U.S. business contributes smallest share of federal taxes in a generation

https://www.bloomberg.com/news/articles/2019-05-20/u-s-business-contributes-smallest-share-of-taxes-in-generation

by petethomas • 7 years ago

244 188 7 years ago

megaman821• 7 years ago

Why is it desirable to tax the business rather than the wealthy owners and stockholders? If the business money flows to those making millions of year, tax the millionaires some high rate at a new tax bracket.

jedrek• 7 years ago

Taxing profits makes reinvestment a better strategy than profit taking.

sabroad• 7 years ago

It also makes share buybacks a better strategy. Further, low rates and low inflation mean buybacks are a better strategy than reinvestment.

tw04• 7 years ago

It's desirable when the alternative is those businesses reinvesting in the business and payroll. Which is easy to do by allowing them to deduct salary up to a certain amount.

cperciva• 7 years ago

Taxing corporations allows you to impose taxes on the pensions of the middle class, without being seen to do so. Most wealth is in the hands of the middle class either immediately pre- or post- retirement, so you need to tax this; but baby boomers vote so you have to pretend otherwise.

Ok, it's not a good reason... but face it, taxes are determined by politics, not policy.

netcan• 7 years ago

For a dissenting opinion, one of the major points in Picketty's nobel-winning dataset is that market returns are, over the long term, pretty fixed. Short term fluctuations aside, they're not really impacted by GDP growth

It's an empirical measurment rather than a theoretical point.

I don't know if he's right. But, I do think that it's dicey taking conclusions like "corporate tax is a tax on pensions" as fact. Economics is not science. Economic theories that yield these conclusions are not testable. The reason macroeconomics exists as a field is that core theories which seem to work well at the micro level don't seem to make the right predictions at the macro-level.

simonh2• 7 years ago

Suppose the business is located in the USA, taking advantage of US infrastructure, public services, legal protections, etc, but the owners live in the UK. You'd be ok with them only paying UK income tax?

ThrustVectoring5• 7 years ago

The business money need not flow through to their owners. It can instead show up as unrealized capital gains, which A) gets taxed at a lower rate than ordinary income, B) can be deferred indefinitely, C) can be cheaply borrowed against for tax-free spending money, and D) gets wiped out when the shares are transferred via inheritance or in-kind charitable contribution.

If you have $10M of non-dividend paying stock, you could conceivably spend $200k per year while having a taxable income of zero and remaining eligible for income-based health insurance subsidies.

leetcrew6• 7 years ago

I often hear about C), but I have never heard an explanation of how it works.

I understand that if you have tons of valuable assets, you can get a loan against them for a very favorable rate. but then you have to pay back the loan or at least pay the interest on it. how do you do that without having at least some income or realizing some capital gains?

gok• 7 years ago

Corporations only paid 7.6% of the tax take -- the lowest share since at least 1960, according to the IRS data

That sounds low but it's not far out of line of the rest of the OECD. The mean is around 9%. Sweden is about 6%. The two members above 20% (or anywhere near it) are Chile and Mexico.

Corporate income tax is kind of a mess to implement and enforce.

PrimalDual2• 7 years ago

I still don’t understand corporate income taxes. These are just pass through entities. All the money goes to actual people which are a lot easier to tax than a corporation. I think it’s such a waste of human capital having corporations incentivized to spend on armies of lawyers and accountants trying to come up with some baroque legal construction to avoid taxes. Maybe I am ignorant about tax law but people seem a lot harder to “invert” to cheaper tax jurisdictions no matter how rich they are.

I would even go as far as saying that payroll taxes are the same. Taxes hidden from the general public with weird incentives that break stuff in unexpected ways. We would be better served with more income, property or sales/vat taxes.

PrimalDual2• 7 years ago

I also forgot to mention the insane amount of resources wasted lobbying to complicate the tax code so every company and sector gets their loophole. This doesn’t just have the same human capital cost but it also gnaws at the trust people have in the democratic system. It’s a lot harder for Bezos or Cook to lobby for an individual tax cut than it is for Amazon and Apple.

