Prices will never fall for everyday goods other than gas. Shirts won't get cheaper at Target or Walmart. Nor will jobs come back to the US. After giving corporations loophole after loophole, the only thing they have ever done is raise prices and try to increase their profit margins by moving more and more jobs to third world countries, at least production. What evidence, historical or otherwise, do you have to support any of these claims?

Lovely idea....if corporations where lovely people. Unfortunately, they tend to be sociopaths, if you look at em closely.

1. Just because costs go down doesn't mean that companies will lower the costs of their goods.

2. International corporate taxation is quite complicated. It's not simply a matter of paying taxes in the country of incorporation. We tax people not only to locate/incorporate here, but to do business here, as well. "Foreign" companies pay American income tax, on American-sourced income, to the extent allowed by treaty, or to the extent that the American tax exceeds the foreign tax.

So we'd be giving a bonus to people selling goods here which were made in foreign countries - their expenses would drop, as well.

Therefore, if we cut taxes on companies which are LOCATED here, we'd also be cutting taxes on companies located elsewhere, which do business here. (to an extent - is very complicated). As well, the country of incorporation is not necc. the county where manufacturing, offices are located. We might get a boost in incorporation - without an encompanying boost in employment OR revenue.

And, as would happen if you eliminated income tax for corporations, if you can't tax a company simply for the privilege of being organized under our laws, and the company isn't taxed for doing business here, and the company employs no one here, and the company manufactures nothing here...then there's no benefit from the company locating here.

3. You really want to change the world? Break the American addiction to growth-as-investment. Raise capital gains taxes to the level of income, and lower the tax on dividends. This would create a dis-incentive to inflate the value of stock, and an incentive to increase the equity, income and stability of a company...companies that pay reliable dividends would have better access to funds than companies with good buzz.

Aaron, the only reason prices would go down would be from competitive pressure. If eliminating taxes cut the cost of production, then companies would be able to respond to competitive pressure more aggrressively than they otherwise could. Cutting costs is what every company strives to do, not just to raise income, but also to be able to respond to price competition when necessary.

Persephone, you are of course correct. Unfortunately. Although "sociopath" implies evil intent, where I believe it is more a case of simple apathy toward everything but the bottom line.

Hobo, I appreciate your thoughtful response. Regarding your first point, I agree, except companies lower prices when it makes financial sense to do so. If they can increase profit by lowering prices to improve market share, they will do so, as long as they have the production capacity to meet the increased demand.

State and Local governments are always giving tax breaks for companies to locate within their jurisdictions. Are you saying federal tax incentives could not do anything similar? Just as my city provides incentives for companies to locate here, why can't the federal gov't use fiscal policy to incent companies to locate and hire workers in the United States instead of overseas?

if you want a rational, fair and cheap tax system, it's easy: eliminate cash. clip off x per cent of every transaction. direct to treasury. set x at what's needed to fund public expenses.

this won't happen. the ability to reward supporters with tax relief is the main tool of politicians in staying in power.

listen, I know there is a lot of jargon and material taught in business school about accounting and "the books", but what you are saying has no historical proof to back it up. When companies started to make goods overseas, the prices of their products did not go down. Look at cars. Most of the cars and car parts are not manufactured here. The plants here were shut down and moved to Mexico and the like. That cut costs. Did prices fall? No, we were paying more for inferior products. Now I'm sure you'll invoke some kind of labor union argument to that one, but its like the executives, like yourself, were hurting either. I think they may have even gotten a raise or two. And that doesn't even begin to discuss the stock holders.

The push in our economy is not for efficiency. It is for growth in profit. That's what drives investment. If you cut the corporate tax all together, fat cats will get fatter and prices will stay the same.

If I'm wrong, prove me wrong with some numbers. They tend to be pretty useful.

Al, sounds a bit like a VAT. And I've always thought that was a pretty good idea.

Aaron, what I can tell you is that production was moved overseas to cut costs and to enable company's to maintain competitive prices. I hear your point, and hold no illusions that corporate bigwigs act in anything but their own self-interest. I have good friends who are much higher up on the corporate ladder who agree with you.

I do believe prices would have to come down if the consumer's disposable income decreased as a result of greater individual tax rates. I can't prove that, however, since it hasn't been done before.

In my last comment to Aaron, I meant "companies", not "company's".

Great theory Steve. You may be right. The truth is that for the past decade 75% of the Corporations in America didn't pay income taxes anyway. Only the smaller ones get stuck with it.

