Future Tax Increase

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dshields's picture
dshields
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Grover wrote: I just read

Grover wrote:

I just read this article on Financial Sense from Daniel Amerman. In a nutshell, he argues that future taxes will have to be increased in order to get revenues to pay for our current (and future) debts. He says that the poor have no money and the rich have connections. He sees the middle and upper middle class receiving an unpleasant surprise. Why? They have been "foolish" enough to save money for their retirements using government sanctioned arrangements. These huge sums cannot be emptied without incurring tax penalties until the individual has reached retirement age; therefore, most people will just keep adding to their accounts expecting future tax liabilities to be similar to today's. In sum, it is a very large amount of money that is available for politicians to plunder. Can politicians resist when our fiscal condition gets more dour?

http://www.financialsense.com/contributors/daniel-amerman/2011/07/14/retirement-accounts-and-the-coming-tax-code-revolution

It is a well written and sobering view on the potential abuse of something the masses have taken for granted. I tried to pull my funds out of my 401(k) account several years ago. I was told that policy prevented me from doing so unless I quit, retired or turned 59 1/2. I'm not willing to quit, not eligible to retire, and have many more years to reach the magic age. My money is stuck! I stopped ontributing and took out the biggest loan I could at the time to focus on preparations.

Back then, I didn't know about CM. I read enough to know that our collective debts could never be repaid, that oil production was about to peak, that our aging demographic situation was about to accelerate, and no one in power could/would do anything about it. It was (and is) ludicrous to think that the smaller "Gen-X" generation will be able to buy all the McMansions, purchase all the stocks to keep the stock market going, pay increasing taxes to fund the "Baby Boomer's" retirements, educate the much larger "Millenial" generation, and do so with wages low enough to keep the purchase prices of all the materialistic goods at reasonable prices.

The only real change I see between then and now is that conditions are universally much worse now. This isn't going to end well.

Grover

I read the link.  There is a lot to this.  I saw reported in the media a while back that Nancy Pelosi suggested that it is unfair that so much money is held in retirement accounts and not taxed when "so many poor and undocumented people in America are not getting to live in the America they expected to be living in".  The democrats floated an idea to confiscate all the retirement accounts and recreate them as "Guaranteed Retirement Accounts" (GRAs).  There is a lot of data out on the net about this proposal.  The Constitution guarantees the people of America the right to private property.  My retirement account is my property.  Any serious attempt to try to confiscate the retirement accounts of America will no doubt be met with a legal challenge that will go to the US Supreme Court.  You had better vote for politicians that will put responsible folks on the supreme court from now on if you want to retain possession of your private property in the future.

One of the major problems we have in America is ignorance.  The last few generations were not taught much of anything about America or the unique government we have.  This can be easily seen in the fact that Obama was elected.  I find it a very scary situation.  Most people do not have enough education and sifficient critical thinking skills to successfully wade through the wall of propaganda they are fed everyday through the main stream media.  They just believe it.  Even so called educated people often do not understand what is going on around them because they place insufficient focus on these issues as their every day lives are difficult and complex.  I have many friends who have no clue what is going on.  They do not watch the news - they watch American Idol, Dancing with the Stars, Cops, Family Man, Beavis and Butthead, and other such shows.  When I try to talk to them about the current situation they just stare at me like I am insane.  It is beyond their ability to comprehend that irresponsible politicians have legislated us into a disaster.  They simply do not believe it.

The politicians have clearly lost control of the situation.  The size and nature of the cuts that are going to be required are mind boggling.  The dems do not seem to be very interested in cutting and the repubs are at least talking about it but are terrified to actually do it.  An interesting event will happen in the next 2 weeks.  There is a bill in the house being referred to as the "cut, cap, and balanced budget amendment".  The dems in mass will vote against this bill as it will force cuts.  The repubs will vote for it in mass as they will see it as the only available option to try to get spending under control.  Truth is that everything is going to have to be cut.  You can tell the dems are not serious in the current negotiations as they have taken Obamacare "off the table" - one of the worst offenders in the out years.  Obamacare should be repealed immediately.  The wars will have to be stopped and the military brought home - about 25% of them will have to be released and a number of expensive military equipment programs will have to be canceled.  Social Security will have to be cut.  Medicare will have to be cut.  People will die due to these cuts.  Agricultural subsidies will have to be cut.  Food stamps and section 8 housing will have to be cut.  Basically every Fed Gov program you can think of will have to be cut.  About 25% of the government employees will have to be let go.  They will be going to the private sector where there are very few jobs that pay a decent wage.  It is all very bleak indeed.