TAForObvReasons• 7 years ago

If you really want to start from first principles, corporations may seem to be financial pass-through entities but serve as legal shields. Shareholders are not personally liable for externalities like environmental catastrophes or labor law violations. Elon Musk isn't subject to incarceration when someone is killed in an autopilot failure.

If you believe that corporations should also pass through legal liabilities, then sure it makes no sense to pay corporate taxes. But that's not the world we live in.

anonymous51332• 7 years ago

Yup. Corporate/business taxes to begin with are not so smart because because businesses can basically incorporate in any jurisdiction for reduced or 0% tax rates. Many countries have "free trade zones" with 0% business taxes. Those countries still benefit though because their citizens get jobs they might not otherwise have access to. With free trade agreements, it is easier than ever to have your headquarters in a tax haven and then manufacture and sell your products worldwide.

jankotek• 7 years ago

Taxing people has the same problem; trust founds, tax heavens...

Sales / VAT tax is not progressive and is unfair to poor people.

sneak• 7 years ago

True, however inflation works the same way, and is a much bigger and persistent threat to the poor than sales tax or VAT; inflation compounds over time whereas sales taxes do not.

Inflation is basically an unvoted regressive tax on the poor that increases every year.

Tsubasachan2• 7 years ago

Governments love sales tax! Its just so damn easy and simple. When I was a kid it was at 17.5%- now its at 21%. I don't mind because the government here actually tries to provide for its citizens. Keeping the nation orderly and tidy takes a vast amount of money.

YokoZar• 7 years ago

When you combine consumption taxes with basic income you get a net progressive system. You also get the benefit of discouraging consumption rather than discouraging earning income.

tjbiddle• 7 years ago

Taxes aren't just a means of revenue for the government, they're a means of incentivizing for various goals.

- Want a higher population? Give a deduction for children. - Want citizens to switch to alternative energies? Give a deduction for solar panel roofs and electric cars. - Want to reduce dependency on foreign oil? Give a deduction for new drilling operations. - Want to create more jobs? Give a deduction for each employee. - Want to create more housing? Give a deduction for real estate depreciation. - Want to encourage new technologies? Give a deduction for R&D expenses.

conanbatt6• 7 years ago

You are making an excellent case for a revolt.

kalleboo• 7 years ago

You could just hand out money instead of deducting it from taxes. E.g. it's common in many countries to get a child raising stipend which is basically cash in hand (well, in bank account)

pnongrata• 7 years ago

Taxes are also a way to disincentivize "behaviors", like taxing alcohol and tobacco, taxing pollution emitters.

slg2• 7 years ago

You are ignoring a secondary reasons for taxes. The primary reason is obviously to raise funds for public use. The secondary reason is to give the government more control over the economy. You are right, there are ways to drastically simplify tax law if we wanted to tax ever dollar at the exact same rate or had very clear marginal tax rate buckets. We don't do that because we want to incentivize certain actions. On a personal level, you get a tax break if you pay for your education, you get a tax break if you invest in your career, you get a tax break if you have children, you get a tax break if you earn your money through investments rather than through employment, etc. We don't necessarily do those things to be nice. We do those things because we believe they are good for the overall economy and it is beneficial for them to be incentivized.

hartator• 7 years ago

You can still do all of that with no corporate taxes. As every incentives you cited are on the individual taxes.

skookumchuck2• 7 years ago

Ideally, taxes should be used to discourage undesirable things, like emitting pollution. Taxes should not be used to discourage productive activity.

We should be taxing pollution, consumption of raw materials, plastics, use of undeveloped land, etc.

sokoloff2• 7 years ago

Taxes should not be used to discourage productive activity. We should be taxing...use of undeveloped land.

Aren't many (most?) uses of undeveloped land productive? About 100 years ago, someone built the house I'm sitting in. That was a productive activity to transform the use of that land for housing, IMO.

Nursie2• 7 years ago

But the money doesn't always go to people. In the UK at least, Corporation tax is specifically calculated on what's left after you've paid the people, and after you've taken into account reinvestment.

