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(Yahoo)   Hey YEAH, how come rich jerks pay less taxes on their earnings than the guy working at McDonald's? Seems kind of... anti-American   (finance.yahoo.com) divider line 64
    More: Asinine, progressive taxes, Tax Foundation, investment income, Cost of Living Allowance, Center on Budget, United States House Committee on Ways and Means, payoff dominant equilibrium, ordinary income  
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3430 clicks; posted to Business » on 27 Jan 2012 at 9:48 AM (2 years ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2012-01-27 09:54:40 AM  
Yes, I'm sure the guy working at McDonald's is paying more than $3M a year in taxes, subby.
 
2012-01-27 10:03:13 AM  
FTA: McBride says it is unfair to tax income more than once, and capital gains are taxed multiple times. If you got the original investment from wages, that money was taxed. If the stock you own gains value because the company you invested in makes a profit, those profits are taxed through the corporate tax. And if that company issues dividends, those are taxed as well.

If you make an investment with post-tax wages, you purchase a product (they're even called "products" by the industry), for which you usually pay sales taxes. In the case of investments, which can gain or lose value, we wouldn't know how much to charge in tax until you sold it (or "realized the gain/loss"), so we wait until you sell it, then tax the profit (or count it in net profit/loss).

When money changes hands (from a person's holdings to a company's or vice-versa), it gets taxed. Why is this so goddamn hard to understand? Just because a business pays both taxes and dividends out of the same pot does not make that pot of money double-taxed any more than his following examples:

Also FTA: Lots of people are double taxed, says Chuck Marr, director of federal tax policy for the liberal Center on Budget and Policy Priorities. "Check out your last pay stub: There's income tax and payroll tax, so you're double taxed, too," Marr said.

And, he noted, when you buy something, you probably pay a sales tax.


BECAUSE TRANSFERS OF CAPITAL ARE TAXED, YOU GOON.

When money changes hands, it ceases to be "your" money, and is now an entirely new pile of currency. This new pile is subject to taxation when its new owner decided to purchase a good or service.

// not all transfers are taxed, nor subject to tax
// no one makes you pay the same tax twice on the same money - THAT's what "double taxation" really refers to, not bellyaching about your 20-points-lower-than-backbreaking-labor tax rate
 
2012-01-27 10:04:36 AM  

hp6sa: Yes, I'm sure the guy working at McDonald's is paying more than $3M a year in taxes, subby.


Don't be obtuse. They're talking percentages, not actual amounts. Also, that guy working at McDonald's that forked over 15% of his income felt it a lot more than mittens felt that $3 million. He had enough left over to give his church millions of dollars, and the poor guy probably barely kept his kids fed.

FTFA: Conservatives argue that increasing investment taxes would make it harder to for businesses to raise capital, restricting job growth and hurting financial markets, reducing income for people who rely on pension funds and 401(k) accounts as well as billionaires and millionaires.

That's weird, because I keep reading about how companies are holding record amounts of cash and NOT using that money for job growth. This couldn't possibly be a bullshiat argument, could it? Not to mention that any honest business owner will tell you that they hire employees based on demand, not on their tax rate. I don't buy the financial markets argument either. If this tax rate is so great for investments, why are my IRA's shrinking in value every year, while GS wins 99% of their bets and guys like Romney rake in cash hand over fist? It's a rigged game. The little guy is always going to lose. The least the winners could do is pay the taxes on their "earnings" at the same rate as they would if they actually had to work for it.
 
2012-01-27 10:07:00 AM  
Because investment is the only reason your McJob exists. It's the basis of retirement accounts. And I assure you the effective tax rate for anyone at Mcdonalds is near zero.
 
2012-01-27 10:08:39 AM  
What could be more American than using your influence in Government and business to leverage a better position for the money that dear old Dad left you?

If the guy at McDonalds wanted such considerations, he should have picked his birth parents better.
 
2012-01-27 10:19:24 AM  
Because fry cooks don't have lobbyists. And that's the only reason.

Tingle007: Because investment is the only reason your McJob exists. It's the basis of retirement accounts. And I assure you the effective tax rate for anyone at Mcdonalds is near zero.


First of all, your "near zero" comment is entirely bullshiat. But nice job trying to subtly blur the line between payroll and income taxes like that. Real cute.

Second of all, no investment is not "the only reason" the jobs exist. Do you really think without unfairly low tax rates on corporate gains McDonald's would stop expanding to new markets? Because if so, I have a bridge I'd like you to... invest... in.

hp6sa: Yes, I'm sure the guy working at McDonald's is paying more than $3M a year in taxes, subby.


And you can be dismissed out of hand for the remainder of the thread for being intentionally dishonest.
 
2012-01-27 10:24:23 AM  

Tingle007: Because investment is the only reason your McJob exists. It's the basis of retirement accounts. And I assure you the effective tax rate for anyone at Mcdonalds is near zero.


Income tax, maybe. They're still paying their share of the taxes for Medicare and SS. (I mean, I suppose 5 is near zero, but it's not <1%, which is what I think of as being a "near-zero" percentage.)

Investment is the only reason that McJob exists? Funny, I thought it was that Ray Kroc knew how to sell hamburgers TO PEOPLE THAT WANTED TO BUY THEM.

McD's never gets dime #1 to invest if Ray makes shiatty burgers. Or if his store isn't located along a major thoroughfare. Or if he decides that "fast food" is an affront to the dining experience, and goes the same way as thousands of other greasy spoons in the Midwest. Or if Ray decides not to buy the chain from the McDonald brothers. Or if Ray never sells them his milkshake mixers in the first place.

