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Comment by megaman821 | Hacker News Reader

Why is it desirable to tax the business rather than the wealthy owners and stockholders? If the business money flows to those making millions of year, tax the millionaires some high rate at a new tax bracket.

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The business money need not flow through to their owners. It can instead show up as unrealized capital gains, which A) gets taxed at a lower rate than ordinary income, B) can be deferred indefinitely, C) can be cheaply borrowed against for tax-free spending money, and D) gets wiped out when the shares are transferred via inheritance or in-kind charitable contribution.

If you have $10M of non-dividend paying stock, you could conceivably spend $200k per year while having a taxable income of zero and remaining eligible for income-based health insurance subsidies.

I often hear about C), but I have never heard an explanation of how it works.

I understand that if you have tons of valuable assets, you can get a loan against them for a very favorable rate. but then you have to pay back the loan or at least pay the interest on it. how do you do that without having at least some income or realizing some capital gains?

Your assets tend to become more valuable over time, which allows you to borrow more money to pay the interest and give yourself spending money.

Eg, suppose you have $10M in assets and borrow $200k against it. Next year it's worth something like $10.7M on average, you get charged something like $8k in interest, and you borrow another $200k to spend. So long as you leave enough of a buffer against volatility and the rate of growth of your assets is high enough, you can just borrow money indefinitely against appreciating assets.

People did this in the run-up to the 2008 housing crisis with homes, too. Take out a loan, cash-out refinance later when it's worth more, end up with a house you've taken more cash out of than put in.

ah, now I understand. sort of like the "safe withdrawal rate" for normal people.

also sorry, didn't realize both of my questions went to the same person.

Taxing corporations allows you to impose taxes on the pensions of the middle class, without being seen to do so. Most wealth is in the hands of the middle class either immediately pre- or post- retirement, so you need to tax this; but baby boomers vote so you have to pretend otherwise.

Ok, it's not a good reason... but face it, taxes are determined by politics, not policy.

For a dissenting opinion, one of the major points in Picketty's nobel-winning dataset is that market returns are, over the long term, pretty fixed. Short term fluctuations aside, they're not really impacted by GDP growth

It's an empirical measurment rather than a theoretical point.

I don't know if he's right. But, I do think that it's dicey taking conclusions like "corporate tax is a tax on pensions" as fact. Economics is not science. Economic theories that yield these conclusions are not testable. The reason macroeconomics exists as a field is that core theories which seem to work well at the micro level don't seem to make the right predictions at the macro-level.

Taxing profits makes reinvestment a better strategy than profit taking.

It also makes share buybacks a better strategy. Further, low rates and low inflation mean buybacks are a better strategy than reinvestment.

False, for corporations, share buybacks are not deductible as a cost and thus come from post tax profits. The main reason for share buybacks is it allows you to defer taxes until you want to sell [0].

[0]: https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient...

We can't generalise to blanket statements like that, or the perfect company would never reinvest and would end up owning all it's shares. Not every company can reinvest and get the same benefits, or buy back it's shares and yield the same returns to investors. All taxes do is landscape the playing field a bit.

How is this at all the case? The second sentence is true in some circumstances, but you buyback for other reasons than interest rates, and corporate taxes don't affect how good or bad buybacks are.

Suppose the business is located in the USA, taking advantage of US infrastructure, public services, legal protections, etc, but the owners live in the UK. You'd be ok with them only paying UK income tax?

It's desirable when the alternative is those businesses reinvesting in the business and payroll. Which is easy to do by allowing them to deduct salary up to a certain amount.

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