I agree that the baroque structures, and the crazy accountancy games companies play, need to be addressed somehow.

cameldrv• 7 years ago

Wait, I thought corporations were people. When people earn money, they owe income tax on it.

moogly• 7 years ago

All of the rights of people, but none of the obligations.

pjc503• 7 years ago

All the money goes to actual people which are a lot easier to tax than a corporation.

Are you sure about that? Businesses are highly visible, tracked entities that have to file accounts.

It's also not unusual for the very rich to route all their activities through a business, especially political donations.

sokoloff2• 7 years ago

It's much more difficult for a person to shard their lives such that they live over here for this purpose but over there for that purpose, whereas for a company of any significant size, that's fairly easy.

BlackFly• 7 years ago

"Corporations are people, my friend!"

Corporations are certainly not pass through entities. They own assets, they exert influence on society. They benefit from government institutions. They amass wealth so that they can spend it to their benefit.

Maybe, like people, it makes more sense to tax them on revenue then on profit so they cannot invert to a cheaper jurisdiction?

Or am I a pass through entity? Arguably, most actual people are more pass through entities with respect to money then corporations. Corporations are far more likely than most individuals to amass wealth.

TomMarius• 7 years ago

VAT solves that

Wildgoose6• 7 years ago

If Corporations are truly "people" then they are slaves to their owners. The assets they own are actually collectively owned by their share-holders and the actions they take are carried out by their principal officers.[0]

The real difficulty is probably with foregn ownership because then you have the argument about taxing the citizens of other countries.

Taxing where business takes place is also a possibility, but turns into yet another source of obfuscation.

[0]Yes, I know about the idea of corporate "personhood". I just object to it on principle.

Xylakant2• 7 years ago

Maybe, like people, it makes more sense to tax them on revenue then on profit so they cannot invert to a cheaper jurisdiction?

Taxing on revenue as opposed to profits harms corporations that have a low margin, high turnover business (for example retailers)

agent008t3• 7 years ago

But when corporations spend wealth to their benefit it comes out of their profit. So they end up paying less tax. I.e. corporate tax is an incentive for corporations to spend more, not less?

Profits are owned by shareholders. So why not just tax them normally when they receive these profits?

larrydag• 7 years ago

I might be in the minority but I think there should be a 0% corporate tax rate. For the amount of revenue received by corporations doesn't match how much affect they can have on the tax code. They lobby quite a bit to affect their tax status and situation because they have the means. Yet its the individuals that contribute the most taxes but have the least amount of lobbying power. The tax code should be decided by policy of the democratically elected. Reduce the corporate rate to 0% and lobbying will decline I believe.

sitharus• 7 years ago

I sort of agree, but in jurisdictions with low corporate taxes and high personal ones you’ll find a lot of small contracting companies that hold a lot of personal assets.

coredog64• 7 years ago

The IRS already takes a dim view of this in the US.

StreamBright• 7 years ago

Why would it be the case? Not all the money ends up with humans. Google and Apple has the largest cash stock in recorded human history.

zzzzzzzza• 7 years ago

Maybe I am ignorant about tax law but people seem a lot harder to “invert” to cheaper tax jurisdictions no matter how rich they are.

this is only because we allow corporations deductions for intellectual property, remove ip deductions and remaining corp income deductions will revolve around paying wages and investing capital (e.g. building a factory), things that cannot be "inverted" or made to pass through ireland.

the corp income tax is actually less harmful than personal income or sales taxes precisely because it only falls on corp profits and the aforementioned deductions (with exception of ip) are good ones - you want companies doing those things. arguably double taxation on dividends is a somewhat questionable feature of the corp income tax though (and if anything the last type of company you would want to exempt from this double taxation is REIT like ones)

danieltillett• 7 years ago

Well your friends from downunder figured out how to solve this long ago. You allow the company to pass through a tax credit (franking) to the shareholders on any dividends paid. It is amazing how keen companies are to pay tax when this is in place.

JauntTrooper• 7 years ago

There are problems with every type of tax.