Looks to me like it's all about having a product that people want to buy. Everything else is predicated on that.
 
2012-01-27 10:24:55 AM  

mod3072: That's weird, because I keep reading about how companies are holding record amounts of cash and NOT using that money for job growth.


Some companies are buying back their own stock with the cash reserves.
 
2012-01-27 10:31:12 AM  

Dr Dreidel: Looks to me like it's all about having a product that people want to buy. Everything else is predicated on that.


Actually, Tingle007's post is a pretty illustrative example of why this country is in such dire economic trouble. It really shows just how fundamentally ignorant so many people in the U.S. are of basic market economics when you have people making the argument that the market is the driver of successful business rather than the other way around.

How many millions of people out there are investing with this broken view of the economy, anyway? How many millions of people are entrusting how much money in their portfolios and retirements to their fundamentally flawed view of the market?
 
2012-01-27 10:33:05 AM  
I'd be happy to tax capital gains as income. I believe it is income, by which I mean, property gained by skill, talent, etc. it takes some skill to invest wisely. therefore, income.

however, I would offer a tax cut for the sale of the first purchaser of issued stock. this way, there remains the reduced rate for people who are actually investing in a company, where that company gets the money to grow. because i think that investing is one of the best ways to raise capital for a company. you place all the risk on the rich guy who knows he's taking a risk AND you're raising capital for the company's venture.

Once the initial stock offer is over, you're just trading stock between third parties, you are no longer raising capital for the company's ventures. you are not creating jobs, you are not doing crap. you're just buying a little equity that might wax or wane. you are helping or hurting other stockholders, not the company. a company succeeds or fails by whether it turns a profit, not by the value of its stock. and that success will determine whether it will grow and create jobs. not the value of its stock.

people trading stocks between each other does not increase the capital in the company, so it doesn't directly boost that company (although, higher values do other things, there's too much attention on the stockholder and not enough attention on the corporation... after all, the whole stock scheme is a way to raise money for the company not the people investing in it).

/ I would also require traditional banking and investment banking to be separate... but you know, I'm old fashioned and prefer not to to bail my banks out everytime they're too stupid to understand the difference.
// and, country's problems solved. perhaps people won't make as much money off of investing... but, keep this in mind: YOU ONLY GET TAXED IF YOU MAKE A PROFIT!
/// sorry for the all caps.
 
2012-01-27 10:35:15 AM  

Tingle007: Because investment is the only reason your McJob exists. It's the basis of retirement accounts. And I assure you the effective tax rate for anyone at Mcdonalds is near zero.


The only reason any job exists is not because of demand of a product. Jobs exist because of a demand in said product and a willingness of someone to labor and produce said product. If all the investors and all the money makers were to simply vanish tomorrow life would go on. If all the labor were to vanish life would not go on. Labor does not need investment to continue. Investments NEED labor to continue.
 
2012-01-27 10:36:10 AM  

FarkedOver: Tingle007: Because investment is the only reason your McJob exists. It's the basis of retirement accounts. And I assure you the effective tax rate for anyone at Mcdonalds is near zero.

The only reason any job exists is not because of demand of a product. Jobs exist because of a demand in said product and a willingness of someone to labor and produce said product. If all the investors and all the money makers were to simply vanish tomorrow life would go on. If all the labor were to vanish life would not go on. Labor does not need investment to continue. Investments NEED labor to continue.


/ftfm remove the "not"
 
2012-01-27 10:37:55 AM  

Tingle007: Because investment is the only reason your McJob exists. It's the basis of retirement accounts. And I assure you the effective tax rate for anyone at Mcdonalds is near zero.


Can you explain to me how my bet that McDonalds will outsell Wendy's provides jobs?
I'd like to help provide jobs. I'd like to know, how much McDonalds stock do I need to buy, in order to create one job?
 
2012-01-27 10:43:05 AM  

pute kisses like a man: but, keep this in mind: YOU ONLY GET TAXED IF YOU MAKE A PROFIT!


THIS.

Cost-basis of investments are typically not taxed. ONLY THE PROFITS AND DIVIDENDS

Double taxed my ass. Someone post that "Tom The Dancing Bug" Double Taxation comic... oh here it is.
 
2012-01-27 10:45:53 AM  
Can anyone find that Ronald Reagan quote where he says that having a capital gains tax rate that was unlinked from the normal income tax rate was immoral?

Yes, Saint Reagan really did say it.
 
2012-01-27 10:45:59 AM  

Tingle007: Because investment is the only reason your McJob exists. It's the basis of retirement accounts. And I assure you the effective tax rate for anyone at Mcdonalds is near zero.


If its the basis of reitrement accounts why are 401 (k) accounts taxed at regular income tax rates and not the capital gains rate.

In fact why did 50% of all the capital gains claimed (and taxed at the lower rate) go to just 315,000 individuals in an country of 315 million ? (0.01%)
 
2012-01-27 10:50:14 AM  
No warfare like class warfare!
 
2012-01-27 10:58:40 AM  

Magorn: If its the basis of reitrement accounts why are 401 (k) accounts taxed at regular income tax rates and not the capital gains rate.


401k gains essentially aren't taxed at all. They're a case where money really is only taxed once; you can either tax it before you put it in (Roth 401k) or defer the tax until you take it out (regular 401k) but if you work the math out you'll have the same amount of money after taxes in either case assuming your tax rate stays the same.

