Clarity on Different Forms of Taxation

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I’ve been meaning to raise an interesting tangent taken by the commenters to my post about Little Compton school choice when “Honesty Broker” commented:

I’m not saying corporations are killing our state (thanks for putting those words in my mouth BTW) – corporations are vital parts of our society. They just need to pay their fair share of taxes. Tax income is reduced as states around the country compete to entice corporations by lower and lower corporate tax rates or special tax deals for a specific company. It’s a downward spiral. …

I’d also like an increase in investment taxes (primarily short terms gains where folks just game the market vs making investment based on the vitality or future of a company). It seems we get taxed more for working and creating while getting taxed less for speculating.

The public conversation about taxes has become confused because we’ve tended to think of them categorically — this tax in this capacity, that tax in that capacity, and so on — and have lost sight of the basic question:  Who pays taxes?  The obvious answer is that people do; all the rest about consumption taxes, investment taxes, corporate taxes, sales taxes, income taxes, and so on, is just about who pays what share based on what activity.

Frankly, I agree with the commenter about investment taxes.  People who invest money as their source of income are in an occupation to generate income, and they should pay the same taxes on that income as people whose occupation is building something or managing something or designing something.  That isn’t to belittle investment, as a job; it’s simply to decline to elevate it to a privileged status over other forms of work.

The argument for not taxing investments, it seems to me, derives from the principle that we want people to invest in their own or other people’s activities.  Here, too, I’ve never been persuaded that an investment of money should be treated any more valuably than an investment of effort.  Why should a worker who takes lower pay in order to help get young company off the ground not have the same claim to tax exemption when the company’s success produces a big raise?

So, yes, tax investment income as income.  To acknowledge the value of investment, however, deduct from taxes any investment income that goes right back into an additional investment.  This might require a slightly more-complicated regimen for tracking investments, so that people don’t roll their income into investments that have little return so that they can then withdraw it as the untaxed basis of an investment, but I’m talking in conceptual terms, here.

A similar thought pattern applies to corporate taxes.  Ultimately, people pay taxes.  If investments were taxed as income, then taxing a corporation’s income is little more than a trick to tax money twice.  Tax it when people take the money out, whether as wages or investment profits.  This, too, may have complications when multi-state corporations are placed in the mix, but again, this I’m writing conceptually.

From this perspective, what does it mean, actually, to assert that corporations don’t pay their “fair share” of taxes?  This might be where the conversation must begin to dispense with generality and get into particulars, but broadly, it seems to me that the “fair share” claim is essentially that people who organize together as corporations in order to generate their income must be taxed twice.

To be sure, in bringing in the particulars, it would be fair to observe that those who derive income from some out-of-state wing of a company wind up not paying taxes in Rhode Island at all.  But once the conversation branches in that direction, any analysis of “fair share” also has to consider the benefits the corporation brings to Rhode Island.

We could cut right through all of the above, of course, if we would start from the belief that we would all benefit from an economy that didn’t create so much incentive for people to be taxed elsewhere.



  • Rhett Hardwick

    I hope I have not forgotten my figures. It seems to me that one of the reasons the Beatles moved to America was that the British tax on investment income reached 110%.

  • Honesty Broker

    Corporations are legal entities that are allowed to legally exist in this country. One reason people “join” corporations is to remove themselves from liability. This allows them to benefit from money generated by the corporations regardless of what the corporations do.

    Corporations get more direct benefit by existing in the USA than people do. The government provides a highly educated workforce (although a greater and greater percentage is picked up by the student), patent protection, communication, air travel, and other infrastructures.

    The government provides research funding that is often handed off to industry (it is impossible to calculate how much private sector profit has been made/protected from the transistor, the internet, medicine, vaccines, the military, etc.)

    One would think that corporations should pay much much more than people since corporations have unprecedented access to and control of the the government these days. This allows them to avoid taxes, reduce regulations (not for the common good), stifle competition, etc.

    If corporations think they can do so well on their own then perhaps they should go ahead and physically relocate to Somalia – I bet taxes there are pretty low.

    There’s no confusion Justin, just obfuscation by Libertarians and their minions…

    • Justin Katz

      I think you assert overly much in saying that “corporations get more direct benefit” than regular folks. Obviously, if you only list one side of the scale it gives a skewed impression. Now do the same for the average person.

      And then throw in the frankly offensive idea that “government provides a highly educated workforce.” What are we cogs or trainable rodents who would have no self-directed autonomy but for the meddling of bureaucrats? That comment alone invalidates your entire comment, with the toxic residue tainting much else that you have written and will write. Whatever help government programs may provide to people (and I think you vastly over imagine that), the success is theirs, not government’s. Government didn’t build that.

      And this idea that businesses should pay more because they have unprecedented access gets things exactly backwards. The more they pay, the more access they have. Devalue government access, and they’ll pay less.

      This, again, is backwards. Corporations, as an evil bogeyman, WANT big government, because elite executives work just fine with elite politicians. The benefit of defining corporations down goes entirely to the small businesses and the people.

      • Honesty Broker

        You could turn “Little Red Riding Hood” into a diatribe about the failings of a world that does not follow Libertarianism.

        Yes – people get benefits from taxes, but you wish that ONLY people pay taxes. Dollar for dollar, corporations get more for their buck (especially those that pay zero or near zero taxes). oh – I almost forgot, another benefit corporations get is the “externalizing of their costs”.

        Government does in fact provided funding to schools, especially in the areas of research, loans, and general funding at one point, etc. I did not imply that we depend on the government to direct in our future – for you to say that is quite revealing of your mindset and willingness to reach for anything you can to prove your pro-libertarian, anti-person pack of lies. Too funny – offensive, really?!! No one ever said or even implied that government drives peoples success. I will say though that the current libertarian push (funded by the wealthy) does plenty to hold people back.

        Industry’s current access to government is related to lobbying, not by how many taxes they pay and you know that. Their lobbying only reduces their tax load.

        If you want to devalue government access you should be pushing to undo Citizens United an the other SCOTUS decisions that tie access to government to writing a check.

        Libertarians do not care about small business – the U.S. Chamber of Commerce (at the national level) does not care about anyone but the stale industries that fund them. The local Chamber of Commerce is a different story (so don’t go putting words in mouth on that one also).

        Libertarians want small government – a small and well-bribed government. They have reaped the benefits as they have slowly but steadily moved money from the economy to their trust funds.

        Your throwing around words like rodent, elite, offensive, etc. is laughable and pathetic – considering how much time and effort you throw at your writing assignments, one would think you would do a better job.

        • Justin Katz

          I’m not saying I wish for only people to pay taxes. I’m saying that’s the fundamental reality of taxes. The government can contrive all sorts things to call a tax, but ultimately people are paying them.

          And the thing about a small government is that there is very little that it can be bribed to do. That’s the point.

          • Honesty Broker

            Yes the government decides what can be taxed – and when the government is more representative of people and not corporations/wealthy then that’s not a bad thing. Remember, the government was initially created for the people. So you stated the obvious and made no point at all.

            The point you make about small government is totally and absolutely wrong.

            The ability for a government to be bribed is based only on what the contrived law allows and the ability for people to look the other way.

            Many (if not most) corrupt governments are small. Our government is becoming corrupt because of a stacked Supreme Court that passes pro-business access while curtailing the ability of humans to vote.

            The steps that the wealthy have taken to corrupt our government over the past 40 years are easily identified.

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