Official SF corporate taxes thread

[Guns Guns Guns]

A corporate income tax can be paid by one of the following groups....

1) Stockholders/owners
2) Executives of the company
3) Other employees of the company
4) Consumers

Which do you think pays the corporate income tax?

 

[Mott the Hoople]

 

[Cancel 2016.2]

yet once again Mott shows himself to be an idiot that cannot answer a simple question. Why is that Mott?

 

[Cancel 2016.2]

It is quite funny that most liberals will not answer the question. Dung made a feeble attempt by linking to a Princeton Economist. Bfgrn at least tried, so credit to him for that. What about the rest? well, Mott is a coward, too afraid of looking stupid yet again like he did on the tax discussion a few days ago.

Why is that? Could it be that they can't shout about how 'evil' big corporations are and yet maintain their positions on 'tax the corporations more'. They cannot possibly BOTH be correct. If the corporations are evil they will pass along taxes to their consumers and lower level employees. If the corporations executives and stockholders take the brunt of the tax hit, then can they really be so evil? Which is it Mott?

 

[Rune]

It is quite funny that most liberals will not answer the question. Dung made a feeble attempt by linking to a Princeton Economist. Bfgrn at least tried, so credit to him for that. What about the rest? well, Mott is a coward, too afraid of looking stupid yet again like he did on the tax discussion a few days ago.

Why is that? Could it be that they can't shout about how 'evil' big corporations are and yet maintain their positions on 'tax the corporations more'. They cannot possibly BOTH be correct. If the corporations are evil they will pass along taxes to their consumers and lower level employees. If the corporations executives and stockholders take the brunt of the tax hit, then can they really be so evil? Which is it Mott?

I am just not seeing the mutual exclusivity.

 

[Cancel 2016.2]

I am just not seeing the mutual exclusivity.

then you are blind.

 

[Bonestorm]

It is quite funny that most liberals will not answer the question. Dung made a feeble attempt by linking to a Princeton Economist. Bfgrn at least tried, so credit to him for that. What about the rest? well, Mott is a coward, too afraid of looking stupid yet again like he did on the tax discussion a few days ago.

Why is that? Could it be that they can't shout about how 'evil' big corporations are and yet maintain their positions on 'tax the corporations more'. They cannot possibly BOTH be correct. If the corporations are evil they will pass along taxes to their consumers and lower level employees. If the corporations executives and stockholders take the brunt of the tax hit, then can they really be so evil? Which is it Mott?

The idea that corporations can just increase prices to cover their tax liability is stupid. If corporations had the capacity to just increase prices without hurting their profits, they would have done so already. Your argument, SF, rests on either the assumption that corporations do not optimally price their goods and services in the first instance or that corporations can increase prices whenever they want without hurting their profitability.

As to the first assumption, I tend to think that corporations on the whole are actually quite good at profit maximization and setting prices to achieve profit maximization such that passing along corporate taxes to the consumer, while it sounds plausible enough, just isn't achievable. On the second assumption, while some corporations in certain markets (monopolistic or close to it) can jack up prices on a whim, most cannot.

That leaves you with two potential payers of corporate taxes, capital or labor. I have heard plenty of investors and large shareholders clamoring for the elimination of corporate taxes, but I haven't heard the same from labor unions. That leads me to conclude that, of the two groups, labor isn't taking the hit, shareholders are.

Having said that, there is considerable disagreement in the economic literature and I know enough to know that there is no easy answer to the question.

 

[Cancel 2018. 3]

i think it is hilarious that legion troll started the thread and yet of course failed to address the issue

the issue isn't as cut and dry as SF seems to think it is. corps cannot raise prices beyond what the market will bear. no doubt corps pass on most taxes to consumers, however, if they pass on too much, such that it erodes demand, then they will of course cut back the price or the increase due to taxes.

 

[Cancel 2016.2]

The idea that corporations can just increase prices to cover their tax liability is stupid. If corporations had the capacity to just increase prices without hurting their profits, they would have done so already. Your argument, SF, rests on either the assumption that corporations do not optimally price their goods and services in the first instance or that corporations can increase prices whenever they want without hurting their profitability.