This still doesn't answer the question of why you should be taxed for making your living doing actual work but not taxed for making your living sitting on a pile of money earning interest.
 
2012-01-27 11:06:55 AM  

hp6sa: Yes, I'm sure the guy working at McDonald's is paying more than $3M a year in taxes, subby.


Successful troll, or right wing nutter talking like a Parrot who watches Fox News all day? I report, you decide.
 
2012-01-27 11:08:12 AM  

Splinshints: Because fry cooks don't have lobbyists. And that's the only reason


thebestpictureproject.files.wordpress.com
 
2012-01-27 11:17:19 AM  
pute kisses like a man:

See, now you're making too much sense.

Also, I'd like to see the breakdown of how much money invested in the stock market today comes from retirement accounts which have different tax laws anyways.
 
2012-01-27 11:27:29 AM  
Regressive tax structure anyone? Those least able to make wise decisions with their money should have less control of it? Their paycheck goes 100% into the govt (up to poverty level), then they get Sec 8 housing, EBT, and a bus pass.
 
2012-01-27 12:12:56 PM  
Lots of people are double taxed, says Chuck Marr, director of federal tax policy for the liberal Center on Budget and Policy Priorities. "Check out your last pay stub: There's income tax and payroll tax, so you're double taxed, too," Marr said.

What a farking retarded statement.
 
2012-01-27 12:18:36 PM  
Plenty of libtards like me agree that a reduced rate for cap gains encourages investment and is generally a reasonable thing for the government to do.

On the other hand, 15% seems ridiculously low.

There were plenty of people lining up to invest in tech companies during the Clinton years when cap gains taxes were at 28%.
 
2012-01-27 12:20:53 PM  

Misch: pute kisses like a man: but, keep this in mind: YOU ONLY GET TAXED IF YOU MAKE A PROFIT!

THIS.

Cost-basis of investments are typically not taxed. ONLY THE PROFITS AND DIVIDENDS

Double taxed my ass. Someone post that "Tom The Dancing Bug" Double Taxation comic... oh here it is.


But the profit is taxed twice.

If I make $1m a year in my job as a neurosurgeon, rap star, pro hockey player or whatever, that would be taxed once - at 35% (assuming top marginal tax rates apply - let's assum I have other income below that that gets the full million into the 35% bracket).

If I also own a sole proprietorship business, selling hockey sticks with rap lyrics written on them to my surgery patients that clears $1m in pre-tax income per year, I'd pay 35% on that.

If I also own a 1% interest in a corporation that I founded with a bunch of other surgeons, rap stars, and hockey players, and it makes $100m per year pre tax, it would pay 35% in corporate income taxes, leaving $65m to be dividended. My proportional share of that would be $650k, which would be taxed at 15% upon dividend. So my proportional share of the corps earnings is $1m (1/100*$100m), but I'm only getting about $550k. So my effective tax rate is 45% in this instance*.

Would it be preferable to eliminate the corporate income tax altogether and then just tax all dividends and cap gains at 40%? That way, the nominal tax rate that everyone whines about being too low for such income would be higher than the rate on earned income, and everyone can stop whining.

/*-I'm not arguing that such 'double' or 'extra' taxation is wrong or should be repealed, but it undeniably is an extra tax.
 
2012-01-27 12:49:48 PM  

Debeo Summa Credo: If I also own a 1% interest in a corporation that I founded with a bunch of other surgeons, rap stars, and hockey players, and it makes $100m per year pre tax, it would pay 35% in corporate income taxes, leaving $65m to be dividended. My proportional share of that would be $650k, which would be taxed at 15% upon dividend. So my proportional share of the corps earnings is $1m (1/100*$100m), but I'm only getting about $550k. So my effective tax rate is 45% in this instance*.

/*-I'm not arguing that such 'double' or 'extra' taxation is wrong or should be repealed, but it undeniably is an extra tax.


No, it's not.

Your business made $100m. Any part of that that you earn is transferred FROM the business TO you is therefore subject to taxation, same as when I transfer my already-taxed dollars to a grocery store (in exchange for goods, which I pay tax on), and then the store is taxed on their profits.

Is that triple or even quadruple taxation (I pay income/payroll taxes and sales taxes, the store pays corporate taxes)? No, because most times when capital changes hands, it is subject to taxation.

When your company makes $100m for the year, the company is obligated to pay taxes on that $100m. If you get paid a dividend from that $100m (minus corporate taxes), that's a whole different ball of wax. Now, the company (which was not obligated to give you dividends; that is but one of many ways a company can spend money) has transferred money back to you, and that new pile of money on your personal books is subject to taxation.

Because money changed hands again.

// how many times do you need this spelled out?
 
2012-01-27 12:59:14 PM  

Debeo Summa Credo: If I also own a 1% interest in a corporation that I founded with a bunch of other surgeons, rap stars, and hockey players, and it makes $100m per year pre tax, it would pay 35% in corporate income taxes, leaving $65m to be dividended. My proportional share of that would be $650k, which would be taxed at 15% upon dividend. So my proportional share of the corps earnings is $1m (1/100*$100m), but I'm only getting about $550k. So my effective tax rate is 45% in this instance*.

Would it be preferable to eliminate the corporate income tax altogether and then just tax all dividends and cap gains at 40%? That way, the nominal tax rate that everyone whines about being too low for such income would be higher than the rate on earned income, and everyone can stop whining.

