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They could add it to their profit, and many will, and there is nothing wrong with that. The US corporate tax rate is high. It does need to be lowered. And it could mean the difference between being in the red and looking to dissolve - and being in the green.
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"The problem with quotes on the Internet is that it is sometimes hard to verify their authenticity." -Abraham Lincoln -
LAIR!!!Comment
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Well I meant that in response to WingsFan. As for the tax rate, an actual proper global comparison would be part of an intelligent debate, but I haven't seen that. The corporate income-tax burden here is low in comparison to all but four OECD countries. Not to mention other bits that are relevant. Google's effective tax rate in, I think, '15, was 6%.Comment
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I wasn't debating.
Anyway...
Re OECD: I thought the US's corporate rate was the highest in the world?Last edited by AlabamAlum; October 12, 2017, 05:13 PM."The problem with quotes on the Internet is that it is sometimes hard to verify their authenticity." -Abraham LincolnComment
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Here is something from NPR on it:
Before deductions, the highest. After deductions, 4th highest.Last edited by AlabamAlum; October 12, 2017, 05:14 PM."The problem with quotes on the Internet is that it is sometimes hard to verify their authenticity." -Abraham LincolnComment
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Good piece from NPR there. More complicated than that even, but that's a good explainer.Comment
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Thanks AA. I agree there is nothing wrong with profits. In fact I think most companies would be negligent in not taking the savings as profits.Originally posted by AlabamAlum View Post
I also don't know if the tax rate is too high, but I don't know that lowering it will increase wages. That seems like BS to me. Also, the fact that it is the highest or lowest means next to nothing. What is the effect and how does lowering it help people. That's the question in my mind.
Last, how can taxes be the difference between profit and loss. Can't you deduct expenses, so only profits are taxed?To be a professional means that you don't die. - Takeru "the Tsunami" KobayashiComment
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One of the arguments made in favor of reducing the corporate tax rate is that companies will use the savings to hire people or increase wages. What I don't understand is that employee wages and benefits are deductible, as far as I know. So wages are already tax-free, so how could removing taxes on profits increase wages. If a company wanted to increase wages, it would do so and lower its tax bill to -0-A good question, too, because every company is basically unique and has its own tax-paying profile. Let's just assume a cut from 35% to 20% for argument's sake. There is little sense in arguing what rate a given company pays in FIT, because that is a function of both the rate and the political power that the company is able to apply to get carve-outs from the tax code. Let's just deal with "how does a tax rate cut create jobs or help people".I also don't know if the tax rate is too high, but I don't know that lowering it will increase wages. That seems like BS to me. Also, the fact that it is the highest or lowest means next to nothing. What is the effect and how does lowering it help people. That's the question in my mind.
The first thing that needs to be said is that "profit" really means "after-tax profit". Taxes are best viewed as an expense of doing business, but not an input toward production. The production of anything, even a service, consists of capital, labor, and management (entrepreneurial vocation) in some combination.
Let's say a company can produce a widget for $ 100.00 (40 cap+40 labor+20man), and they can sell the widget for $ 150.00. So we would say they have $ 50.00 gross profit, upon which they pay roughly $ 17.00 @ 35% or 10.00 @ 20%. After-tax profit is 33@35% and 40@20%. So the owner of the business gets $ 7.00 more with a tax reduction.
Your question can be phrased "so what is to make him hire more people, rather than just pocket the money and buy a houseboat?" The answer to that is greed (enlightened self-interest). He has more money to invest in his production, which is producing $40.00 net per unit rather than 33.00 (making a 21% increase in net income (7/33) just from the tax reduction). If he wasn't pocketing the $ 33.00 he was making, why would he suddenly pocket the $ 7.00 extra? Studies show that at over half of any increase in after-tax profits owing directly to the tax cut is invested right back into plant and labor. Make more widgets, make more money.
And there are secondary benefits. The value of the enterprise (stock price) goes up. Adding labor causes a rise in real wages and in employment. The Trump proposal allows immediate expensing of capital assets, which increases the quantity of those assets that are demanded, which starts another cycle of production.
I'm sure most of us know entrepreneurial people. They most often opt for building up their business or farm or legal office. Sure, some of the tax cut will go to the owners of the business as dividends (taxed again), and much of that will be spent, again stimulating the economy.
Finally, the proposed corporate cut is coupled with the US going to a "territorial system". That means we will no longer charge Apple 35% to repatriate money to the US even after they have paid 17% (or whatever) to Ireland. The US is the only country that does not use a territorial system, and the proposal aims to change that. If you earn the money in Ireland, pay that tax, and bring the money home (to use on labor and capital improvements).Last edited by Da Geezer; October 12, 2017, 10:28 PM.Comment
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What they pay in Ireland is deducted from what they'll pay here. No double taxation.
But there is no money overseas that actually isn't functionally already in the US economy. The overseas holdings are mostly in US bonds anyways; there will be no net addition of money. If companies wanted to invest they can sell bonds at less than a quarter of the cost of repatriation at a one-time lowered rate. They're not investing because there's no opportunities, and repatriation won't change that.Comment
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More of a LOL, but the US is not the only non-territorial system. Eritrea's is too. Good luck with that, Eritrea. I'm sure it's working out fine for all the Eritrean multinationals.
I agree with moving to a territorial system, but, in truth, the US government is elected to represent its citizens, and not its corporations. There is every reason to simplify the tax code, and no reason at all to lower taxes. Taxes rates for corps should be as high as possible WITHOUT DISTORTING THE ECONOMY, including discouraging investment. They are not discouraging investment now. There is no other jurisdiction to which US firms can move and get a better deal. It's normal and reasonable to expect to pay a bit of a premium to be in the best environment in the world for commerce -- corporate taxes could go up and no corporations would suffer save for the ones that should probably be exposed to creative destruction. No other country offers a population so trained, so willing to work hard, and willing to accept only two weeks a year of vacation. No other government offers the same support capacities combined with the same willingness to be bought through campaign contributions. Look around the world and find a better place to be; you won't find one. Lowering taxes on corporations would signal that we fail to recognize our own leverage and are just dupes.Last edited by hack; October 13, 2017, 06:57 AM.Comment
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Boy, you really through a lot of bones to the American exceptionalism + market forces crowd in delivering that message, hack. I suspect wildly variant understandings of "without distorting the economy", but I like the overall play, as I am amongst that particular crowd.
I do disagree with the "as high as possible" line. I'd probably phrase it as "sufficient to realize the premium location" or some such thing.
Anywho, the actual cut to the top rate, as clearly suggested by the NPR piece, is mostly politics. Look at the big cut! I would want to know what the cut means for the effective rate. That'll be a much smaller cut.
And I'd be fine with flat taxing/no deductions at or around whatever the current effective rate is.Dan Patrick: What was your reaction to [Urban Meyer being hired]?
Brady Hoke: You know.....not....good.Comment
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Hack is a closet American.
Sent from my SM-G900P using TapatalkComment
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If Trump lowers the corporate tax rate, he will have done ar least one thing I support. I have said for years that it's too high and needs to be lowered a bit."The problem with quotes on the Internet is that it is sometimes hard to verify their authenticity." -Abraham LincolnComment
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What I'm suggesting is what ``running this country like a business" actually and truly means -- understand the market and where you ought to position yourself within it to get the best deal for your stakeholders.
Very well done with the exceptionalism comment -- high-level posting there. I do maintain that hubris is going to kill the American experiment, but it sure did help on the way up, to create an exceptional atmosphere for applying intellect to commerce. No doubt about it.Comment
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