Is the country headed for disaster??

[IlliniDave]

The money used by the business to pay the taxes comes out of the pockets of the customers/consumers. Prices are set high enough to generate sufficient income to the company/corporation so that they make an acceptable profit net of taxes.

What is sufficient income? Why is it so much higher for some companies than others? Apple and Microsoft pay very little taxes, but they still charge very high prices for their products compared to what it costs to make them.

Businesses aren't charity operations. If they can charge high prices they will. If all taxes on profits went away they wouldn't lower their prices, they would just pocket the extra money. As they are already trying to maximise their profits it naturally follows that increasing the prices would lead to lower profits after taxes, not matter what the tax rate on those profits is.

Sufficient in context would mean enough to satisfy investors/meet their targets for investment/growth. I really was speaking more towards a minimum net profit.

Of course, most businesses will charge as much as they can and maximize their profits.

But there's this pesky thing called competition in a free market. For example a gas station may want to increase it's gross proceeds by $0.50/gallon. But if it raises its price $0.50/gallon, it won't sell much gas. It's customers will go to the competitor across the street or down the road where they can get gas $0.50/gal cheaper.

So if business income taxes go away prices will begin to go down as businesses strive to increase their sales by having lower prices than their competition.

Companies like Microsoft and Apple are somewhat unique in that they are a long way ahead of their competition, and in many respects don't really have true competition. But in the wide word of free market capitalism, they are anomalies.

[Scrubby]

So if business income taxes go away prices will begin to go down as businesses strive to increase their sales by having lower prices than their competition.

If increasing sales would make them more money at 0% taxes then it would make them more money if they have to pay 30% of those profits in taxes as well. The competitors are there no matter what the tax rate is, and they have to pay the same taxes. Having taxes on profits won't make it easier or harder to compete for any particular company, and they will sell the same amount of goods and make the same amount of profit before taxes at any particular price point. It will lower the profits for the owners, but it will do so for everybody in every business. It won't make any particular business more or less attractive for investors. I don't really have many more ways to say this, so I would appreciate if you explain why you think this particular point is wrong.

[henrik]

(Un)fortunately, competition and capital nowadays mostly don't care about tax jurisdiction or country boundaries.

[IlliniDave]

There really aren't any profits before income taxes, only net income. So taxes necessarily reduce profit for a given price point and sales volume (i.e., gross revenue).

Taxes are basically a cost of doing business, the same as labor costs, energy costs, material costs, etc. All those things are built into the price the business charges the consumer for the good or service. So the consumer/customer is ultimately paying the taxes as well as all the other costs. Profits are what the company gets to keep after all costs, including taxes, are paid (income tax versus some sort of "profit tax"). When any of those costs can be lowered, the business can take advantage and lower their price to the consumer because they can be equally profitable on lower income. That includes taxes.

In other words, having the income taxes in place only makes things more expensive for the consumer/customer (me and you). For the business it is a pass-through.

I think the confusion is that you are equating net income (before taxes) with net profit, which is not the same thing.

If income taxes are removed from businesses, competition will lower the price of the goods and services by the commensurate amount in the vast majority of instances. The consumer/customer saves money. The government replaces the revenue with a sales tax. It is paid by the consumer, but the consumer now is not paying income tax on his own earnings, plus is paying a lower price for goods/services. If the sales tax is set right, it should be a net wash for government revenue. Savers and people who are careful about their spending are rewarded in such a system.

[Dragline]

Companies like Microsoft and Apple are somewhat unique in that they are a long way ahead of their competition, and in many respects don't really have true competition. But in the wide word of free market capitalism, they are anomalies.

I don't believe this statement/assumption to be factually accurate. Most very successful businesses have what Warren Buffet calls "a moat", which restricts competition in their particular business line. Indeed, most of the Dow component companies fall into this category -- this is why they are so large and successful.

Companies like Starbucks would not even exist if the assumption were not a fallacy. Branding would be almost meaningless, yet we know from practical experience that it is often more important than the product itself, because consumers tend to prefer fewer choices with consistency -- even if it is relatively mediocre -- to doing their own research. This is also why Amazon succeeds where Ebay fails.

This reality is that most industries are dominated by a relatively few number of players. The anomalies are things like gasoline and groceries and personal services like barbers and dry cleaners.

[IlliniDave]

Dragline--I agree in the realms of the big boys among publicly traded companies. At a certain level probably it becomes all about branding and image for many. I still think MS and especially Apple are somewhat unique even in the league of MegaCorps for the width of their moat.

But my comment was meant more with a vision of walking down "Main St" and all the generic businesses you'd find there--like gas stations, restaurants, flower shops, plumbing suppliers, lawnmower repair shops, thrift stores, veterinarians, and the like. The ones who are most meaningfully affected by income taxes, who are the most likely to pay the statutory rates, and with whom I tend to do more business than with the megacorps.

That Apple is sitting on billions in cash offshore to avoid a second layer of income taxes, or that Microsoft at one time had largely eliminated its competition worldwide is not representative of the situation of "typical" businesses or even corporations.

[sky]

<thought experiment>
Humans should not be taxed, only corporations should be taxed.
</thought experiment>

[GandK]

<thought experiment>
Humans should not be taxed, only corporations should be taxed.
</thought experiment>

There go all the sole proprietorships...?

[jacob]

http://news.goldseek.com/GoldSeek/1435517950.php --- Good overview of the Greek "money"-situation.
http://www.firstpost.com/world/is-terro ... 15886.html --- And the Middle East.