/*-I'm not arguing that such 'double' or 'extra' taxation is wrong or should be repealed, but it undeniably is an extra tax.


keep this in mind. If you work for a corporation (making a sweet mil a year). That corporation gets taxed its corporate tax on income. then it pays out to you as an employee, and you pay income tax at 35% (or whatever it is)

of course, that corp is claiming your income as an expense. Ok, then perhaps you can say dividends are an expense. The corporation is paying out on an obligation. that's an expense (but it's also the shareholders income, imho). when it comes to my sale of my asset (the equity in corp), I think that should be income. and there, the double tax issue of yours is not applicable.

/ I'm happy to negotiate here. I'm not anti-rich people. I just think that gains are income, we can find some deductions here and there to keep the ball rolling, but as it stands, the system is inequitable.
// also, I don't mind a complicated tax system, if it is equitable. hell, tax lawyers and accountants need jobs too. I just don't think it is equitable right now. I think there are ways to fix it, that although some guys are going to see a little bit less of their profits, the nation as a whole will be made much richer.
 
2012-01-27 01:03:32 PM  
Two-thirds of major corporations operating in the U.S. pay nothing in corporate taxes.

And then any distributions to the "rich jerks" are taxed at 15%? That's pretty messed up.
 
2012-01-27 01:12:16 PM  

Dr Dreidel: When your company makes $100m for the year, the company is obligated to pay taxes on that $100m. If you get paid a dividend from that $100m (minus corporate taxes), that's a whole different ball of wax. Now, the company (which was not obligated to give you dividends; that is but one of many ways a company can spend money) has transferred money back to you, and that new pile of money on your personal books is subject to taxation.


If the company spent $40m of that on increased salaries for its employees, or if it gave $40m to charity, or if it had interest expense of $40m that wasn't factored into the original $100m, or if paid $40m to buy 7 minutes of ads during the super bowl, it would get a tax deduction for that expense.

So that would be $100m in original pre-tax income, less $40m in additional expenditures equals $60m in 'new' pre-tax income. The company would pay taxes on the $60m, and the employees who got more pay or the TV network who sold additional advertising would pay taxes on the $40m. Total amount on which tax is paid - $100m. Total taxes received by federal govt assuming 35% rates = $35m.

Conversely if the company pays the shareholders a dividend of $40m, the the company WOULD NOT GET A TAX DEDUCTION. They would still pay tax on the original $100m. But the investors would have to pay dividend tax on the $40m you received. So $60m of the original $100m is taxed once, but the $40m in dividends is taxed at both the corporate and personal (dividend) level. Total tax received by federal govt = $41m, $35m at corporate level plus $6m on the dividend.

When your company pays you a salary, it is not taxed twice - because although you have to add it to your income, the company gets a deduction for it. When a company pays interest or pays for services/supplies, it is not taxed twice - because although the seller has to add it to their income the company gets a deduction for it. When a company pays a dividend, it is taxed twice because the investor has to pay tax on it but the company doesn't get to deduct the dividend from taxable income!!!.
 
2012-01-27 01:15:11 PM  

Tax Boy: Splinshints: Because fry cooks don't have lobbyists. And that's the only reason

[thebestpictureproject.files.wordpress.com image 560x331]


I don't think you know much about McDonald's.

JamUhn: Two-thirds of major corporations operating in the U.S. pay nothing in corporate taxes.

And then any distributions to the "rich jerks" are taxed at 15%? That's pretty messed up.


Okay... now, wait... to be fair, what are you calling a "major corporation" and what are the financials like of those "major corporations" for the years where they don't pay taxes? In addition, how many of the people in your first statement are publicly traded such that your second statement actually applies to them?

I guess what I'm saying is: [massive citations needed]
 
2012-01-27 01:19:42 PM  

Splinshints: I guess what I'm saying is: [massive citations needed]


What do I look like a search engine or something? Google it.
 
2012-01-27 01:25:20 PM  

pute kisses like a man: Debeo Summa Credo: If I also own a 1% interest in a corporation that I founded with a bunch of other surgeons, rap stars, and hockey players, and it makes $100m per year pre tax, it would pay 35% in corporate income taxes, leaving $65m to be dividended. My proportional share of that would be $650k, which would be taxed at 15% upon dividend. So my proportional share of the corps earnings is $1m (1/100*$100m), but I'm only getting about $550k. So my effective tax rate is 45% in this instance*.

Would it be preferable to eliminate the corporate income tax altogether and then just tax all dividends and cap gains at 40%? That way, the nominal tax rate that everyone whines about being too low for such income would be higher than the rate on earned income, and everyone can stop whining.

/*-I'm not arguing that such 'double' or 'extra' taxation is wrong or should be repealed, but it undeniably is an extra tax.

keep this in mind. If you work for a corporation (making a sweet mil a year). That corporation gets taxed its corporate tax on income. then it pays out to you as an employee, and you pay income tax at 35% (or whatever it is)

of course, that corp is claiming your income as an expense. Ok, then perhaps you can say dividends are an expense. The corporation is paying out on an obligation. that's an expense (but it's also the shareholders income, imho). when it comes to my sale of my asset (the equity in corp), I think that should be income. and there, the double tax issue of yours is not applicable.

