Hacker News Reader

Comment by josho | Hacker News Reader

> If you take a dollar for every four dollars of corporate profits, corporations (meaning the compacts created between shareholders) will have less money to invest with

Arguably that's not the case. If a company invests their excess cash then that money is spent and is no longer profit and no longer taxed. So, by increasing the tax rate you are encouraging a company to accumulate less profit, they can achieve that in any number of ways.

A company may invest into their business to increase profits later (e.g. Amazon's growth model), they may forego company profit by increasing dividends. Or, I could see a CEO try to bump up their decreased profit by reducing expenses elsewhere and cutting jobs or something equivalent. This is the area that economists focus on, but it strikes me as naive to think all businesses will choose this option whenever a corporate tax increase occurs.

View on HN

>If a company invests their excess cash then that money is spent and is no longer profit and no longer taxed.

I was using a simplified example that ignores deductions. You're right of course.

But that doesn't change the fundamental relationship between taxing profit and investment.

Even if all reinvestment is made tax deductible, a tax on profits still reduces the incentive for individuals to invest in corporations, since all investment decisions are based on ROI projections, and with higher taxes on profits, ROI declines.

Moreover, sometimes it is more effective to sit on profits, and wait for a good opportunity to appear, and taxing all accumulated profits creates an incentive to not do that.

>But that doesn't change the fundamental relationship between taxing profit and investment.

There is no fundamental relationship between taxing profit and investment. If a company makes 20 million a year after tax it is not going to drop everything and stop making a profit at all if it starts making 15 million a year after tax.

There is a fundamental relationship between demand and investment, which is why raising "profit taxes" (corp tax, dividend tax) and spending the money will lead to increased investment (to service increased demand).

>reduces the incentive for individuals to invest in corporations, since all investment decisions are based on ROI projections

Reducing profit across the entire economy reduces the ROI projection at the same time as reducing alternative opportunities which the investor can switch to.

>Moreover, sometimes it is more effective to sit on profits

For the company. The economy as a whole suffers immensely when the corporate sector does this.

>There is no fundamental relationship between taxing profit and investment.

The sole motivation for investment is profit. As profit declines, fewer investments are justified by the projected ROI.

>If a company makes 20 million a year after tax it is not going to drop everything and stop making a profit at all if it starts making 15 million a year after tax.

There's no way a party can know beforehand how much profit, if any, there will be. The estimated possibility of profit is adjusted for the estimated risk of loss, to get the projected ROI. Higher taxes reduce the projected ROI, because they reduce the size of the possible profit.

Reply on news.ycombinator.com