Corporate Taxes: Complete Fiction!

Originally posted by civilchallenger

Originally posted by bobber
GE didn't pay ANY taxes last year and actually RECEIVED millions.

The argument that the tax rate is too high is a strange one. More importantly, lowering taxes on rich people doesn't seem to work. We tried that for the past 8 years with Bush, how did that turn out? Meanwhile taxes were higher under Clinton, and we did pretty well. Actually, Bush, the big supporter of lower taxes for the rich and free markets, has the WORST job creation record since the great depression. What's up with that?

Corporate tax is not in any way, shape, or form, a tax on rich people. Do you understand that corporations are not people? A corporation's money is derived from mostly the middle class, but also the poor and rich. Furthermore the charts and graphs I link to in my previous post on this page show that a corporations profits do not significantly change due to corporate taxes.

So, which accounting column do you suppose that corporate tax money comes from? I'll give you a hint: cost of goods sold! That column goes up because the cost of the goods goes up! Then they use that money to pay corporate taxation.

As for GE not paying taxes last year that is a major victory for the middle class and something that we should be happy about! Now we need to make sure none of the rest of them are taxed as well.

I'm not sure how you rationalize any of this.

Originally posted by bobber
I'm not sure how you rationalize any of this.

Well, let me summarize what I said on the previous page.

#1. All corporations in the end get 100% of their money from everyday people like you and me. So when a corporation pays income taxes what they are doing is taking money from everyday people like you and me and then handing it over to the government.

#2. The statistics I link to on the previous page (use the "find on this page" function of your browser and search the previous page for "http"), clearly show no link between the corporate tax rates and the profitability of corporations. Corporations don't have magical money trees, bobber. That money has to come from PEOPLE. Surely you can understand that McDonald's pays its electric bill by charging you money for Bic Macs? Since that is so easy to understand, then it should also be understandable that McDonald's pays its tax bill in the same exact way... by charging you money for a Bic Mac.

And yes supply & demand do set prices but of course corporate taxes is going to set the supply curve to higher prices just the same as any other bill a corporation must pay such as electricity results in higher prices on the supply side of the graph!

If you agree that companies pay their electric bill by taking money from people like you, I don't see how you can rationalize that a corporation suddenly would chose not to get the money from people like you when paying tax expenses. Its like you believe a corporation is going to make a special exception for tax expenses to act like a charity and just give away their money and take it straight off of their profit column, digging into their own pockets?

The evidence is available and out there to put your questions to the test! When you look at the historic chart of corporate taxation and compare it with the historical chart of profit margins you notice that regardless of how high or low corporate taxes is, it really doesn't impact the profitability of corporations! You name any number that you think is evidence of any other idea and I'll be happy to look at it.

How are corporations effected by an increase in corporate taxes?
1. For corporations who have prices that may not increase (due to limited demand) the size of the corporation must shrink so that the risk/return ratio remains the same and profit margins are maintained. If the return on your investment shrinks because of increasing costs (of corporate taxes) you must also shrink risk to compensate by decreasing the size of the company (in terms of the number of dollars invested in that company).

2. For corporations having prices that are more flexible, the cost of products must increase to compensate for the increase in business expenses. Each new expense adds to the cost of products sold. And each new cost therefore must result in an increasing price.

3. Or in virtually all real word examples, a mix of #1 and #2 will occur. Product prices will trend up over time while corporate investment slows over that same time frame until profit margins are back to the same rate as before the tax was implemented.

4. The corporation will have to either avoid the tax or move to another place in order to remain competitive, partially explaining why corporate taxes trended from 5% of the GDP in the early 1950's in the US to a low of 1% in the 1990's.

Why?
Corporations make a slim profit margin on average (as shown in the links on the previous page) because we live in a somewhat capitalist system where you can invest in bonds, stocks, real estate markets, commodity markets, and other areas. All those areas compete for investment money. So, that is why you see corporations nearly always trending back to about 7% profit on the historic chart... because when the profit is 6% or lower money tends to flow out in favor of other investments, but when profits are 7.5% or higher then money tends to flow in from other investments.

According to your erroneous belief system where you think a corporate tax is a tax on rich people, a 50% corporate tax rate would (up from approximately zero% today) would reduce corporate profit margins from 8% to 4%. But this is IMPOSSIBLE. A 4% margin would make stocks desirable by nobody because you can get a 5% or 6% return on bonds and other investments. Who in their right mind would invest in a corporation earning a 4% profit margin? Nobody. The laws of risk vs. return then cause a flood of money out of the stock markets until profit margins on corporations are right back to attractive levels.

Conclusion
The supreme formula for investing (and therefore corporations) is all about risk vs. return. Thinking about risk vs. return as a business person means you don't put money into a corporation earning less than bonds and other investments. And of course a sudden rise in corporate taxes (if nothing changed) would mean you no longer have a good return in stocks compared with other investments! So rather than corporations simply being abandoned by investors what happens is some common sense adjustments to stay competitive... they decrease in size and/or increase their prices in a way that maintains the profit margin they have. Therefore, profits stay the same under corporate taxation!

So that is why corporate taxation is not paid for by rich people... corporate taxes simply reduce the total investment (risk) in the corporation and/or increase their product prices (return) to match the new tax expense. ALL business expenses, without exception, are paid for by the product buyers,

Are capital gains tax a tax that disproportionately taxes the rich? Yes. Are corporate taxes a tax that disproportionately tax the rich? No. In fact, corporate tax disproportionately effect the poor! Someone living on food stamps will be paying more corporate taxes than any other form of taxes. Their income is zero so they don't pay any other form of taxes! Corporate taxes make up their entire tax bill!

I just thought up another issue with no corporate taxes. Perhaps you could consolidate this issue as well.

Besides large corporations, there are lots of much smaller individuals that will start a corporation simply for the purposes of the tax benefits. If there are no corporate taxes, anyone can start their own corp simply to evade taxes. There has to be some tax simply to dissuade people taking advantage of a loophole like that.