Property taxes are tough because many assets are hard to value/assess and often don’t pay enough cash flow to cover their taxes, which could lead to forcing a sale (at fire sale prices for illiquid assets).

Sales taxes tend to hit lower income people the hardest since they’re spending most of their income while the wealthy are not. You could adjust for this, but then it becomes complicated and administratively burdensome.

Tariffs distort trade and slow economic growth (though there are many people that find that trade-off worth it for other reasons).

I think a lot our system in the US is designed for ease for collection, rather than what is most efficient.

The good thing about corporate taxes is that corporations tend to be more meticulous about tracking their income and expenses, and probably also about paying their legal taxes on time than individuals. Tax revenue collected would probably plummet if we did away with the W-4 withholding system on individual income taxes and people had to file them once a quarter/year like corporations do.

humanrebar4• 7 years ago

You could adjust for this, but then it becomes complicated and administratively burdensome.

Minimum income is fairly simple. As are earned income tax credits.

It's no more complicated than free need-based bus passes to offset flat bus fares.

analog31• 7 years ago

Indeed, if we eliminated withholding, a large swath of people would simply have no money to pay their taxes.

leetcrew6• 7 years ago

maybe this is overly cynical, but I suspect it goes further than "ease of collection". the average person is unlikely to strongly oppose corporate income taxes because they believe it doesn't take any money out of their pocket. if they understood tax incidence, and how little consensus there is among economists regarding corporate tax incidence, they might feel differently.

the US tax system seems to be designed more towards political expedience than any other goal. sales tax, which voters feel every day, is relatively low compared to VAT implementations in Europe. the income tax hits high earners pretty hard, but there are innumerable loopholes and exceptions for very wealthy holders of capital to avoid paying significant capital gains.

it seems like the whole system is setup to look like it's fleecing rich people while it subtly sabotages itself in thousands of pages of tax law.

edit: also you are probably right that we would have trouble collecting tax if we eliminated withholding, but what does that have to do with corporate income tax?

ThrustVectoring5• 7 years ago

The problem is that the money only goes to actual people eventually, not when it is earned. A beneficial owner can simply sit on their share of the company as it earns profits and becomes more valuable, and incur capital gains taxes if and when they sell. They can defer these taxes indefinitely - if they need cash, they can simply use the stock as collateral for a loan in lieu of realizing capital gains taxes. And when they die, the cost basis gets reset, wiping out whatever taxes have been deferred (and replacing them with estate taxes, if those haven't also been optimized away).

mbrumlow2• 7 years ago

But the gains made by the lender are taxed, so in a way even taking a lone out you are still being taxed. Loans are not free.

HansLandaa• 7 years ago

But the corporation's income is taxed so they cannot just sit on their share of the company. Then they will pay capital gains taxes

leetcrew6• 7 years ago

unless you have income (which is taxed as such) how do you pay back the loan without eventually selling assets and paying capital gains?

AnthonyMouse6• 7 years ago

A beneficial owner can simply sit on their share of the company as it earns profits and becomes more valuable, and incur capital gains taxes if and when they sell.

That's half the problem with income taxes. They provide an incentive for the rich to never sell their investments because if they sell they have to pay tax, meanwhile they give the working class less incentive to invest rather than consume because they do have to pay the tax on their earned income immediately even if they invest it rather than spending it.

So you get bigger corporations (the rich can't sell to invest in a startup without paying tax), more incentive for international tax avoidance/arbitrage to the detriment of smaller businesses who can't do that, and more wealth inequality.

They can defer these taxes indefinitely - if they need cash, they can simply use the stock as collateral for a loan in lieu of realizing capital gains taxes.

Because we're not using consumption taxes. You can't avoid VAT by taking out a loan.

And when they die, the cost basis gets reset, wiping out whatever taxes have been deferred (and replacing them with estate taxes, if those haven't also been optimized away).

Again solved by consumption taxes, because there is nothing to reset if the money is taxed when spent rather than earned.

cptskippy• 7 years ago

The problem is that corporations have value, assets, and money. And more importantly they can leverage it.