This is getting old. AGAIN.... IF they are not able to increase their prices, they will pass the costs on to the non-exec employees via lower salaries/benefits or cutting jobs.

Second... if you increase taxes on ALL corporations, then the industry as a whole is justified in raising prices. You seem to think that prices are maximized at all times. Have you noticed the price of gas, food, energy, clothing have ALL increased of late? Were consumers suddenly willing to pay more? Or did the corporations simply pass along HIGHER COSTS (not taxes in this case, but the point remains). As a companies COSTS increase, they are going to raise prices AS MUCH AS THEY CAN to prevent the hit coming to (1) Stockholders (2) Executives (3) Employees. IT IS STANDARD BUSINESS PRACTICE to pass as much of the cost increase on to consumers as possible. It is irresponsible of the company to NOT do so. The next place to take a hit is typically employees and given the rise in disparity between exec pay and employee pay... who do you think is bearing the brunt of that portion?

As to the first assumption, I tend to think that corporations on the whole are actually quite good at profit maximization and setting prices to achieve profit maximization such that passing along corporate taxes to the consumer, while it sounds plausible enough, just isn't achievable. On the second assumption, while some corporations in certain markets (monopolistic or close to it) can jack up prices on a whim, most cannot.

Yet companies have and will continue to raise prices as their costs go up. They always have, they always will.... AS MUCH AS THEY CAN. That is the FIRST place they go to cover additional costs.

That leaves you with two potential payers of corporate taxes, capital or labor. I have heard plenty of investors and large shareholders clamoring for the elimination of corporate taxes, but I haven't heard the same from labor unions. That leads me to conclude that, of the two groups, labor isn't taking the hit, shareholders are.

About 7.9% of the labor pool (private) is unionized. Take a look at Verizon right now. In the midst of the current economic condition, they are striking.... WHY? Verizon's profit margin has remained fairly steady around 6%... yet the unions are clamoring that they are not getting enough. Or am I mistaken?

Having said that, there is considerable disagreement in the economic literature and I know enough to know that there is no easy answer to the question.

Yes, the issue can indeed be complex, but the fact of the matter remains, there is a standard practice of where a company will go to pass along costs. First to consumers, second to employees, then to stockholders. I did break out the employee section into high exec and all others... that was my alteration.

The disagreement your author was highlighting is a slightly different argument in that he is discussing the ability of companies to lower costs in other areas... by transporting production overseas for example (which is still a hit to labor by the way)

Many small and mid size businesses, however, do not have this luxury given their size. Those will follow the pattern as I stated. It would be a bad business practice to eat cost of production increases either as the owner/stockholder or to the employee if the cost can be passed along to consumers. The whole point of capitalism is to be as efficient and profitable as possible.

 

[Cancel 2016.2]

i think it is hilarious that legion troll started the thread and yet of course failed to address the issue

the issue isn't as cut and dry as SF seems to think it is. corps cannot raise prices beyond what the market will bear. no doubt corps pass on most taxes to consumers, however, if they pass on too much, such that it erodes demand, then they will of course cut back the price or the increase due to taxes.

Seriously, you are making the same mistake as everyone else. It is not that they will pass along ALL taxes necessarily. As I pointed out, there are FOUR groups that can take the hit. It is not an all or none situation for any particular group. But the order of the hit is pretty standard. The business will pass along as much of ANY cost increase as they can to consumers. Whatever they cannot pass along, they will then typically hit employees. Anything after that... shareholders.