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badScooter
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educating others

rhare wrote:

badScooter wrote:

I don't see a way out.  I'm interested now only in navigating through the coming chaos as best as I can for me and mine - I have absolutely no remaining faith in any elected official, or most of the folks who voted them in, for that matter.

I agree that we are in for huge pain and really no way out other than collapse.  However, it's still worth trying to educate people (even politicians) about what is happening, not to prevent what is coming, but so that we don't go down an even darker road after a collapse.  It will be easy for someone to step in and promise to fix everything and scapegoat some selected class.  That generally always ends very badly - think Hitler. 

Hi Rhare,  I'm just a bit disillusioned...became actively involved with partisan politics for the very first time in '09 (because I was totally freaked out by my perception of converging crises). I probably gave away a dozen copies of Reinhart and Rogoff's "This Time is Different"; my congressweenie has a copy of Hazlitt's "One Lesson" from me, I tell aquaintences that I actually give a hoot about to take a look at Crash Course (brilliant work, by the way...just the facts and not presented hysterically), and yet I feel the way I imagine the apocryphal Noah must have felt as he plodded along building his ark whilst being ridiculed and mocked by his peers.

Sometimes I have those days where my general attitude is "hell with them all".  Sorry, personal defect...

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dshields
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Posts: 599
Thrown to the crazy...

As the crazy show in Washington continues...

1) We are going to have a desperate emergency if we do not get control of spending.  The repubs are trying to get control of spending with "cut, cap, and balance".

http://rsc.jordan.house.gov/UploadedFiles/Cut_Cap_Balance_Act_Summary-FA...

2) Obama says "cut, cap, and balance" will get an instant veto.  Why would he veto it ?  Where is Obama's proposal ?

3) For the second year in a row the dem dominated senate has not come up with a budget.  It is required to do so by the constitution.  Why would the senate choose to not meet its constitutional obligations (again) ?  This is shameful behavior.

4) There has been a radical increase in defense spending over the last few years from about 400 billion to 750 billion a year.  This has to be cut big time.  If you own any stocks or bonds of big defense contractors or companies that supply big defense contractors I would sell them this week.  Don't fool around here - there are going to be massive cuts in this area for sure.

http://www.zerohedge.com/article/charting-60-years-defense-spending-and-...

5) If we do not take major action quickly there is going to be a very serious financial emergency in the US.  All the doomsday predictions will come true.  By getting control of spending we will at least have some control over what happens and we can try to minimize the negative impact of the cuts is spending that are going to be forced upon us.  It looks like we have 2 choices -

a) cut in a controlled manner and try to manage the negative impact to the nation

b) allow out of control spending to continue and take whatever the following financial implosion has in store for us

A sensible course of action seems to be to try to manage what is coming our way.

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Poet
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Dshields And The Dysfunctional Family Called Government

Everyone, and Dshields

As Dave Ramsey likes to say (and I may be paraphrasing here), "What you've got is an income problem and a spending problem. You're not making enough income and you're spending too much."

What family in America would BOTH voluntarily take a pay-cut they didn't have to take AND at the same time go on a borrowing binge to buy tons of perishable goods that will be used up right away? Only a truly dysfunctional family would do that.

And yet that is exactly what our country has done. Our leaders voted in tax cuts and voted to extend them (cumulative estmate of $1.2 trillion so far), while voting to borrow to provide handouts and spending: stimulus checks, more entitlements (Medicare Part D, $272 billion so far, while refusing to allow Medicare to negotiate bulk discounts like the VA does), "Cars for Clunkers", even the $8,000 new home buyer credit that cost the government $29 billion (but the average home is now worth $15,000 less than when the program ended). We even have borrowed heavily to go to war and to maintain military bases. War itself is the ultimate destroyer of value ($1.2 trillion and counting).

Now when your family or my family is faced with such financial difficulties, you'd expect two things: 1. Major spending cuts. AND 2. Working extra hours or getting a second job for income to make up the stupid, STUPID mistake of voluntarily taking a pay cut. Anything else would be dysfunctional for such a family. Who here would dare disagree with that? (What, you would advise such a family to not try to bring in extra income, but only focus on cutting spending?!?)

And yet this is EXACTLY what we have here. Democrats who don't want to make the major cuts the Republicans want (they are willing to make some minor cuts, but not enough, and want to also close some tax loopholes as well as let the temporary tax cuts expire for the wealthiest Americans). Republicans who refuse to consider allowing the temporary tax cuts to expire or closing tax loopholes - only major cuts are in their vocabulary.

