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.