 

[Cancel 2018. 3]

Seriously, you are making the same mistake as everyone else. It is not that they will pass along ALL taxes necessarily. As I pointed out, there are FOUR groups that can take the hit. It is not an all or none situation for any particular group. But the order of the hit is pretty standard. The business will pass along as much of ANY cost increase as they can to consumers. Whatever they cannot pass along, they will then typically hit employees. Anything after that... shareholders.

and if consumers and shareholders still want to buy or invest in the company after that, what is the problem? if employees still want to work at the corporation if the corp decreases their pay to due increased taxes, then i see no problem. the problem i see is, raising corporate taxes to an amount where the corporation simply takes its manufacturing and headquarters out of the country. there is a tax on corporate profits that are made in their overseas divisions, if they bring profit back to the states, it is taxed. so, they are taxed in the foreign country and then taxed should they want to take the profit back to the states in invest it in the corporation doing business on US soil. those kinds of taxes are harmful because it squashes motivation for corps to invest in america.

i'm not saying all corporate taxes are good, rather, that not all taxes are passed to the consumer, which, you made clear is not the case. btw, don't expect an answer from mott, he always runs from the hard questions.

 

[Bonestorm]

This is getting old. AGAIN.... IF they are not able to increase their prices, they will pass the costs on to the non-exec employees via lower salaries/benefits or cutting jobs.

I don't think it is an "IF" proposition for corporations that participate in competitive markets. And, like I said, it either goes to capital or labor. You say labor, but what evidence do you have to actually support that?

Second... if you increase taxes on ALL corporations, then the industry as a whole is justified in raising prices. You seem to think that prices are maximized at all times. Have you noticed the price of gas, food, energy, clothing have ALL increased of late? Were consumers suddenly willing to pay more? Or did the corporations simply pass along HIGHER COSTS (not taxes in this case, but the point remains). As a companies COSTS increase, they are going to raise prices AS MUCH AS THEY CAN to prevent the hit coming to (1) Stockholders (2) Executives (3) Employees. IT IS STANDARD BUSINESS PRACTICE to pass as much of the cost increase on to consumers as possible. It is irresponsible of the company to NOT do so. The next place to take a hit is typically employees and given the rise in disparity between exec pay and employee pay... who do you think is bearing the brunt of that portion?

Let's say one participant in a competitive market elects not to pass along its anticipated tax on profits to consumers and instead puts the burden on capital or labor, what then? You're basically claiming that every corporation would act in the same manner and that no competitor would elect to keep prices lower by not passing on the cost but instead having labor or capital assume it. That is highly unlikely in the real world.

Yet companies have and will continue to raise prices as their costs go up. They always have, they always will.... AS MUCH AS THEY CAN. That is the FIRST place they go to cover additional costs.

You're just asserting that your conclusion is the correct one but you aren't providing evidence that this is so.

About 7.9% of the labor pool (private) is unionized. Take a look at Verizon right now. In the midst of the current economic condition, they are striking.... WHY? Verizon's profit margin has remained fairly steady around 6%... yet the unions are clamoring that they are not getting enough. Or am I mistaken?

What does that have to do with the tax incidence question?

Yes, the issue can indeed be complex, but the fact of the matter remains, there is a standard practice of where a company will go to pass along costs. First to consumers, second to employees, then to stockholders. I did break out the employee section into high exec and all others... that was my alteration.

The disagreement your author was highlighting is a slightly different argument in that he is discussing the ability of companies to lower costs in other areas... by transporting production overseas for example (which is still a hit to labor by the way)

Many small and mid size businesses, however, do not have this luxury given their size. Those will follow the pattern as I stated. It would be a bad business practice to eat cost of production increases either as the owner/stockholder or to the employee if the cost can be passed along to consumers. The whole point of capitalism is to be as efficient and profitable as possible.

I understand your point, but I think it is much more difficult for a business to pass along corporate taxes to consumers than you suggest.

 

[Cancel 2016.2]

I don't think it is an "IF" proposition for corporations that participate in competitive markets. And, like I said, it either goes to capital or labor. You say labor, but what evidence do you have to actually support that?

Yes, it is an IF. Stop and think about it for a moment. You are NOT talking about a cost increase for just one industry/company. You are talking about a universal increase.... across the board. It is similar to what happens when oil goes up and stays up. Prices across the board rise to reflect it. It hits pretty much everyone you are competing with in the same manner as it hits you. Thus the industry as a whole will tend to pass along as much as they can. I agree that in the most competitive industries, it may not be a huge amount, but this is and always will be the first place they try to pass costs on. The second will typically be labor.