/ I'm happy to negotiate here. I'm not anti-rich people. I just think that gains are income, we can find some deductions here and there to keep the ball rolling, but as it stands, the system is inequitable.
// also, I don't mind a complicated tax system, if it is equitable. hell, tax lawyers and accountants need jobs too. I just don't think it is equitable right now. I think there are ways to fix it, that although some guys are going to see a little bit less of their profi ...


It is much simpler to demonstrate with dividends, as my post just above this tries to do, and I think you understand.

When it comes to gains, it is more complex. Let's say instead of paying out all post-tax income as dividends, the company keeps the money in retained earnings. Presumably, the value of the shares will increase to reflect the increase in book value, all else equal. So lets say my one share of the above mentioned corporation is trading at $10m (100 shares outstanding). Then the company instantaneously earns an extra $100m, on which they pay taxes of $35m. All else remains equal. If the company pays out this earnings in a dividend, they'll pay me $650k, which will be taxed again at the dividend level. I think you agree that this is an 'extra' tax.

But what if instead the company just held onto the cash? Presumably, if everything else remained equal, the value of my share would go up by my pro-rata share of the retained earnings, or $650k. So my share that was trading at $10m is now worth $10.65m. If I sell it, what tax should I pay on my $650k in gains? I'd argue that the tax on gains should be the same as the tax on dividends, becaues essentially its the same earnings you are realizing.

If the company creates an invention that is going to yield $25m per share in pre-tax earnings going forward, my stock price is going to rise in anticipation of that. But the amount my stock price is going to rise will be affected by the anticipated taxes on the new earnings stream. So gains are being taxed twice, just like dividends.

I know there are many other factors that affect stock prices other than earnings, which is why it is complex. Simple multiple expansion/contraction and interest rate increases/decreases as well as general market sentiment can lead to gains that have nothing to do with current or expected taxable income. But I'd argue that over time those factors are zero sum - rates will eventually rise, multiples will contract/expand, what have you.

And keep in mind that the preferred rate on cap gains only applies if you hold it for more than one year. If you trade in and out every day or week or month, you pay ordinary rates on any net gains.
 
2012-01-27 01:28:03 PM  

Debeo Summa Credo: When your company pays you a salary, it is not taxed twice - because although you have to add it to your income, the company gets a deduction for it. When a company pays interest or pays for services/supplies, it is not taxed twice - because although the seller has to add it to their income the company gets a deduction for it. When a company pays a dividend, it is taxed twice because the investor has to pay tax on it but the company doesn't get to deduct the dividend from taxable income!!!.


You have it backwards. The salary is the exception because it receives a deduction. The dividend is taxed when the money changes hands, just like every other transaction that exists barring exceptions like business expense deductions. Stop pretending it's special.
 
2012-01-27 01:35:58 PM  

Debeo Summa Credo: Dr Dreidel: When your company makes $100m for the year, the company is obligated to pay taxes on that $100m. If you get paid a dividend from that $100m (minus corporate taxes), that's a whole different ball of wax. Now, the company (which was not obligated to give you dividends; that is but one of many ways a company can spend money) has transferred money back to you, and that new pile of money on your personal books is subject to taxation.

If the company spent $40m of that on increased salaries for its employees, or if it gave $40m to charity, or if it had interest expense of $40m that wasn't factored into the original $100m, or if paid $40m to buy 7 minutes of ads during the super bowl, it would get a tax deduction for that expense.


Those are "business expenses". In actuality, the government has carved those specific expenditures (and others) out as EXCEPTIONS, not the general rule.

The tax code also encourages certain behaviors deemed to have external positives - giving to charity, for example, earns you a tax break. We want to encourage charity, so we give you a tax break for it. Not exactly a "business expense" (though I hear it's good PR), but still behaviors we want to encourage.

Employee salaries are sort of basic company needs. We know that a company will need to pay its people (there are laws about that sort of thing. Something about the lowest hourly rate you're allowed to pay someone, but I forget what they're called). We also know that businesses donate to charity, and we (as a society) want to encourage that. Ditto ad buys (and likely several other exempt expenditures). Ideally, they WOULD be taxed, but it doesn't make much sense in the real world.

I'll pause to suggest that dividends are not beneficial to the business in general (like salaries or advertising costs) or to the public at large (like donating to charity). So there is no incentive to add dividends to the list of tax-exempt expenditures, other than to make investors happy.

So again, my point stands - transfers of capital are taxed, as a rule. Exceptions to that rule don't invalidate the rule, they're just specific exemptions and exceptions made for specific reasons.
 
2012-01-27 01:40:42 PM  

Sergeant Grumbles: Debeo Summa Credo: When your company pays you a salary, it is not taxed twice - because although you have to add it to your income, the company gets a deduction for it. When a company pays interest or pays for services/supplies, it is not taxed twice - because although the seller has to add it to their income the company gets a deduction for it. When a company pays a dividend, it is taxed twice because the investor has to pay tax on it but the company doesn't get to deduct the dividend from taxable income!!!.

You have it backwards. The salary is the exception because it receives a deduction. The dividend is taxed when the money changes hands, just like every other transaction that exists barring exceptions like business expense deductions. Stop pretending it's special.


Actually, the vast majority of transfers of capital between parties are not taxed. While there are special, one off taxes for various things, the gov't really only taxes income and business to consumer sales of goods. Other transfers of capital (loans, business to business sales, sales of service, most gifts, etc.) are not taxed by the government at all. If there IS any tax in those transactions, its generally limited to the net value increase (i.e. income) that business received.

So, no, actually, the tax on transfers of capital as income, b2c sales and cap gains/dividends are the exceptions.
 
