t have to worry about health care or education, that’s a huge economic benefit and more of their money will be used for consumer spending.

  51. balthisar says:

    You corporation-haters are small-minded idiots. Consider…
    * This is corporate income tax. If you pay dividends, salaries, etc., you have no income by definition.
    * Stockholders (i.e., YOU) pay taxes on dividend income and capital gains. In effect, the corporation is paying income taxes, see?
    * Corporations pay tons of other taxes. Real property taxes, property taxes, payroll taxes, social security taxes, taxes up your ying-yang.

    For every corporation that really *is* truly evil, there are a thousand corporations that are just collectives of people like you and I.

  52. banmojo says:

    @hegemonyhog: Why is it a sham to tax consumables? Even the illegals and the drug dealers consume in America, hence the term ‘fair’ tax. The IRS would be disarmed, and disbanded. It would be an all around success for everybody (‘cept the illegals and the drug dealers, who would finally have to start paying taxes.)

  53. ironchef says:

    @banmojo:

    you’ll just encourage a whole new black market of all consumables…just like Russia.

    You disband the IRS and create a new federal monster to track all the tax collection on consumables and enforce compliance.

  54. TheUncleBob says:

    @ARP: Yeah, because it’s the government’s place to make everyone’s life “equal”.

  55. It’s interesting to me that none of the 54 comments so far say anything about externalities. How should our society collect money from individuals and corporations for the externalities that they produce (use of common infrastructure, pollution, health effects, etc.)? And shouldn’t that be a significant factor in how we construct positive and negative incentives in our society?

    All other things being equal (big assumption, I know), shouldn’t we tax ‘sins’/externalities (smoking, dependence on foreign energy, etc.) and create economic incentives for positive contributions (domestic jobs and assets, education, renewable energy investments, etc.)?

    It would be a lot easier to put forward a fair and meaningful tax plan if we could just get rid of all of the loopholes, influence, and corruption of special interests. We really need some serious political reform if we ever hope to progress.

  56. ARP says:

    @TheUncleBob: I think there’s a big difference between equalizing opportunity and equalizing people’s lives.

  57. hegemonyhog says:

    @banmojo:

    So much wrong, so little time…

    Why is it a sham to tax consumables? Even the illegals and the drug dealers consume in America, hence the term ‘fair’ tax. The IRS would be disarmed, and disbanded. It would be an all around success for everybody (‘cept the illegals and the drug dealers, who would finally have to start paying taxes.)

    Consumption increases as a proportion of your income the less you earn. It’s inherently regressive.

    What’s silly about the argument that it’ll finally (finally!) tax those criminals and immigrants is that Fair Tax is based on the idea that we already pay the Fair Tax as “embedded taxes”…meaning that anything they buy already contains the selfsame taxes they’re purportedly going to be paying.

    The Fair Tax also contains the single greatest loophole imaginable – business to business transactions aren’t taxed. Meaning, of course, that I can set up any damn small business I want and call my new lawnmower purchase an untaxed maintenance expense.

    The IRS can’t be “disarmed” – the Fair Tax simply places the (unfunded) burden of collection onto each of the state bureaus of taxation, meaning you’ve now got 50+ versions of the IRS to potentially deal with.

    There’s also the fact that the Fair Tax taxes new home construction, rentals, food and medical care, meaning that an entire generation of people would be taxed into oblivion.

    @barty:

    Well, damn. Guess that time I spent running my own business was for naught.

    Corporate income tax is a cost that can only be incurred post-profit, the timing of its accounting be damned. What you’re saying doesn’t contradict what I said – there’s no reason you wouldn’t remove taxes before figuring out your net income/profit margin. However, it’s a post-profit and post-production calculation – if you raised prices, you’d pay more taxes (or lose money based on falling sales), if you cut jobs but maintained the same levels of income you’d owe more tax.

    That’s what the flaw is here – every single form of negative consequence that’s supposed to come from the tax would actually be worse for the company (from the perspective of reducing the tax burden and/or maximizing profits).

    I really wish people understood taxes.

  58. TheUncleBob says:

    @ARP: So, should the government taken children at birth so they can control every aspect of the child’s life (diet, exercise, education, entertainment, sleep patterns, etc…), then, at the age of 18, cut them each a check for $10,000 so that each now-adult can have an equal opportunity to succeed in life?

  59. hegemonyhog says:

    And as a followup – the intelligent way to make up for income taxes is what companies are already doing by sheltering profits, reincorporating offshore or any number of other dodges.

    You don’t make up for money taken from profits by increasing the profit pool to take from. You make up for it by shrinking the size of the pool available to be taken from (while still keeping the overall level of profit).

  60. lindenbaum says:

    These kind of articles (blogs) should be kept on a political site or forum, not consumerist.com

    Come on! consumerist.com readers want to see the microcosm aspects of “consumers” getting ripped off or the like.

  61. mac-phisto says:

    @dabusdriver: i’m not ignoring your points, i just didn’t address them. why don’t we tax old people more or young people less? i would assume it has something to do with laws that prevent the federal government from discriminating against people based on race, color, religion, national origin, disability, or familial status.

    people with savings are already taxed at a higher rate than people without. they must add interest/dividend income to their earnings (which by definition means they are paying more). while they are not necessarily paying a higher rate, the interest income could place them in a higher bracket, warranting a higher tax rate.

    in regards to taxation based on cost of living & state tax burden, again, the current system of taxation already accounts for that somewhat within the constrains of what the feds deem “deductible”. two people that are exactly the same in every instance including income, except 1 lives in iowa & 1 in california, will not have the same deductions, nor the same tax burden. the californian will be able to claim higher taxes as a deduction, higher mortgage interest (due to higher home values), higher medical expenses, etc.

    but to delineating the actual tax tables based on cost of living? last time i checked, the dollar is still a dollar, whether you’re in iowa & california. they may not buy the same goods, but that’s irrelevant. we are taxing income, not profit. expenses are only relative if the government deems them so (in which case the cost of living will be reflected in higher deduction amounts).