As for labor vs. stockholders.... it does depend on profit margins and the employment market. If the profit margins are above normal, it is going to be hard to justify to employees. In a tight job market, the company also runs the risk of losing their best employees. Conversely, if you have average profit margins (for the industry) or a loose labor market, the company is going to try to pass along the cost increase to consumer, then employee, then stockholder. The stockholders OWN the company. They are not going to take the brunt of the hit unless they are making their money. They just aren't.

Let's say one participant in a competitive market elects not to pass along its anticipated tax on profits to consumers and instead puts the burden on capital or labor, what then? You're basically claiming that every corporation would act in the same manner and that no competitor would elect to keep prices lower by not passing on the cost but instead having labor or capital assume it. That is highly unlikely in the real world.

Then explain why it is that consumer costs have risen for food, clothing, energy.... why are prices rising there? These are still competitive industries (well, maybe not energy... but the other two are) with sub par profit margins. Yet the costs to consumers is rising. WHY?

You're just asserting that your conclusion is the correct one but you aren't providing evidence that this is so.

It is basic economics. Taught in every economics course.

http://www.taxfoundation.org/blog/show/1467.html (it in turn links to the economic text book where it came from)





What does that have to do with the tax incidence question?




I understand your point, but I think it is much more difficult for a business to pass along corporate taxes to consumers than you suggest.[/QUOTE]

 

[Dixie - In Memoriam]

Dunderhead: The idea that corporations can just increase prices to cover their tax liability is stupid. If corporations had the capacity to just increase prices without hurting their profits, they would have done so already.

You're talking about two different things, as if they are somehow the same. First of all, it's NOT stupid that corporations do this, because that's exactly what they do, whether it is taxes going up, minimum wages going up, cost of health care coverage going up, cost of transportation going up... Corporations figure all costs, including taxes, and an increase in cost, means an increase in consumer price. No one said it wouldn't hurt their profits. In that regard, yes.. the shareholders and lower-level workers, and even the upper-level management, all pay a portion of the cost in the end, but initially, it all goes to the consumer in the form of higher prices. What is STUPID is to think that raising a corporation's taxes by 2% will result in a 2% decrease in pay for a CEO.

 

[Bonestorm]

SF:

The author of that economics textbook, Greg Mankiw (a Mitt Romney advisor), is of the view that the corporate taxes fall primarily on labor and capital and on consumers not through direct price increases in response to the tax, but indirectly. Basically, Mankiw argues that labor and capital bear the brunt and that, in response to taxation, capital moves from producing goods and service to other investments, thus reducing supply and increasing prices. Read the link. It's to a blog post, not a text book. Here's the highlight:

Many economists believe that workers and customers bear much of the burden of the corporate income tax. To see why, consider an example. Suppose that the U.S. government decides to raise the tax on the income earned by car companies. At first, this tax hurts the owners of the car companies, who receive less profit. But over time, these owners will respond to the tax. Because producing cars is less profitable, they invest less in building new car factories. Instead, they invest their wealth in other ways—for example, by buying larger houses or by building factories in other industries or other countries. With fewer car factories, the supply of cars declines, as does the demand for autoworkers. Thus, a tax on corporations making cars causes the price of cars to rise and the wages of autoworkers to fall.

He isn't saying that consumers pay corporate taxes but that corporate taxes reduce supply of goods and services and thus increase prices.

 

[Cancel 2016.2]

SF:

The author of that economics textbook, Greg Mankiw (a Mitt Romney advisor), is of the view that the corporate taxes fall primarily on labor and capital and on consumers not through direct price increases in response to the tax, but indirectly. Basically, Mankiw argues that labor and capital bear the brunt and that, in response to taxation, capital moves from producing goods and service to other investments, thus reducing supply and increasing prices. Read the link. It's to a blog post, not a text book. Here's the highlight:



He isn't saying that consumers pay corporate taxes but that corporate taxes reduce supply of goods and services and thus increase prices.