2012-01-27 01:43:59 PM  

you have pee hands: 401k gains essentially aren't taxed at all. They're a case where money really is only taxed once; you can either tax it before you put it in (Roth 401k) or defer the tax until you take it out (regular 401k) but if you work the math out you'll have the same amount of money after taxes in either case assuming your tax rate stays the same.


Yep. In my case, I currently believe that I'll be in a higher tax bracket when I retire, thus I max out my roth IRA each year. I also invest in more traditional tax-deferred investments, as well as a standard mutual fund. My income from that isn't nearly high enough to bust the 0% tax rate for capital gains.

If it wasn't for the contribution limit on the roth(I can only dump $5k there/year), I'd be better off just making straight investments until I was making enough to actually pay capital gains. Why? My standard mutual fund is more flexible. At the levels I'm looking at, I have the same investment options and returns for both funds, in which case with 'same risk, same return', more liquid wins.

This still doesn't answer the question of why you should be taxed for making your living doing actual work but not taxed for making your living sitting on a pile of money earning interest.

I can see having a lower tax rate to encourage investment, but that's at lower income levels, not where these guys are.
 
2012-01-27 01:56:48 PM  

Debeo Summa Credo: So my proportional share of the corps earnings is $1m (1/100*$100m), but I'm only getting about $550k. So my effective tax rate is 45% in this instance*.


Republicans have told me many times that any increased taxes or business costs due to regulations are passed along to the consumer, so you're not paying a silver dime of the corporate tax, your customers are.
 
2012-01-27 02:00:03 PM  

Dr Dreidel: Debeo Summa Credo: Dr Dreidel: When your company makes $100m for the year, the company is obligated to pay taxes on that $100m. If you get paid a dividend from that $100m (minus corporate taxes), that's a whole different ball of wax. Now, the company (which was not obligated to give you dividends; that is but one of many ways a company can spend money) has transferred money back to you, and that new pile of money on your personal books is subject to taxation.

If the company spent $40m of that on increased salaries for its employees, or if it gave $40m to charity, or if it had interest expense of $40m that wasn't factored into the original $100m, or if paid $40m to buy 7 minutes of ads during the super bowl, it would get a tax deduction for that expense.

Those are "business expenses". In actuality, the government has carved those specific expenditures (and others) out as EXCEPTIONS, not the general rule.

The tax code also encourages certain behaviors deemed to have external positives - giving to charity, for example, earns you a tax break. We want to encourage charity, so we give you a tax break for it. Not exactly a "business expense" (though I hear it's good PR), but still behaviors we want to encourage.

Employee salaries are sort of basic company needs. We know that a company will need to pay its people (there are laws about that sort of thing. Something about the lowest hourly rate you're allowed to pay someone, but I forget what they're called). We also know that businesses donate to charity, and we (as a society) want to encourage that. Ditto ad buys (and likely several other exempt expenditures). Ideally, they WOULD be taxed, but it doesn't make much sense in the real world.

I'll pause to suggest that dividends are not beneficial to the business in general (like salaries or advertising costs) or to the public at large (like donating to charity). So there is no incentive to add dividends to the list of tax-exempt expenditures, other than to make investors ...


LOL.

Let's look at a small sample of the outlays a corporation has:

List A
Employee Salaries
Benefits
Utilities
Telecommunications
Rent
Office supplies
Fuel
Maintenance
Raw Materials
Advertising
Interest Expense

List B
Dividends

List A are tax deductible, list B is not tax deductible. Which list looks like an 'exception'?
 
2012-01-27 02:22:23 PM  
I dunno. Which list has been cherry-picked to make your point?

But just to have fun, everything in list A benefits the company as a whole - either directly (as advertising, salary, utilities are) or indirectly (like fuel and interest expense).

Dividends benefit specific investors, which doesn't help anyone at the macro level - and, you might say, is removing capital from the business' operating funds, hurting them. (I know that a dividend won't sink a company, but every dollar they pay to a shareholder is a dollar not spent on upgrading/innovating/creating jobs.)

Your list also fails to include the laws detailing why each is exempted (or not). So, while it may "appear" that List B are the "exceptions", if the law says "All of these things are tax free, except dividends", it actually WOULD be List B that are the exceptions.

// I know there's only one item in List B
 
2012-01-27 02:31:24 PM  

Dr Dreidel: I dunno. Which list has been cherry-picked to make your point?

Dividends benefit specific investors, which doesn't help anyone at the macro level


Except that dividends are the repayment of a promise that did help the business a great deal - more than almost everything else on List A. That promise was the initial investment of capital.

When that investment was made, it was because the business needed money in order to launch or sustain that business. Investment is the worst way to raise capital if you think your business will succeed (and almost all businesses think that) because the amount you owe is limitless (vs. debt which has a fixed repayment amount). People only take investment because that can't get cheaper forms of capital to start/run the business.

Those investors take on a huge amount of risk in exchange for nothing but a promise: a promise that they will get a return proportionate to the amount of the company they helped sustain at some point in the future.

Those dividends are an expense that was extremely valuable to the business - it was just valuable at a much earlier point in time.
 
2012-01-27 02:34:08 PM  

JamUhn: What do I look like a search engine or something? Google it.


Nope, you look like the guy who made a bunch of claims without supporting them. And since you made the assertions without evidence, everyone else gets to dismiss them without further consideration.
 
