Replies to post #217559 on Zeev's Turnips Patch-No Politics (ZEEV)

[langostino]

ardent - double taxation

Do you have any support for your claim that current aggregate ("double") taxation on corporate revenues has proven a "great impediment to capital formation"?

Quite to the contrary, the biggest long-term problem this economy has is the inefficient application of capital that rises from being awash in liquidity and too much easy money. Wealth creation is all about ROIC and ROIC declines in a world of inefficient application of capital.

The average publicly traded corporation isn't undercapitalized as a result of too high a tax on capital. In fact many of them today are still wasting and applying capital inefficiently because they have an excess -- and thereby creating less wealth per unit of capital investment. (Take a look at Sun Microsystems or 3Com or the wireless companies). The part of the economy that's in greater need of capital is small business -- which is why S-corps should be and are treated more favorably.

In an ideal world, we could go through and calculate the external costs each C-corporation creates and then shifts on to society generally, then bill them in the form of taxes that would pay for those costs on a dollar for dollar basis. But that would be an impossible formula to create and apply on a one-off basis, so instead we have general corporate rates.

This is "unfair" to some corporations, which shift relatively fewer costs onto society generally, and suck up fewer public resources, and equally a "ripoff" for other corporations, which are egregious cost-shifters and producers of external costs, and voracious consumers of public resources, which their corporate taxes don't begin to cover.

Natural resource extraction and production companies are notorious in this regard. Think about what Exxon Mobil's tax bill would be if it were merely required to pay corporate tax equivalent to the extra societal costs the production and use of its goods are responsible for creating.

This is the ultimate in showing profitability by shifting costs off-balance sheet. To expect some of those revenues gained to be re-allocated back to cover the costs shifted onto the back of the public is not only sensible but fair.

[Zeev Hed]

Ardent, you are assuming that there is a problem of "great impediment on capital formation". The problem is certainly not the "tax law", the problem is "opportunities for such capital formation". Such opportunities are created in the market place in terms of end aggregate demand. The "cost of capital", including the taxation of such capital, at the present is not the impediment. Right now, capital is as cheap as it has been in 60 years. By setting the cost of capital (equity vs debt) on the same foundation (cost in term of dividends on equity and interest on debt), namely taxing it the same way, you create a much better corporate balance sheet. The current state of affairs encourages weak balance sheets with excess debt, because the interest on debt is tax deductible while dividends paid to equity holders is not (to corporations). I agree with you that dividends and capital gains should be taxed at the same rates as interest received on debt instruments are (except that cap gains may need to have an inflation adjustment, thus the special treatment of LT or extra LT gains, may be valid), but if that is the case for recipients of such "income on capital", then the cost of capital (interest and dividends) should be treated the same way as well (both need to be deductible as "cost of capital").

If you go that route, the debt equity ratio n average will be reduced resulting in much more robust corporate balance sheets n general.

[redwards]

Maybe All seem to be missing the real problem. The Labor tax.
Would anyone willingly agree to be enslaved ? When a doctor or nurse goes to work at the hospital, she/he will end up having to give (work and labor) at least 30% to 50% of their labor to the government per se'.
Same with a dept. store manager or production worker, they are being compelled to give a substantial portion of their labor to big brother.
If I came to you and said,
"When you work, you have to give me 40 % of all your fruits of labor", and " I will provide a frame work of safety for you in return kind of, and by the way if you don't, your unpatriotic, and we will use force or seizure legally based on laws I collectively create to perpetuate my claim on your labor" , would you agree to this, I think not.
Gradually,Your a 40% slave.
It used to be, that forms of slavery were distained, but not this one.
The thought of economic freedom to choose a place to live with different levels of taxation that were at the peoples choice based on local govt., choice, is no more.

Was our true Govt. frame work designed to grow to this Monster of labor enslavement ? Of course not, unless you would truly want to be partially enslaved in return for what you get.
Slaves to the beauracracy.
Maybe Mauldin will take a lead.