undefined | Better HN

0 pointsAnthonyMouse5y ago0 comments

> I don't see this holding true. Can you explain how?

Suppose you have $40,000. You can buy some stock in a domestic corporation, or buy some stock in a foreign corporation, or put a down payment on a house, or buy a new car, or invest in government bonds, or ten other things.

If you raise the domestic corporate tax rate, option one becomes less attractive compared to all the other ones.

0 comments

didibus5y ago

Oh I was talking about personal income tax in my previous comment.

For corporate tax rate, I think it depends if you're planning a growth investment or a dividend based one. For growth, capital tax rate shouldn't affect you at all, since you'll mostly target companies running at close to no revenue or even declaring losses, but growing very fast.

For dividend investment, it would, since the companies will have less profit post tax, but if you think about it holistically, that's like the best thing to tax. You have a well established business, that's no longer growing or doing so very slowly, and it is making excess money even after paying all its employees and expenses. It seems a very good place to take from and redistribute.

Think about the alternative sources of revenue for the government here? What could be better then that?

AnthonyMouseOP5y ago

> For dividend investment, it would, since the companies will have less profit post tax, but if you think about it holistically, that's like the best thing to tax. You have a well established business, that's no longer growing or doing so very slowly, and it is making excess money even after paying all its employees and expenses. It seems a very good place to take from and redistribute.

There are two issues there. The first is that it's a long-term fail, because the "cash cow" stage is where investors make back their money that was invested during the growth stage in a company that wasn't then paying dividends. If you tax them away, the market value of the company crashes as soon as it hits the cash cow stage, and then who is going to invest at the growth stage when that's their ultimate outcome? So you destroy investment in new companies.

And the second is that it promotes malinvestment, because rather than paying dividends to investors who reinvest them in promising new companies, you create the incentive for the corporation to remain in the growth state indefinitely and use all of its profits to continually expand, even into markets outside of its competency. Then you get huge inefficient conglomerates, which is much as we've seen.

What you really want is to make dividends a tax deduction from corporate income tax, but still taxable to the shareholder. Then they cancel out from a government revenue perspective but you lose the perverse incentive to grow the corporation without bound.

> Think about the alternative sources of revenue for the government here? What could be better then that?

VAT actually works really well. You get to a similar result from the other side: VAT and corporate income tax are really almost the same thing, but instead of deducting dividends from corporate income tax, the corporation has to collect VAT but there is no income tax on the dividends. And it has the further advantage that it's paid to the jurisdiction of final sale rather than wherever a multinational corporation contrives its "profits" to be declared.

j / k navigate · click thread line to collapse