If we moved to a 0% Corporate tax and relied entirely on income tax then we'd start to see all manner of schemes for Executives to avoid taxes. They'd do things like taking little salary but instead being issued Corporate spending accounts with limits comparable to what they'd otherwise earn in salary.

Kurtz792• 7 years ago

While I agree in principle, in practice you would have no guarantee that the money companies would save on taxes would directly go to increasing employees' wages, which would have to balance the increased individual taxes that you mention.

Market forces would compensate to an extent, but not for jobs with a low demand/supply ratio, I think.

Causality1• 7 years ago

All the tricks and loopholes means that the corporate tax rate is almost a red herring to distract voters from what really matters, which is how easy it is to hide your money overseas. As we've seen with Ireland, tax havens are fully compliant with helping American corporations get around the law.

anonymous51332• 7 years ago

Most of those "double-irish" tax tricks are actually illegal tax evasion. The IRS has recently been auditing these companies and hitting them hard with back taxes. The transfer pricing rules clearly state that the transfer pricing must represent the nature of your business. You can't specifically use transfer pricing to reduce taxes on purpose.

ETHisso2017• 7 years ago

When people cite the stock market as proof Trump's trade war isn't hurting average Americans, it's helpful to show them this chart.

stunt2• 7 years ago

If you look back in history, taxes always have been for ordinary citizens. Even before modern tax systems.

Wildgoose6• 7 years ago

Only indirectly. Governments/Rulers taxed richer individuals and they used their wealth (and/or other privileges) to extract excess money from ordinary people in order to pay those taxes.

That's why I don't think records of earlier tax rates are really giving the full picture.

stunt2• 7 years ago

I don’t think fair tax system doesn’t exist. (With a few exceptions in EU)

Tsubasachan2• 7 years ago

I don't think the US cares about fairness or wealth inequality. That's an ideological position- decided by the American people. Berny Sanders wanted the US to become like the Netherlands or Norway. The American electorate said no. Case closed.

hannasanarion5• 7 years ago

You know that America more than one election ever, right?

(also, it was the Democratic electorate that rejected Bernie, the general electorate would have gone for him over Trump according to polls)

jppope• 7 years ago

Wondering why no one has mentioned the fact that Entrepreneurship has been weakening for the last 25 years... Seems like one would expect corporate taxes to go down when there's fewer companies.

dv_dt7• 7 years ago

Entrepreneurship has gone down because fewer people as a whole make enough money from their wages to fund new ventures.

jimbob45• 7 years ago

Look, if you raise the rates or establish a more concrete AMT (Alternative Minimum Tax - a base rate that can't be ducked under), then corporations will just move their headquarters to another country with more favorable tax conditions. IMHO establish AMTs on corporations not headquartered here to incentivize them to move here and bring jobs.

known• 7 years ago

Tax corporate revenues. Problem solved.

rayiner8• 7 years ago

According to the OECD, corporations paid 7.1% of the US tax burden. Note that in the France, that Randian paradise, that figure was 5.1%: https://taxfoundation.org/sources-government-revenue-oecd-20.... Denmark, Finland, Germany, Italy, and Spain also relied less heavily on corporate taxes than the US.

The remarkable thing about the political debate in the US is that folks on the left talk about all the public benefits the government offers in Europe, but are dead silent about how Europe pays for those benefits: consumption taxes. US consumption taxes account for 15% of revenues. That’s just half the OECD average.

rfeather• 7 years ago

I'm glad you're adding new info here, but I'm not sure why it has to be couched it divisive left-right rhetoric. I'm leftish and didn't know this. I am however, for certain kinds of consumption taxes.