  62. whuffo says:

    Something that has caused big changes in the way that corporations are run is the ability of shareholders to sue corporate executives for taking any action that would reduce the amount of corporate profit.

    This has led to a corporate imperative to return an increasing amount of profit every year. It’s not “just good business”, it’s necessary to avoid facing (and losing) shareholder lawsuits.

    This is why you see corporations cut services, cut payroll, reduce the size or quality of products, and so on – they’re trying to reduce expenses enough to make the necessary profit. Taxes are an expense so they do all they can to minimize those too.

    There’s a lot of stories on this site that have this as their root cause. It’s going to get a lot worse as time goes by; those corporations that pulled this or that outrageous “trick” to meet the profit target will need to make an even higher level of profit next year and every year afterwards. We’re going to see some very interesting things in the near future…

  63. nequam says:

    @barty: So where in your comment do you show taxes being passed on to consumers? Obviously payed taxes are reflected in the statements as you describe. But you’re ignoring (or missing) the fact that any price increase to cover those taxes drives a concomitant income in taxable amounts.

  64. arcticJKL says:

    So what % tax on corporations would be fair?

    I mean actually paying.

  65. P_Smith says:

    According to the PDFs on this US government site:

    [www.census.gov]

    Corporate income tax, 2004:

    First quarter – 1,414,340

    Second quarter – 3,160,910

    Third quarter – 1,088,101

    Fourth quarter – 992,302

    Total – $6,655,653,000

    Individual income tax, 2004:

    First quarter – 44,758,390

    Second quarter – 59,052,886

    Third quarter – 48,409,706

    Fourth quarter – 51,482,989

    Total – $203,703,991,000

    Total tax revenues collected, 2004:

    First quarter – 141,953,121,000

    Second quarter – 169,692,044,000

    Third quarter – 146,586,160,000

    Fourth quarter – 153,350,871,000

    Total – $611,582,196,000

    That doesn’t look like 14.4% to me. My calculator puts corporate taxes collected at 3.2% of individuals, and 1.1% of the total.

    And when you consider that nearly all the other taxes listed are paid by individuals – Property tax, General sales tax, Motor fuel sales taxes, Alcoholic beverage tax, Public utilities, Tobacco product tax, Alcoholic beverage tax, Motor vehicle tax, Hunting and fishing license tax, etc. – you quickly realize that corporations are paying only a token amount, just barely enough to pretend to be paying. Then add to that the tax breaks afforded to the wealthy (e.g. certain stock dividends are untaxable) you begin to see how sickening it is.

    If everyone in the US – corporations, wealthy individuals, and average citizens – were taxed at a flat rate regardless of income at the current rate for individuals, there would be enough money to balance the US budget with a decade. If the same revenues were collected at a flat tax rate on every dollar, average citizens would pay roughly a third of the taxes they are paying now.

    US residents are not citizens. They’re slaves and serfs in a fiefdom.

  66. LionelEHutz says:

    Let’s have zero taxes on corporations so we can all have free stuff !!!

  67. chrylis says:

    @RandomZero: “Harder” is a word that’s not clearly defined. That people with higher incomes pay an increasingly large portion of their incomes in taxes is a trivial fact.

    Some people believe that people who earn more money should be required to pay a higher tax rate than those who earn less; that’s a policy debate, but it’s a question that is often begged by its proponents. If a person’s belief is that a higher income means that an earner should bear an increased tax rate for whatever reason (such as ability to pay), then that belief should be stated, explained, and defended rather than assumed.

    (And as a side note: The discussion started out about the corporate tax rate. The corporate rate in Canada is 19.5% and decreasing.)

  68. Bladefist says:

    Why do people think ‘Corporations’ are these big nasty monsters under your bed? You realize you are corporations (well the ones of you who are employed).

    I think it is so funny when people hate corporations, you hate rich people, you want to punish them, and they are the very people who put food on your plate.

    You can hate the rich all you want, but they are the what makes the world go round. Even if communist China, they have rich people. Get over it.

    Raise the tax on corporations, they’ll lower your pay and benefits. The corporation is you, its just another tax on you, and you can change the form of it, but either way, its being passed on to you. The CEO doesn’t loose a penny. He passes all those costs to you and the consumers.

  69. S-the-K says:

    There is a fallacy in the argument. Corporations do not pay taxes. The customers of those corporations do.

    The Fair Tax is fantastic. And by “fantastic” I mean “the best thing since sliced bread.”

    The problem with the current tax system is that those who have a tonne of money can afford to 1) buy Congresspeople (of both parties, BTW) to tweak the tax law in their favor and 2) hire clever accountants and tax attorneys to find those loopholes. By eliminating the tax code game, you can be sure that people will pay their “fair share.”

    For some reason, people hate corporations and their idiotic bureaucracy, but they LOVE the biggest idiotic bureaucracy of all, the government. People hate alleged monopolies in the private sector, but have no problem with actual government monopolies and government-sanctioned monopolies.

  70. Bladefist says:

    @S-the-K: you make some good points. If for nothing else, a fair tax would simplify our tax system, and tax spending. Not so much saving.

    The fact that we have H&R Block, and that people have to pay to pay the government, is retarded. You got people paying the government interest on late taxes. Come on. So I agree with you. Nice post.

  71. MCShortbus says:

    @nequam: Awesome.