2012-01-27 02:43:24 PM  

Dr Dreidel: I dunno. Which list has been cherry-picked to make your point?

(I know that a dividend won't sink a company, but every dollar they pay to a shareholder is a dollar not spent on upgrading/innovating/creating jobs.)


I'd also like to add that you almost never see dividends when this statement holds true. When a company issues a dividend, its a statement to the shareholders that says, "This is your money, since you own the business. The amount of value that we can create with this money is less than the amount you can make on your own."

Since the point of that investment - that initial promise - was that the business would use that money to make value, the dividend is just the business putting those dollars where they can create the most value. Sometimes that is in the business, but in the case of a dividend its back in the owners pockets.
 
2012-01-27 02:56:49 PM  

Debeo Summa Credo: If the company pays out this earnings in a dividend, they'll pay me $650k, which will be taxed again at the dividend level. I think you agree that this is an 'extra' tax.


well, you can call it an extra tax. But, like I said, that is how a corporations work. they are not pass through entities. currently it is taxed twice. and no one should have a problem with this.

that's why I suggest to recognize the dividend payment as deductible expense. Make that amount to be paid in dividends deductible and take it off the corporation's taxable income. but, the shareholder pays income tax on it. now it only gets taxed once.

keep in mind, corporations are creations of the state, they are governed by state law. They are not some god given right to commerce, they are manifestations by a legal act. So, if you want to quadriple tax it, then there's no real problem constitutionally (imho, you waive certain things when you decide to enjoy the state given advantages of incorporation). They are also very young legal concepts. and let's not even get started on the world of LLCs

/ I forgot to mention in my list of ways to solve the country's problems. I would also mandate that business organizations be incorporated in the state of their principal place of business. I think that this state's laws should apply to a business that does business in this state, not delaware. delaware has been milking this thing too long. filing fees make up something like 25% of their total revenue. that's just crazy, delaware better be a damned utopia with all that free cash. not to mention the fact that 50%+ of US corps are delaware corps, so most corporate problems feed the delaware court system with hefty fees and costs.
 
2012-01-27 02:59:52 PM  

ansuz07: Actually, the vast majority of transfers of capital between parties are not taxed. While there are special, one off taxes for various things, the gov't really only taxes income and business to consumer sales of goods. Other transfers of capital (loans, business to business sales, sales of service, most gifts, etc.) are not taxed by the government at all. If there IS any tax in those transactions, its generally limited to the net value increase (i.e. income) that business received.


The "vast majority" you mention are business expenses, which I already mentioned as being an exception. The tax you mention being a tax on profit, which is obviously income minus expenses. Dividends come out of profit, are not business expenses, and are not excepted. But thanks for reinforcing my point. Stop pretending it's a special case.
 
2012-01-27 03:05:13 PM  

Sergeant Grumbles: ansuz07: Actually, the vast majority of transfers of capital between parties are not taxed. While there are special, one off taxes for various things, the gov't really only taxes income and business to consumer sales of goods. Other transfers of capital (loans, business to business sales, sales of service, most gifts, etc.) are not taxed by the government at all. If there IS any tax in those transactions, its generally limited to the net value increase (i.e. income) that business received.

The "vast majority" you mention are business expenses, which I already mentioned as being an exception. The tax you mention being a tax on profit, which is obviously income minus expenses. Dividends come out of profit, are not business expenses, and are not excepted. But thanks for reinforcing my point. Stop pretending it's a special case.


Dividends are business expenses too - they are the repayment of initial investment. Every other repayment of initial investment are deductible.

Businesses can raise capital in one of two ways - taking on debt or soliciting investment.

The repayment of the cost of debt (interest) has been decreed an expense and thus tax deductible (like almost every other outlay of business capital). The repayment of the cost of equity (dividends) has been decreed not an expense and thus non-deductible (unlike almost every other outlay of business capital).

How are dividends not an exception?
 
2012-01-27 03:06:16 PM  

ansuz07: Dr Dreidel: I dunno. Which list has been cherry-picked to make your point?

Dividends benefit specific investors, which doesn't help anyone at the macro level

Except that dividends are the repayment of a promise that did help the business a great deal - more than almost everything else on List A. That promise was the initial investment of capital.


By that measure, anything you do to help a business should be tax-deductible.

Things like salaries are DIRECTLY related to the operation of a company. They're business expenses. Things like dividends, while necessary for maintaining a relationship with your initial investors, are not.

The company benefitted from the initial cash infusion, I'm not arguing that. I'm telling you that a dividend payout does not help the company, it helps the investor.

Your second point was pretty much what I said, just stated the opposite way: if the company pays you $5k in dividends, even if they have $20m in other profits, it's $5k less that they have to spend on other things - that much is necessarily true. Whether it's a good/smart decision or not can only be known on a case-by-case basis.
 
2012-01-27 03:07:05 PM  

Dr Dreidel: I dunno. Which list has been cherry-picked to make your point?

But just to have fun, everything in list A benefits the company as a whole - either directly (as advertising, salary, utilities are) or indirectly (like fuel and interest expense).

Dividends benefit specific investors, which doesn't help anyone at the macro level - and, you might say, is removing capital from the business' operating funds, hurting them. (I know that a dividend won't sink a company, but every dollar they pay to a shareholder is a dollar not spent on upgrading/innovating/creating jobs.)

Your list also fails to include the laws detailing why each is exempted (or not). So, while it may "appear" that List B are the "exceptions", if the law says "All of these things are tax free, except dividends", it actually WOULD be List B that are the exceptions.