DaiPlusPlus• 7 years ago

Aren’t consumption taxes generally regressive?

rayiner8• 7 years ago

I’m not trying to be divisive—I myself align with the left on having a robust welfare state. But the right doesn’t want a welfare state at all, it’s not incumbent on them to figure out a realistic way of paying for one.

humanrebar4• 7 years ago

...I'm not sure why it has to be couched it divisive left-right rhetoric

The right has been floating flat and simplified tax schemes for decades, including consumption taxes. For example, Hermain Cain made a 9-9-9 Plan a central policy of his campaign.

https://en.m.wikipedia.org/wiki/9%E2%80%939%E2%80%939_Plan

justaguyhere• 7 years ago

I too didn't know this, not that I have any decent knowledge of economics/business in the first place :(

One thing that I wish more people (including me) realize is - these big problems (taxation, immigration, protectionism etc) have multiple angles and many nuances to them, and it is just dumb to reduce them to a simple yes/no type binary question. All this to say, many people including those shouting at each other on television, probably don't know enough to argue one way or the other

mcv7• 7 years ago

The problem with corporate taxes is that it's a race to the bottom. International companies prefer to put their offices in countries where they have to pay little in taxes, so countries keep reducing their corporate taxes to remain attractive for companies. Meanwhile, consumers don't move around as much, so consumption taxes are fairly reliable.

Which is sad, because consumption taxes are also fairly regressive.

If we want to move more of the tax burden to corporate profits, rather than revenue (which is what consumption taxes basically are: corporate revenue taxes), you need either international agreements to increase those taxes, or tie profit taxes to local markets.

And now that I think of it, I think that might actually be possible: profit is revenue minus cost, right? With consumption taxes being the same thing as revenue taxes (which I think they are; it's a tax on the revenue corporations get from selling to consumers. Dutch VAT (BTW) is also called "omzetbelasting" (revenue tax).

So allow companies to deduct local costs from local revenue, and you've turned revenue tax into profit tax.

This seems way too simple, so I'm probably missing something here.

AlexTWithBeard3• 7 years ago

Taxation does not have to be a race for the bottom, unless the state wants to collect the money and give little in return.

Take New York State for example. It has some of the highest taxes in the country. What do the citizens get back? Roads? Well, New York roads are known to be some of the worst in the country. And you still have to pay tolls to use them. Schools? Just average. State University? Again, quite average.

What the heck am I paying for?

chumali• 7 years ago

Corporation taxes are arguably as/more regressive than those on consumption, depending on who you believe ultimately pays them (capital owners/workers).

It can be argued that they fall equally on the rich and poor. For example, if the corporation had two shareholders, one in the top tax bracket and one in the bottom, their returns would be equally hit despite difference in their underlying incomes.

On the other hand, if the burden does fall mainly on shareholders then it can be argued that from a macro perspective corporation taxes are progressive since they are ultimately paid by wealthy households (which make up majority of large investors).

AnthonyMouse6• 7 years ago

The problem with corporate taxes is that it's a race to the bottom. International companies prefer to put their offices in countries where they have to pay little in taxes, so countries keep reducing their corporate taxes to remain attractive for companies. Meanwhile, consumers don't move around as much, so consumption taxes are fairly reliable.

Most of this is just characterization. For example, what's the difference between corporate income tax and VAT? Almost nothing. Primarily what happens when goods cross a border -- then VAT requires tax to be paid based on where the customer is rather than which jurisdiction the corporation declares its profits in.

But VAT is a regressive "consumption tax" and corporate income tax is a progressive "income tax"? Which international corporation came up with that particular piece of corporate propaganda?

So allow companies to deduct local costs from local revenue, and you've turned revenue tax into profit tax.

That's basically what VAT is. You are describing VAT.

everdev• 7 years ago

So allow companies to deduct local costs from local revenue, and you've turned revenue tax into profit tax.

Maybe I'm misunderstanding you, but that's kind of how taxes work now. You report your revenue and expenses and pay taxes on the difference.

The challenge is that there are so many loopholes that some companies can reduce their profit to 0 (or less) or allocate their profits to lower tax regions (Delaware).

A revenue tax would be far simpler and eliminate a lot of these accounting loopholes.

For maximum ease, have the banks automatically deduct 5% of each deposit and don't worry about even having to file taxes unless you received cash.

rayiner8• 7 years ago

If you look at figure 2 in the article I linked, the average share of taxes collected from corporations in the OECD went up somewhat from 1990 to 2019. So I don’t know if it’s correct to call it a race to the bottom.