You may be right. I may be crazy. But it just may be a lunatic you're looking for. Turn out the lights. Don't try to save me. You may be wrong but all I know is you may be right.

rated!
Peace
Greg

Well Greg, like I said, I'm not really qualified. I mean, what do I know? I am the walrus. Still, I've been searching so long to find an answer...

The thing that will stimulate hiring and expansion (job stimulus) is an increase in the demand for products and services. You can cut a businesses taxes to 0% but if he needs 22 people he hires 22 people. Demand side tax cuts don't have the bang for the buck that government spending does. People tend to pay down debt with tax cuts or stuff them in mason jars and bury them under the shed (the more conservative prefer banks, I'm told).
The other thing is, for all the churn in the US economy, businesses don't pay a lot of taxes. The money tends to end up in somebodies pocket, thus the profit (the only part of the business that's taxed) is a choice the ownership makes. Corporate taxes are much greater than the marginal tax rate making dividends the preferred method of cashing out.

Very counter-intuitive. One of the big problems with the tax system in the U.S. is that it is perceived as unfair. There are so many exceptions to the basic rule of taxing any money when it changes hands. So eliminating corporate tax would be a gigantic exception to the rule and be perceived as unfair. It also seems like a spin on the old trickle-down theory that has been (finally) discredited. I sure would like to see some tax simplification though. I guess that would require a complete overhaul, and that's pretty unlikely, darn it.

The difference between "state and local tax incentives" and cutting out the federal income tax for corporations...it's like saying "What's the difference between an apple and a grapefruit? They both grow on trees, have seeds, and are round." Grapefruit pie sucks.

State and local tax incentives operate in a variety of ways. Mostly, however, they give some kind of stepped-down tax rate, or stepped-down tax assessment, or tax rebate, to a corporation for doing some desired behavior. This desired behavior is not, necessarily, incorporating within a state. It's often locating a manufacturing facility within a state or town, or moving a headquarters there. Often there are specific agreements requiring hiring of locals, etc. The maximum tax benefit which can be gained by these incentives, however, is limited to the maximum tax burden which would have been imposed otherwise.

Property taxes are often used for incentives because they're straightforward. Paid once, to the place where the property is located. Towns and states make out like bandits on this because (generally) nobody else is taxing that property. So when they offer a tax discount for a facility to locate there, it's a powerful incentive.

State income tax benefits are trickier. Corporations often have to pay taxes to the state of incorporation, as well as the state where they do business. Generally, the state where the income was generated will offset the tax they are owed by the amount of tax paid by the corporation on that income in their state of incorporation.

Delaware has no corporate income tax. Therefore, a buttload of corporations are incorporated there. However, this only provides partial relief. No large business can do all business within Delaware...it will make money outside Delaware. That money will be taxed in the source states. So the discount is smaller. It's still an incentive to incorporate in Delaware, but have you BEEN to Wilmington? Not so great for its economy. Lots of P.O. boxes, not a lot of jobs.

Another way that states often use incentives is to create deductions or credits for specific favored types of businesses or transactions or behaviors. This only works to the extent that the business would have to pay tax on that transaction... and is offset, again, by the extent to which the business is subject to tax liability in another state, on the same income.

Going international ...

The tax system is somewhat like this. (Vastly, vastly simplified):

A corporation has a country of residence.
Corporate income has a source.

The country of residence taxes all corporate income. (If it has an income tax)
The country of income taxes all income from that country. (If it has an income tax).

To prevent double taxation, when the United States is the country of residence - there is a credit which may be taken, against the taxes paid to the source country. Therefore, the corporate income tax for a U.S. resident country is the higher of the taxes owed to the united states or the taxes owed to the income source countries.

Your proposal would eliminate, I presume, income taxes both on foreign corporations with U.S. source income, and those on U.S. corporations with U.S. and foreign source income.

Therefore, foreign corporations located or incorporated in tax-shelter countries, doing business largely or exclusively with the United States, would pay no income tax to the country of residence, or to the United States. Big bonus for them. They would also, likely, be able to take advantage of the lower wages and cost of living there. Their costs would be lower.

A company in the United States, with all United States source income - would be in largely the same position as the foreign company above. However, the cost of living and wages would be higher. Their costs would be lower than now, but likely, not as low as the foreign company above.

The person really getting screwed would be the United States-based business which has foreign source income. Because they do not have the United States offset, unless the foreign income tax rate was lower than the United States tax rate, they'll still pay the same amount of income taxes. They'll now be less able to compete with foreign companies doing business with the United States, because they've got the same tax burden as before. The only difference will be that a foreign source country is receiving the tax revenue, not Uncle Sam. Booo us.