Both cases examples of policies not matching reality (or other policies).

[Riggerjack]

"The first thing I would do is register a company, put all my assets in it, make myself an employee of the corporation that gets paid a dollar every once in awhile, but the corp. pays all my expenses as part of my "employment". I never make any profits or any income yet my lifestyle does not change. No taxes for me! And I wouldn't have any employer pay me much. Instead, they would agree to pay me a token wage and buy "services" or other tokens from my company that I would never cash out."

The IRS already has this behavior nailed. It wouldn't fly now, what makes you think it would in a system without exemptions.

Let me give you an example. I used to do a lot of work for an insurance company. The CEO and a few other executives had very nice company cars, as perks. As the company reorganized, from non profit to for profit, this became a problem. It seems that these perks are fine for a nonprofit, but a for profit company has more stringent requirements. In the end, the executives just bought their own cars because it was cheaper than using company money and accounting for private use.

Think of corporations like 401k's. Tax advantages accounts, but when the money comes out it is taxed. In this way, we can focus on efficiency, not tax efficiency. It would remove the illusions of taxing businesses.

Of course, this will never happen because it is very easy to paint black goatee on businesses, and most people want to believe in their soap opera view of the world.

[vexed87]

@jacob - that's a great analysis of the Greece's situation.

It's maddening to see how politicians are seemingly able to get away with 'kicking the can' further down the road. I expect all countries are in the same boat.

Once you people see politicians for what they really are, do you all completely disengage with the soap opera politics? I ask because the ERE book says get involved with politics, I'm assuming local politics. Not sure what can be done on a national/international scale.

[GandK]

http://news.goldseek.com/GoldSeek/1435517950.php --- Good overview of the Greek "money"-situation.

Now I'm wondering why being a writer or a hairdresser is considered hazardous enough to qualify for early pension benefits. Carpal tunnel, maybe?

And three years of work vests you completely for a full pension?!

No wonder they're going under!

[SimpleLife]

Yep, that's what you get with liberal policies of taking from those who earned it via a progressive tax system, and giving it to those who didn't.

Hey guys, if you vote for me, I promise to take the excess from those who went to college, sacrificed, worked hard, started business, etc. and give it to you while you sit at home doing drugs, drinking, and popping out more babies for more benefits!

For those that do work, I will give you twice the pay the private sector pays via the UNION, and then give you a pension after three years.

Seriously though, who on Earth other than those who stand to benefit from this nonsense would vote for this? Oh, that's right...

And the reality of it is, it's much easier to be a loser in society than it is to be successful, as such, more people are drifting toward getting paid by you and me to do nothing...

Of course the politicians are going to cater to this crowd. Sooner or later this idiocy will stop in the US, just like it's about to stop in Greece. I can't wait.

[sky]

If you think that is bad, add a massive military budget on top of it all.

[jacob]

@SL - You don't even need the tax system to cause such problems. The EU monetary union allowed banks to extend credit at interest rates that were too fundamentally low for Greece. This was turned into unproductive consumption but also allowed massive growth in the exporting European countries, especially Germany benefited from tremendous growth. The Germans now want their money back but the Greeks kinda partied that money away.

Does this in any way sound familiar? US, China, Dollar?

[mfi]

Sounds familiar, but not necessarily the same. The US has (borrows in) its own currency (...and also has nukes). Greece does not have either one.

[jacob]

Greece can just refuse to pay---it's not like war ships are going to show up because the Europeans are civilized that way these days---but that would permanently lose its cheap funding (the EU monetary system).

The US can also refuse to pay (or monetize)---again no war ships, especially not with nukes---but that would also would lose its cheap funding (the Bretton Woods system).

Different details, similar predicament.

There are many kinds of unproductive behavior and many ways to fund it. Ultimately, the results are similar.

[sky]

I suspect that the US social security program is the largest social welfare program in the world, on a dollar basis. The consequences of that program collapsing would be devastating to many people, me included.

[Chad]

Fortunately, Social Security can be fixed rather easily if any politician has the fortitude. In reality, it wouldn't be fixing it. We would just be moving it back to what it was originally intended for. This wasn't retirement, but old age insurance. In 1935, the year it was enacted, the average age was somewhere in the low 60's. Now it's in the mid to high 70's (though maybe our sendentary lifestyle and poor diet will fix this for us). This really should be a major issue for Gen X and the Millenials.

http://www.actuary.org/content/play-soc ... urity-game

http://crfb.org/socialsecurityreformer/

Yep, that's what you get with liberal policies of taking from those who earned it via a progressive tax system, and giving it to those who didn't.

Statements like this don't help anyone. This just creates animosity and furthers the "team" dynamic of politics of catch phrases and dumbed down rhetoric we hear in the debates.

[Riggerjack]

"Fortunately, Social Security can be fixed rather easily if any politician has the fortitude. In reality, it wouldn't be fixing it."


The reality is Social Security will always be in crisis. The system is designed to be a constant disaster. Using today's taxes to pay for yesterday's obligations while building future obligations means that when it runs surpluses (90's), it will be shamelessly raided, (that's how Clinton got a "surplus", while simultaneously increasing the national debt). And when it runs dry, they jack the tax up. It started in the 2% range, now we are running 15%.


I expect the next " fix" will be to remove the cap on the earned income subject to FICA tax. That way, we can fix the system by "eliminating tax breaks for the rich", while also not in any way taxing the rich.

Once again, in America talking about earned income and The Rich, is simply obfuscation.