SubiculumCode• 7 years ago

Consumption taxes, like the VAT,are regressive, but can be made progressive when implemented in conjunction with a universal refundable tax credit system or a universal basic income. For example, Andrew Yang proposes a 10% VAT and a $1,000 monthly UBI per adult. Napkin math suggests that unless you are spending $10,000 per month on VAT-taxed consumption, the $1,000 UBI provides a net gain. I think it is unfortunate that we focus on the disadvantages of the VAT (i.e. regressive), when there are advantages to it in terms of making it more difficult for companies to avoid paying taxes, if it is placed with policies that together become quite progressive.

throwaway34241• 7 years ago

I don't think you're missing anything at all. The idea of taxing revenue and deducting domestic factors of production was actually discussed as part of US corporate tax reform a couple years ago, and high-profile economists on both the left and right were both pretty positive on the idea. It's a more efficient way to tax profits that isn't easy to game like the current system.

Despite support among economists, it ended up being politically harder since some companies were against it, so they ended up going with a big deficit-funded tax cut instead.

conanbatt6• 7 years ago

The problem with corporate taxes is that it's a race to the bottom.

That's not the problem. Thats the solution. How else would countries compete with each other to not nationalize any company at the whim of a politician.

you need either international agreements to increase those taxes

You really don't. The US could ban any company with server outside the US and then will not have a problem of jurisdiction. An international agreement means monopolization of government, and thankfully, you only need a few countries to not sign it to keep everything.

Competition is a beautiful thing indeed!

refurb2• 7 years ago

Going beyond your comment, it’s amazing how many American’s extol the virtue of Europe’s system without actually knowing the details of how it works!

“Single payer healthcare is the only solution!”

“What about Switzerland?”

“What about it?”

_ea1k2• 7 years ago

I think that the problem is actually the term "Europe's system". A lot of people in the US seem to think that the system of government among European countries are nearly homogenous. It is obvious that is far from the case, of course.

dv_dt7• 7 years ago

I think this is misleading to focus on corporate tax without comparing total system tax loads, as well as major differences in that the taxes pay for: like healthcare.

rayiner8• 7 years ago

I think there are two meaningful bits of data here: the tax burden on corporations, and what share of the overall tax burden is paid by corporations. The article's phraseology ("business contributes smallest share") invites the latter comparison. But the former tells an interesting story as well: https://data.oecd.org/tax/tax-on-corporate-profits.htm#indic....

In Germany, France, Italy, and Spain, corporate taxes amount to 2-2.4% of GDP. The U.K. is at 2.8%, while the U.S. is at 1.9%.[1] Although the U.S. raises more of its taxes from corporations than Germany, France, Italy, or Spain, it has a much lower tax burden overall. However, the absolute tax burden on corporations is not that far off. Germany was at 1.7% in 2012, while the U.S. was at 2.3% in 2104.

Same thing for income taxes: https://data.oecd.org/tax/tax-on-personal-income.htm#indicat.... Income taxes ranged from 7.5% to 10.9% of GDP Germany, France, Italy, Spain, and the UK in 2017. The U.S. was at 10.5%, near the top of the range.

Almost all of our overall much lower tax burden is explained by the fact that our "middle class taxes" are far lower than in Europe. Socials security taxes are 6.3% of GDP, versus 11.5-16.8% in France, Germany, Italy, and Spain. (The U.K. is at 6.4%.) https://data.oecd.org/tax/social-security-contributions.htm#....

Consumption taxes in the U.S. are just 4.3% of GDP, versus 9.7-12% in the U.K., Spain, France, Germany, and Italy: https://data.oecd.org/tax/tax-on-goods-and-services.htm#indi....

What is the policy takeaway? Those on the left point to Europe and say "we should be more like that; those countries have already figured out how to have a fairer, more humane society." What would our taxes look like if we raised the U.S. tax burden to European levels, but also adopted a similar distribution of taxes? Corporate taxes would go up slightly. Income taxes would not go up at all. Middle class taxes would double or triple.

