quiz time! what's the highest marginal income tax rate on corporations in the u.s.?

[unblock]

individuals pay marginal income tax rates that go up to 35%. the lowest marginal income tax rate is 10%, but even modest incomes get taxed at 15% or 25%, and it goes up from there.



but massive corporations, who use oodles of public resources such as the highways and who pollute and require constant oversight, they pay their fair share of income tax, too, right? ok, maybe not, "fair", but at least they pay a goodly amount, surely?




WRONG!!!!!!



corporations do not pay a dime in income taxes, ever, because they are not taxed on INCOME, they are taxed on NET income, i.e., profit.

imagine if YOU were taxed only on your profit the way a corporation is. that means if, at the end of the year, you have less in the bank than the previous year, then not only do you pay absolutely nothing in taxes, but you can even carry forward your loss into the next year, meaning even NEXT years taxes will be lower because of it. WOW! good deal, huh!

now, there is an important distinction, corporations can only deduct expenses if they're actually necessary in the normal course of business and spent with the intent to generate revenue and so on. that means corporations can't deduct frivolous expenses that don't relate to the business. that's why they hire clever accountants and tax lawyers to come up with credible excuses for how such expenses are actually necessary.

so by way of parallel, the argument goes, individuals shouldn't be able to deduct most household expenses because they don't relate to generating revenue and such. but that's hardly the case. individuals can't deduct the costs of work clothes (specifically unreimbursed uniforms, yes, but not suits or "business casual" friday clothes) individuals even can't deduct the cost of owning and operating a car used exclusively for commuting to and from work.


most people are doing well to save 10% of their salary per year. 20% is recommended, but it is very hard. but most people are already paying more in income taxes than they are saving each year, if they're even saving at all!


if corporations were taxed on INCOME instead of NET INCOME, the amazingly low rates they face now would be miniscule.



they are getting a virtually free ride on income. must be nice.

[Bozita]

1. And these corps hire folks like Ernst & Young who approve shit like Repo 105 in the Lehmann case

*POOF*

No taxes owed even faced with massive profits. Insolvent corps suddenly appear solvent. Whatever you want.

Creative accounting accompanied by a lack of regulation can make anything look like anything you want it to look like.

That's how it works.

[defendandprotect]

21. These days there is no professional ethic. .. doctors who help torturers,

lawyers who help presidents torture --

and accounting firms who will cover up irregularities/illegalities of firms

like Enron!

[Zynx]

2. If you want to know why we don't tax gross income, there's a great deal of economic

literature on the subject.

[unblock]

4. true enough, and i've actually read some of it :)

though i'd venture to say that it's a subject for political economics rather than straight economics, and in fact the blend is rather more political than economic.

there's is a reasonable consistent theory the supports the idea of taxing net income. but there is no reasonable economic justification for taxing corporations according to that nice theory and then taxing individuals in the far more punitive way, without even permitting deductions for expenses that are directly tied to generating revenue (with very few exceptions).

when it comes to taxing individuals, the logic is "everyone has to chip in". but when it comes to corporations, the logic is "oh, not you! goodness no, only a little if you're really rolling in it!"

[Zynx]

22. There is a fair amount of justification for not taxing businesses beyond the costs that

they incur for transportation and other utility networks. The reason is that business taxation of nearly every kind is fundamentally borne by individuals at some point. Fundamentally we all pay the corporate income tax whether we are aware of it or not. Generally most of the burden is borne by the owners of capital, but some is borne by the rest of us.

[Synicus Maximus]

3. If a individual files a itemized tax return they are also being taxed

on net income instead of gross income. Actually due to standard deductions even if one files an EZ form they are taxed on net income instead of gross income.

[unblock]

5. net of certain deductions with often severe limitations

medical bills, but only to the extent they exceed 7.5% of adjusted gross income; losses due to theft or casualty, to the extent they exceeds 2% of adjusted gross income. e.g.
corporations have no such limits. if the spend or loss a penny, it's a deduction.

most corporations can deduct virtually everything. not at all so for most households.


and in fact, until this year, income tax deductions got phased out at higher income levels. so at some point, no, you got taxed on income. no longer the case.

[hughee99]

6. If they paid taxes on income instead of NET income,

Microsoft, a very successful company, for example, made about 6.7 billion in profits, but had 19 billion in revenue. A 35% tax on revenue (since this would certainly put them in the top tax bracket) would result in 6.65 billion in taxes. Microsoft, a very successful company, would have basically broken even. To make a profit, they would either have to raise prices, lower expenses (people), or some combination of the two. This is a company that's doing very well.

In 2008, GM had revenue of 148 billion and lost 30 billion. At 148 billion in revenue at a 35% tax rate, GM would have paid $51 billion in taxes in addition to the 30 billion they lost for a total lost of $81 billion dollars. To just break even with the same expenses, they would have needed to make about $240 billion in revenue, which I guess would mean that if the produced the same number of vehicles, they would have had to raise prices by more than 60%.