The corporate income tax shows how dangerous the flypaper theory of tax incidence can be. The corporate income tax is popular in part because it appears to be paid by rich corporations. Yet those who bear the ultimate burden of the tax—the customers and workers of corporations—are often not rich. If the true incidence of the corporate tax were more widely known, this tax might be less popular among voters.

Read the link carefully.... what is that little thing down at the bottom of the quote?

Source: Principles of Economics, 4th Edition

You should buy a copy.....

http://www.amazon.com/Principles-Economics-Student-Gregory-Mankiw/dp/0324224729

 

[Cancel 2016.2]

The main point you should take from him Dung..... PEOPLE pay the taxes. I know you are aware of this. So I ask you what Mott is afraid to answer.

Would you not rather have a tax system where we KNOW who is going to pay the taxes? Rather than leaving it up to the corporation's executives who gets the bill?

 

[Bonestorm]

Read the link carefully.... what is that little thing down at the bottom of the quote?

Source: Principles of Economics, 4th Edition

You should buy a copy.....

http://www.amazon.com/Principles-Economics-Student-Gregory-Mankiw/dp/0324224729

Here is the blog post, in which Mankiw cites his textbook, in full. You should read it in its entirety as opposed to stopping when you get to the part that you think supports your position:

According to a new study by KPMG, the United States and Japan have the two highest corporate tax rates of the more than 80 nations examined. Their tax rates on corporate income are about 40 percent (including corporate taxes at the state and local level), while the rate in the European Union averages about 25 percent.

The report says:

Among nations that changed their statutory corporate income tax rates over the past 12 months, the overwhelming majority cut them, continuing a trend towards lower rates that has persisted for several years. Rate reductions were most pronounced in Europe....This may reflect intensifying tax competition within the EU as a result of the accession of 10 new member states last year and the encouragement EU law and jurisprudence has been giving to capital mobility within the EU.

These new facts are the perfect excuse to reprint a case study from my Principles textbook:

Who Pays the Corporate Income Tax?

The corporate income tax provides a good example of the importance of tax incidence for tax policy. The corporate tax is popular among voters. After all, corporations are not people. Voters are always eager to have their taxes reduced and have some impersonal corporation pick up the tab.

But before deciding that the corporate income tax is a good way for the government to raise revenue, we should consider who bears the burden of the corporate tax. This is a difficult question on which economists disagree, but one thing is certain: People pay all taxes. When the government levies a tax on a corporation, the corporation is more like a tax collector than a taxpayer. The burden of the tax ultimately falls on people—the owners, customers, or workers of the corporation.

Many economists believe that workers and customers bear much of the burden of the corporate income tax. To see why, consider an example. Suppose that the U.S. government decides to raise the tax on the income earned by car companies. At first, this tax hurts the owners of the car companies, who receive less profit. But over time, these owners will respond to the tax. Because producing cars is less profitable, they invest less in building new car factories. Instead, they invest their wealth in other ways—for example, by buying larger houses or by building factories in other industries or other countries. With fewer car factories, the supply of cars declines, as does the demand for autoworkers. Thus, a tax on corporations making cars causes the price of cars to rise and the wages of autoworkers to fall.

The corporate income tax shows how dangerous the flypaper theory of tax incidence can be. The corporate income tax is popular in part because it appears to be paid by rich corporations. Yet those who bear the ultimate burden of the tax—the customers and workers of corporations—are often not rich. If the true incidence of the corporate tax were more widely known, this tax might be less popular among voters.

He isn't arguing, as you are, that corporations pass on taxes to consumers through higher prices. He's saying that capital bears the brunt of the taxes and, in response, moves away from producing goods and services (in his example, cars) and instead shifts to invest in other things. This in turn lowers supply and results in higher prices and lower wages.

Makiw's argument at least makes sense. Yours doesn't. It is very difficult for a corporation to simply pass corporate taxes on to consumers through higher prices.

And, of course, Mankiw's position is hardly the gospel truth on the matter as other economists dispute his theory. Who is correct is open to debate. Pretending that your preferred answer is the only answer is nonsense.