// I know there's only one item in List B


You wan't me to include laws detailing what is included and what isn't included?
Here (new window)Knock yourself out. I don't know if it includes the 'why's' though.

And arguing about which is an exception and which isn't is beside the point. I just thought it was funny that you guys think that regular business expenses are the exceptions.

The important point is that earnings of a corporation is taxed at about 45% federal assuming top rates before it gets into the pockets of owners. Earnings of non-incorporated businesses are taxed at 35% assuming top rate before it gets into the pocket(s) of the owner(s).

You can argue until you're blue in the face about why this is ok (improves progressivity of tax code because by definition people with more stock are richer), or as a quid pro quo for limited liability. But none of this changes that it is an 'extra' tax. I, in fact, am in favor of the 'extra' tax, however I don't think it should be any higher (actually, I'm in favor of a greatly reduced corporate rate coupled with taxing gains and dividends at ordinary rates, net effect zero on overall rates but much more efficient IMO).

People on fark seem to think that dividends should be taxed at ordinary rates. If we taxed dividends as ordinary earnings almost 58% would go to the federal govt. Coupled with a return to Clinton-era levels, which many here (including myself) support and assuming a 5% net state/local tax rate on corporate and personal earnings (YMMV by locality), we could be talking about taxes taking over 69 cents of each dollar in corporate earnings (.396+.05)+ ((1-(.396+.05))*(.396+.05)). Now were getting into opinion but I think that's too high.
 
2012-01-27 03:11:12 PM  

Dr Dreidel: ansuz07: Dr Dreidel: I dunno. benefitted from the initial cash infusion, I'm not arguing that. I'm telling you that a dividend payout does not help the company, it helps the investor.


By that definition, very few things should be counted as expenses. The dividend is the payment on the initial investment.

By your logic, I shouldn't pay rent because while I derived value from the building I used, I don't derive value from the payment of the rent itself.

The initial capital provided value the same way the building did. The only difference is that one is repaid on a set interval and one is repaid at the board of directors discression.

Also, in reference to your last rebuttal, three of my list of four things (loans, sale of service and most gifts) are applicable to people as much as businesses. So its not just bushiness expenses that are non taxed transfers of capital.
 
2012-01-27 03:17:00 PM  

pute kisses like a man: Debeo Summa Credo: If the company pays out this earnings in a dividend, they'll pay me $650k, which will be taxed again at the dividend level. I think you agree that this is an 'extra' tax.

well, you can call it an extra tax. But, like I said, that is how a corporations work. they are not pass through entities. currently it is taxed twice. and no one should have a problem with this.

that's why I suggest to recognize the dividend payment as deductible expense. Make that amount to be paid in dividends deductible and take it off the corporation's taxable income. but, the shareholder pays income tax on it. now it only gets taxed once.


I'd agree that if we allowed deductions of dividends it would only get taxed once.

keep in mind, corporations are creations of the state, they are governed by state law. They are not some god given right to commerce, they are manifestations by a legal act. So, if you want to quadriple tax it, then there's no real problem constitutionally (imho, you waive certain things when you decide to enjoy the state given advantages of incorporation). They are also very young legal concepts. and let's not even get started on the world of LLCs

Oh, I'm not citing any constitution problems. Govt can pass laws it wants. I just take issue with people complaining about investors getting a great deal with a 15% tax, when the 35% corporate tax has already taken a bite of any earnings avaliable for dividends or the value of the investment (and thus any gains). People like the author of TFA just focus on the nominal rate to the investor and don't consider any other taxes. It's the same as GOPers complaining in 2004 that Theresa Heinz Kerry's tax rate was only 4%. Well, yeah, her portfolio was mostly tax-free municipals. She didn't pay much tax but her returns were much lower that she would've had with a taxable portfolio, with the benefit going to the municipalities.

I mention it upthread and nobody responded - what if we just did away with the corporate tax and just taxed all gains or dividends at 40%? Then the rate that all these "rich jerks" would pay on their investments would be higher than the highest rate on earned income. Do away with all the corporate tax accountants and shelters and just take a bigger cut of any returns to investors?

/ I forgot to mention in my list of ways to solve the country's problems. I would also mandate that business organizations be incorporated in the state of their principal place of business. I think that this state's laws should apply to a business that does business in this state, not delaware. delaware has been milking this thing too long. filing fees make up something like 25% of their total revenue. that's just crazy, delaware better be a damned utopia with all that free cash. not to mention the fact that 50%+ of US corps are delaware corps, so most corporate problems feed the delaware court system with hefty fees and costs.

I never understood the whole Delaware thing. Clearly it's a race to the bottom in some regard.
 
2012-01-27 03:30:06 PM  
...what if we just did away with the corporate tax and just taxed all gains or dividends at 40%?

Not a great idea, because it would make it more difficult for companies to raise initial capital. One of the points of the lower tax rate is that it helps investors reduce their risk on investments in smaller, start up firms.

That 35% tax rate is the highest tax bracket; the vast majority of corporations in the US don't pay nearly that amount. Smaller firm that are subject to lower tax rates would have difficulty raising investments because that 40% would be higher than the 15% cap gains tax compounded with their lower corporate tax rate and would thus receive lower initial influxes of equity upon initial investment (since the only non subsidized way to mitigate risk is to demand more return for less investment).

There is an argument to be made for the 40% rate when dealing with large corporations, but the math doesn't work for the majority of firms.
 
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