I think in theory corporate taxes don't add any burden, because they only apply to profits and not to overall income like personal taxes do. You could theoretically have a 99% corporate tax and corporations that don't make a profit like Uber would continue completely unaffected. (Although the only reason they have the money they need to operate is because their investors expect to be paid by future profits, and if you taxed all profit away investors would not be willing to buy equity, so really they would be affected.)
It seems to me that money can be used for two things: productive uses and unproductive uses. Unproductive uses can be taxed as much as we want - as a society we don't really care that much if people can't do unproductive things with their money like pay for foot massages and things like that. (Well, people who want to pay for unproductive things like foot massages and videogames care, but I think it's okay to take away some potential foot massages via taxation to pay for important public goods.) But we should take care when taxing productive things, because we're taking away opportunities from our future. If a masseuse wants to invest in some kind of robo-massager that will let them give twice as good foot massages for half the price, that's just a better use of everyone's time and money than continuing to do it the old way and not something we probably want to discourage.
Seen through that lens, a wealth tax (or better, a consumption tax like a VAT) makes more sense than a corporate tax to me. Imagine a chash-rich opportunity-poor corporation that has only one thing to do with its excess cash: invest it building new widget factories for 3% return on investment. And let's say there's a cash-strapped opportunity-rich second company that can build new factories for a 10% return on investment. What we would want to happen is for the owners of the first company to withdraw the excess cash, so they can invest it in the second company which has much better things to do with it.
With a corporate tax, that process is interrupted, because the first company can invest in itself tax-free but must pay taxes to return money to investors so they can put it to better use.
My thinking is that a wealth tax taxes nearly the same thing as a corporate tax, without this flaw. You can't really tax a "corporation", fundamentally everything is owned by someone so if you tax a corporation you really tax the owners of the corporation. Here's how that plays out: The price of a share of a company is usually modelled as the expected future earnings from posession of that share, discounted for time. So if you expect a company to pay dividends of $0.1/share/year forever and have a discount rate of 5%, you should be willing to pay $2.00/share. If a corporate tax of 50% reduces that to $0.05/share/year (since half the profits have been taxed so the dividends are half as large), the price will drop to $1/share. A wealth tax taxes the value of the shares directly, instead of messily taxing the profits and affecting the share price indirectly. But a wealth tax doesn't have the weird switching-over issue I mentioned earlier, so money would no longer be trapped in unproductive areas (or worse, trapped overseas waiting for a change in US corporate tax policy).
A VAT would be even better because it would incentivize people to keep their money in productive uses by taxing only unproductive uses (VAT doesn't apply to stocks or business expeneses or things of that nature). But that's kind of tangential.
Maybe a professional economist can correct me on this but that's my thinking.
> "With a corporate tax, that process is interrupted..."
there is no process interruption here. a tax on profit doesn't prevent corporations from investing in the highest npv projects available to it because capital expenditures and r&d investments occur before that taxation, and moreover the interest expense is deducted as well.
despite all the hand-wringing over corporate taxation, this maxim holds true in most cases. taxation has little effect on the investments a company chooses (or alternatively, the variance of choices gets lost in the error bars). they will still tend to choose the highest npv projects, even if that's negative.
I think you misunderstood the parent. They're discussing the case where a corporation has no high NPV projects available to it, and the best thing to do would be for it to return money to investors. They can then spend it on other companies which do have those opportunities.
In that case, it has to take that money as profits instead of reinvesting, and so is taxed.
that's more theoretical than practical. in many cases companies can work around that limitation to make such investments without (all of) those tax implications. money is typically returned to investors because the board and the executives want it to diversify themselves away, not because there are no npv positive projects to invest in. and there are plenty of ways to spend on protecting existing income streams, which is what we see companies doing regularly. there are lots of principle-agent problems and moral hazards in this realm that cloud the practical from the theoretical.
It seems to me that money can be used for two things: productive uses and unproductive uses. Unproductive uses can be taxed as much as we want - as a society we don't really care that much if people can't do unproductive things with their money like pay for foot massages and things like that. (Well, people who want to pay for unproductive things like foot massages and videogames care, but I think it's okay to take away some potential foot massages via taxation to pay for important public goods.) But we should take care when taxing productive things, because we're taking away opportunities from our future. If a masseuse wants to invest in some kind of robo-massager that will let them give twice as good foot massages for half the price, that's just a better use of everyone's time and money than continuing to do it the old way and not something we probably want to discourage.
Seen through that lens, a wealth tax (or better, a consumption tax like a VAT) makes more sense than a corporate tax to me. Imagine a chash-rich opportunity-poor corporation that has only one thing to do with its excess cash: invest it building new widget factories for 3% return on investment. And let's say there's a cash-strapped opportunity-rich second company that can build new factories for a 10% return on investment. What we would want to happen is for the owners of the first company to withdraw the excess cash, so they can invest it in the second company which has much better things to do with it.
With a corporate tax, that process is interrupted, because the first company can invest in itself tax-free but must pay taxes to return money to investors so they can put it to better use.
My thinking is that a wealth tax taxes nearly the same thing as a corporate tax, without this flaw. You can't really tax a "corporation", fundamentally everything is owned by someone so if you tax a corporation you really tax the owners of the corporation. Here's how that plays out: The price of a share of a company is usually modelled as the expected future earnings from posession of that share, discounted for time. So if you expect a company to pay dividends of $0.1/share/year forever and have a discount rate of 5%, you should be willing to pay $2.00/share. If a corporate tax of 50% reduces that to $0.05/share/year (since half the profits have been taxed so the dividends are half as large), the price will drop to $1/share. A wealth tax taxes the value of the shares directly, instead of messily taxing the profits and affecting the share price indirectly. But a wealth tax doesn't have the weird switching-over issue I mentioned earlier, so money would no longer be trapped in unproductive areas (or worse, trapped overseas waiting for a change in US corporate tax policy).
A VAT would be even better because it would incentivize people to keep their money in productive uses by taxing only unproductive uses (VAT doesn't apply to stocks or business expeneses or things of that nature). But that's kind of tangential.
Maybe a professional economist can correct me on this but that's my thinking.