[unblock]

10. well obviously the numbers would have to change.

the tax rate on corporate income wouldn't be 35%, it would be rather lower.

but it does highlight a problem, which is that for individuals, income taxes can easily spell the difference between a profitable year and an unprofitable one; whereas, that's not as likely in the case of corporations because they're taxed on profit rather than income.

but no one seems overly fussed about whether or not households are profitable.

[hughee99]

11. I agree on that.

I'd support a higher rate on corporate profits (still not convinced on gross revenue) and more deductible living expenses for the individual.

A corporation buys lunch for it's workers and it's a tax deductible "business expense", a person buys lunch for themselves and it's not.

[unblock]

16. right. i'm not saying taxing on gross is better than net, just pointing out the inconsistency

vacations, oops, i mean conferences that happen to be on resort islands with plenty of spare time, are deductible for businesses, but obviously not for individuals, even if you bring your blackberry and laptop and do plenty of work from there.

taxing on profit is probably more logical, but that means far more deductions for individuals, and means a very small tax base in terrible years.

[Gaedel]

15. What you are saying....

If I am in business and have a store, I buy widgets from the wholesaler at $20 and sell them at $30, my "income" is $30? My taxes should be based on the $30 in "gross revenues" that I received?

There are some states and localities that do have a "gross receipts" tax of 1/2 of 1% or something like that.

[unblock]

17. not advocating taxing on gross vs. net. just pointing out the difference.

in fact, the most basic tax on "gross income" is the sales tax, which invariably is paid directly to the consumer. that's regressive and unfair as well.

taxing on profit seems more logical, but to be consistent, they should tax individuals more similarly, especially those lower down on the income scale.

there are plenty of people who can't afford to work(!) because the cost of commuting plus day care exceeds their after tax income. they should really be able to deduct these expenses as they're obviously work-related.

[ebayfool]

7. hmmmm

"... corporations can only deduct expenses if they're actually necessary in the normal course of business and spent with the intent to generate revenue and so on."



I've seen an amazing amount of boats, limos, & high dollar toys that are written off that have absolutely nuthin' to do with running the business. And the only thing they generated was the pleasure & gratification of the owners involved. The creepers that they got from being able to brag that they 'wrote em off' was a bonus for them.

Telling the employees that promised raises, essential equipment, safety tools, etc are postponed for the duration while showing off the newest speedboat, plane, etc also generated more than a few pissed off employees. Xray/welding companies do NOT require 3 boats to generate revenue. Nor do they require private ski resorts.

Yeah. I've worked for some real prizes.

[unblock]

9. yeah, one former boss o' mine bought an rv with corporate funds.

after hiring me in desperate need of turning around his software company. desperate times require desperate actions, and his was to piss away $80 grand of his dwindling corporate funds on an rv.

that gig did not last long!

[Historic NY]

8. Well now since corporations are people(SCOTUS) maybe they will pay a single rate.

[defendandprotect]

12. Many of largest corporations have been paying 8% ...if I recall correctly!!

Individuals pay higher income taxes than corporations!!

And they pay none of the costs for destruction of the environment/pollution!!

[unblock]

18. i think i heard the average is 3.2%, and many pay zero!

and still, that's a percentage of PROFIT, not of gross income.

ah, but corporations provide jobs, so we must bow before them.
workers merely provide, well, they fruits of labor. and who cares about that.

[defendandprotect]

20. Wow -- I'm way behind times . . . thanks for the additional info . . .

Capitalism is all about denying power to labor --

but you very well point out there is no product without labor --

We're also permitting these tax cuts to bankrupt our states, which needless

to say, then have to be bailed out by Federal government/taxpayers!

Double jeopardy!

:)

[newtothegame]

13. We are also taxed on net. If you lost money last year, that comes off your taxes.

That's why Frank McCourt and his wife (Dodgers owners) haven't paid income taxes for years. They lost TENS OF MILLIONS in the real estate market and they're just now turning the corner.

[unblock]

19. it can't offset ordinary income except subject to severe limitations.

ordinary individuals can only deduct at most $3,000 for capital losses per year. the rest can be carried forward to the next year(s).

capital losses can fully offset capital gains in the same year, though, if that's what you mean. but it can't be used to offset ordinary INCOME beyond the $3,000 limit.

if frank mccourt isn't paying personal income taxes, then he must be drawing only a very small salary and he has set up corporations to pay the rest of his lifestyle. e.g., his corporation can own a limo and a driver let him use it for commuting. all deductible if done by a corporation.


personally, i've lost a ton of money on my own house, but i'd still pay taxes even if i sold at a huge loss because it only offsets $3,000 of my salary.

[jotsy]

14. Those who need help the least get the most of it.

Yet they're still squeezing on us like a sponge.