11 thoughts on “A Woman After My Own Heart”

  5. I don’t have an ideological attachment to a corporate income tax. I do wonder how, in the absence of such a tax, we would keep people from using corporations as tax shelters. For example, I could incorporate my business and, instead of paying income tax on each year’s profits, leave all but what I need to live on in the company’s name. There it could grow tax-free, like a tax-sheltered IRA with no contribution or withdrawal limits. Great for me (and anyone who can afford to incorporate), not so great for the treasury.

  7. There it could grow tax-free

    How hard is it for a corporation to not have profits? How hard is it for an individual to form a corporation? This is just part of the reason why the whole class warfare demagoguery is stupid. I incorporated as a kid in NY but didn’t do anything with the business. That didn’t stop NY from sending me a tax bill on the assumption of profits. I talked them out of it, but the whole thing just seemed ridiculous.

    My stepdad used to say, “he could screw up an iron ball.” He was talking about the neighbor kids but it could easily apply to the idiots in congress. What really irks me is those accusing their opponents of wanting to tax them 23% without mentioning that they are now taxed over 50% in various ways.

    Simplify. One tax rate. One safety net. Get rid of all the multiple programs. Fire the overhead. Give the cash directly to everyone. No means testing. No more unemployment. No more food stamps. No more social security. No pay for having babies. At current levels that would be well above $10k/yr to every adult. The federal and local government would be saving money.

  8. I don’t have an ideological attachment to a corporate income tax. I do wonder how, in the absence of such a tax, we would keep people from using corporations as tax shelters. For example, I could incorporate my business and, instead of paying income tax on each year’s profits, leave all but what I need to live on in the company’s name. There it could grow tax-free, like a tax-sheltered IRA with no contribution or withdrawal limits. Great for me (and anyone who can afford to incorporate), not so great for the treasury.

    From the article:

    There are already substantial disincentives to shelter your income in a corporation Every time I suggest this, I get a lot of people arguing that people would simply funnel all their expenses through a corporation, and avoid paying income taxes. These people are unaware that there are already substantial reasons to do this now, because corporations can deduct all sorts of things that people can’t–rent, cars, utilities, non-mortgage interest payments, and so forth. So why don’t people do this?

    Because the IRS won’t let them, that’s why. While owners of corporations do manage to chisel at the margins, the smart ones don’t funnel their whole personal budget through the firm, because doing so is a sure route to an audit and a hefty fine. You can argue that we need to beef up the rules, and maybe we do. But there’s no reason to worry about wholesale abuses of the system, because the IRS is already reasonably adept about ferreting these out.

    Now, this might create new, effective loopholes (for example, some people seem to think the income from a US corp could be funneled/laundered through a foreign corp, meaning a place with much lower income taxes might end up channeling a lot of corporate income). I don’t know if that really changes anything though since there’s already the incentive to do that today.

  10. So why don’t people do this?

    The difference is that while there are rules against using a corporation to pay personal expenses, there are no rules against having a corporation invest its profits — indeed, it’s standard practice. The reason people don’t use corporations as investment tax shelters today is that there’s no tax benefit, because of the corporate income tax. If you take away the corporate income tax, that changes.

    I don’t see an easy way to allow corporations to invest their profits tax-free, without creating an attractive tax loophole for individual investors who currently pay taxes on interest, dividends, and capital gains.

  11. Excellent idea Jim, we should definitely remove the contribution limits on IRAs as suggested.

    And the withdrawal limits? At that point you might as well abolish all taxes on investment income. That would encourage saving, make the tax code more regressive, and generate various tax scams in which salaries are turned into investment proceeds so as to be tax free.

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