Now imagine some hybrid corporation. Company A is headquartered in the United States. It is incorporated in the United States. All manufacturing, phone-banking, etc, is done in Lowwagevania, which has a very low cost of living, no minimum wage, and very liberal standards for child labor.

Company A sells products exclusively within the United States. It pays no income tax on this income, because of the super corporate tax cut you proposed. It employs a mail clerk and a salesman in the United States, but no one else.

All money from these sales would pool in Lowwagevania, where the employees are, where the factories are, where the actual economic effects are. Because you've eliminated corporate income tax, there's no reason not to let any profits accumulate in Company A, in the U.S. Because there's no reason not to let profits accumulate in Company A, then there's no reason to kick out a dividend to be taxed in the U.S.

Do you get me?

Company A receives a great benefit from this scenario - but the United States receives none.

Company A actually recieves the MOST benefit by incorporating in the US, locating abroad, and selling exclusively in the US, rather than by incorporating in the US and selling abroad. Because unless it restricted sales to only tax shelter countries - it would STILL be paying income taxes on foreign-source income. Therefore, this solution would APPEAR to offer an incentive for more purchases of American-made products by Americans - while in fact, it would simply put an american name on foriegn goods.

This is a vast over-simplification. International taxation - the systems which create incentives and disincentives...it's amazingly complex. There are a million sources of law, thousands and thousands and thousands of provisions...they say there are only a hundred lawyers who understand Subchapter F at any given time.

I'm .75 of one.

What would happen if all taxes were eliminated except sales taxes? Sales taxes seem to me to be the single "fairest" form of taxation ever invented.
There would need to be exemptions for certain things, of course; like all basic necessities.
Food, clothing, medicines, medical care, rent & mortgage payments, heating costs and education costs, to name just a few, could be exempt.

Everything not a basic necessity (and therefore an "extra") would be taxed. Should be affordable when a working man/ woman can take home what they earn instead of only a portion of their rightful earnings.

There is no real reason for me to jump in here to say what I have to say because it has been said already: I respectfully disagree.

Sales taxes are regressive.

I.e. when people are taxed upon spending, then people with low incomes will pay taxes on nearly EVERY dollar they earn, while people with high incomes, who can afford to save, are taxed at a far lower rate, proportionate to income.

I honestly believe that our current tax system is very close to fair, except in a couple ways that the very rich find to make income look like something else entirely.

Hobo, you've about got me convinced. Oh, don't we wish the world was a little simpler!

Thanks to those who stopped by...obviously, nothing remotely like what I put forward will ever happen, even if it made perfect sense.. It's really just an exersize in punditry and debate. But one I think is worthwhile. Thanks.

I do agree that sales tax is regressive, but so is the VAT, and that seems to work fairly well in much of the world. Seems to me it would make sense to have a sales tax as long as certain necessities, such as food and perhaps some clothing, were exempt.

I agree with Hobo that the tax system is pretty fair for most at the individual level. The very wealthy, of course, find ways to shield income. One exception to fairness in my mind is the interest deduction on mortgages. I'm not so sure that is fair...it is a deduction that is unavailable to many who cannot afford to purchase a home, or for whatever reasons prefer to rent. But that is a discussion for another day.

Sorry, but the topic of taxes make me go blank. But your post reminded me of quarterly taxes, I've been working on them off and on all day...Damn!

Hobolawstudent,
Perhaps you'll find your way through law school quicker if you actually read a comment before commenting on it.
I DID have a caveat about "basics" being tax exempt. Given that exemption, your low income people would need to be spending a huge chunk of their income on non-basic items to be adversely effected by a sales tax.
A concern for what proportion the wealthy pay of their income is irrelevant. If we'd stop worrying about what the other guy pays, or earns, or does with his money, and just paid attention to what WE do with our own money, we'd have a much better life.
It may be popular among the Lib/Left crowd to offer the formula: Rich = crooked.....Poor = honest, but it ain't true. I have, in just 67 years of living been rich for only about 6 years (seemed like 30 seconds) and been poor for 61 years (seems like eons). Having tried both, I can say, with absolute certainty....Rich is Better........Much, much better. The dignity of Poverty is a myth. A very large portion of the problems of the poor of modern nations could be alleviated by elimination of "income" taxes and of sales taxes on all but "basics".

Hey Mary, it's a boring topic, at least for most of us, but regrettably one we cannot avoid!