Put it another way. What if we raised income taxes to Swedish levels? We would add about $500 billion in revenue, assuming that did not reduce GDP. Nice, but not even enough to balance the budget. What if we raised consumption taxes to Swedish levels? We'd raise $1.55 trillion, enough to balance the budget, pay for free college, and make a serious dent in universal healthcare.

What if we tried to raise that same money through income taxes? Our income tax burden would shoot to 18.5% of GDP, higher than all but Denmark (which is a huge outlier in the OECD). And what if we tried to raise that money from just the top 1%, like the left wants to do, instead of from everybody, as in Sweden (where the top tax bracket kicks in at $70,000)? You'd have to raise taxes on that group to 100% of income.

[1] I use these countries as reference points because they are the largest in the EU28--accounting for over 70% of the population.

mbostleman• 7 years ago

Agreed. I was going to say that this is a good trend. Business tax is consumption which is regressive which if you're on the left you should want to minimize or do away with. But there seems to be a popular narrative that to tax business is to somehow penalize the "man" or the "wealthy" and is thus a good thing. Has always seemed to me like punching yourself in the face.

ChrisLomont• 7 years ago

Once upon a time, most business income was taxed on the business side. For small businesses, the tax paperwork was a pain. So passthrough laws were made, allowing the owners to treat the business income as personal income, simplifying tax paperwork. The tax is still paid.

These changes over decades have moved the same tax from being called corporate tax to personal tax. There is nothing nefarious about it.

This last year, more such changes made to simplify taxes for small buisness moved more of the income in this manner.

I have been a small business owner for a long time, and do precisely this, because it simplifies my paperwork. The tax is still paid.

In aggregate this accounts for a lot more than most people realize.

Here's what happened this last year to move the needle

https://www.nerdwallet.com/blog/taxes/pass-through-income-ta...

exabrial2• 7 years ago

I'm ok with reduced taxes in general. An extraordinarily small percentage of our tax money goes to essential services: police, fire, EMS, etc. The efficiency of the US government (deliverable per dollar) is very poor. It may not be like this in every country, but for now, it's likely best to keep those dollars in the hands of individuals and businesses rather than a forced transfer elsewhere.

throwayEngineer• 7 years ago

Over and over, government corruption is extremely valuable.

I see my "Defense" counterparts are significantly worse programmers and claim to work less/never, but get paid 20k more per year than me.

These people don't create value, they destroy value.

They don't contribute to our roads/schools/local services that are actually useful.

As much as everyone is afraid of Google and Amazon, I don't see them getting bigger. They have hit a beaurcratic celling that will cause them to act too slow or too expensive.

The only reason government keeps growing is because they are not affected by profit.

Just raise taxes.

dougmany• 7 years ago

Government is all about stability. Being over worked and under paid is a recipe for burn out. Burnout leads to turn over which leads to instability. A reliable system needs to have knowledgeable, available, long time workers.

pnutjam• 7 years ago

And how will individuals and businesses address infrastructure and other necessary expenditures?

dv_dt7• 7 years ago

The efficiency of government is pretty high when it comes to IRS collection, to Medicare, to many systems. Defense spending I'd agree is extraordinarily inefficient.

conanbatt6• 7 years ago

Does it: it costs 100's of billions to comply with tax law.

exabrial2• 7 years ago

to Medicare

This is most definitely not true. Doctors that take medicare know fully well the medicare reimbursement rates will not cover the patient's bills, and raise privately insured rates to cover the gap.

dfilppi• 7 years ago

Businesses don't pay taxes, their customers do.

ObscureMind• 7 years ago

Just to make sure we understand something here:

Taxation is robbery.

If you want companies and individuals to pay taxes, you're defending a state that is unethical (as taxation forces people to give away their private property through coercion), and authoritarian ("democracy" is no justification for the use of force).

If you have any supposed justification for a centralized state that enforces taxation through the use of force on its citizens, you're only denying the fact you agree with crime.

Please stop talking about companies and individuals paying more taxes. We should all be paying no taxes through coercion.

U.S. business contributes smallest share of federal taxes in a generation

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