Comments | maniakes: Query on arguments for and against double-taxation of corporate income

maniakes

Query on arguments for and against double-taxation of corporate income

Dec 05, 2011 16:29

I'm toying with some ideas for reform proposals for taxation of income from corporate investment, intended to address the common concerns on both sides of the issue. In order to do a proper job of this, I want to make sure I'm not misunderstanding or misrepresenting what these concerns are. I have a fairly high confidence level in my understanding ( Read more... )

Comments 15

makellan December 6 2011, 01:12:19 UTC

An additional concern from a liberal perspective ( ... )

maniakes December 6 2011, 02:27:21 UTC

Also, the tax on dividends isn't a tax on the corporations issuing the stock, but rather on the shareholders buying it so I don't see the incentive to load up on debt. A corp can use money it gains to issue dividends. The corp is taxed on money coming in and the stock holder is taxed on money coming in. The fact that this may or may not be the same money doesn't seem relevant. Look at the entities, not the dollar.The analysis works out the same. Wiley Coyote, CEO and sole shareholder of ACME corporation, is looking to get $100,000 to build a new widget factory that he expects to yield an operating profit of $10,000/year before taxes. As luck would have it, Scrooge McDuck has $100,000 that he's considering investing. In order for it to be worth Scrooge's while to make the investment rather than spending the money on a new yacht, he wants at least a 5% return on investment after taxes ( ... )

maniakes December 6 2011, 06:33:21 UTC

$2,308, yielding taxable income of $1500

Should be "yielding after-tax corporate income of $1500".

makellan December 6 2011, 21:13:44 UTC

Wiley sells stock to Scrooge: At the end of year, Wiley has $6500 in his pocket. If what Scrooge needs is a guaranteed %5 ($5000) per year starting the first year, then, as you said, the vast majority of that goes to Scrooge as a dividend. Since Scrooge still owns the stock, though, Scrooge ends up with much more than 5K under that scenario so he must presumably count some value of that stock against his 5%. Assuming that the stock rose in value to cover some of the 5K, that part of Wiley's profit doesn't have to go to pay Scrooge.

I'm not familiar enough with the stock market to know how much stock value increases with a known and steady profit, and there are many more variables, but Wiley isn't paying Scrooge as much of his profit as your example requires.

In addition, Scrooge being able to demand such repayment sounds much more like a loan than buying stock.

None of this refutes your original point, but it lessens the impact.

Thread 13

The Luck Factor anonymous December 6 2011, 02:29:10 UTC

I have heard the luck argument before, but was surprised that you brought it up because I thought it was an aberrant argument of just one person. I just don't understand this argument or where it is coming from. No objective assessment of corporate profits can attribute any but the tiniest fraction of earnings as being derived from randomness.

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David Johnson

Re: The Luck Factor maniakes December 6 2011, 02:45:03 UTC

I've heard it several times from a variety of sources, although this may be skewed based on me mentally aggregating it with the closely related "speculators" argument. I phrases it more in terms of luck than in terms of speculation, since if the luck argument isn't implicit in the speculators argument, then I don't understand the speculators argument and need to have it explained to me by someone who understands and sympathizes with it ( ... )