Get it? One side won't cut enough. Agreed. And the other side won't even consider letting some of the taxe rates go to the level where they were in 2001. There is no room for compromise, only grandstanding brinksmanship.

Here's an example: Remember last December of 2010, when "Republicans threatened to block any legislation until a deal is reached to extend the expiring Bush-era tax cuts" (New York Times article: http://www.nytimes.com/2010/12/02/us/politics/02cong.html). That's right, all 42 Republican members of Congress signed that letter to Harry Reid with that threat. And their threat worked. Obama compromised with them and the tax cuts were extended even though the original intent of the tax cuts was to allow the cuts to expire in December 2010, even though the Democrats' plan was to allow only the tax cuts for the highest tax bracket to expire (typically those making $250,000 or more). A threat to shut down Congress by 42 out of 535 worked.

Sadly, Dshields, I have to shake my head in disbelief and utter disgust when you ONCE AGAIN start your one-party bashing with falsehoods. (Are you trying to score political jabs by insulting half of Americans?) You wrote, "For the second year in a row the dem dominated senate has not come up with a budget. It is required to do so by the constitution.  Why would the senate choose to not meet its constitutional obligations (again) ?"

  1. That's called deceitful spin, because as proven in my previous paragraph, an united minority controls the majority. How exactly can the Senate Democrats come up with a budget, when "the tail wags the dog?"
  2. Nevertheless, the Senate Democrats on the Senate Budget Committee does have a budget framework:
  3. But the real kicker is this: You have misinterpreted our Constitution and longstanding Congressional rules. Spending bills must originate in the House. If the Senate tries to do it, the House sends a note back to the Senate saying effectively, "Sorry, not your perogative to start one." That is why Obama is negotiating with the House Republicans.

But imagine if someone didn't know the truth, and they only read what you wrote or heard what you said. What would they think of Senate Democrats? Alas, that is how misinformation is passed, and people's opinions are swayed through untruths if left uncorrected. This is why partisan attacks done without research and without "fair and balanced" presentation does a disservice to society and poisons both civil discourse and the minds of citizens. That is why I strive to understand multiple points of view.

"This is shameful behavior." Yes it is, Dshields. Yes it is indeed.

Dshields, you also wrote: "We are going to have a desperate emergency if we do not get control of spending.  The repubs are trying to get control of spending with 'cut, cap, and balance'."

The truth is, we need both expirations of tax cuts and we need to get control of spending. Both sides have plans for getting this under control, but the two sides are diametrically opposed and playing a game of chicken just like in a dysfunctional familiy. There are no saints on either side. What I consider repugnant is seeing you always insinuatingly inserting your blatant partisanship.

Also, I should note that "Cut, Cap, and Balance" sounds great on paper in that it would cap federal spending at 18% of the previous year's GDP. But beware of two things:

  • The last time the Federal government spent just 18% of GDP, was 1966. Even the House Republicans' budget proposal calls for more than 20%, not 18%, for the next 2 decades. There's gonna be a world of hurt.
  • There are NO provisions for allowing tax cuts to expire nor for closing tax loopholes nor for raising taxe rates. That world of hurt isn't being ameliorated when it could be.

Thus, "Cut, Cap, and Balance" is essentially the Republicans' way of bypassing debt ceiling negotiations to get what they want in the first place, without compromise. As much as I abhor Obama and his betrayal of the American middle class on the altar of Wall Street and banks, I can see why he'd veto it. He wants some cuts (not enough in my view), but he wants closure of tax loopholes and expiration of the temporary tax cuts, too.

Again, dysfunctional families refuse to consider all options. They focus OCD-like on just one thing, thinking that doing only one thing all that is needed. (What is the definition of insanity?)

Now, I should applaud you for attacking military spending. Yes, I agree. Over the past decades, we have spent trillions more than we should. By the way, 51% of government employees are in the Department of Defense - and that does not include contractors - there may be several million of them. So if we cut military spending, you are right. It will be a major hit to the economy and to millions of workers. Unfortunately, you won't get what you want. the House has voted to increase the military's annual budget again. Who controls the House again?

The biggest problem I see is a myopia on both sides, and a refusal by by both sides to compromise: which I see as a need to cut deeper than the Democrats want, and a need to allow for expiration of tax cuts that the Republicans don't want (although they originally designed it to sunset) and a closing of tax loopholes. The short-sightedness will either lead to a crappy compromise that means nothing, or we will see the markets on the brink by August 1...

Dysfunctional families have a way of imploding... There won't be any "fun" in "dysfunctional" this time around...

Poet

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dshields
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Poet wrote:Everyone, and

Poet wrote:

Everyone, and Dshields

As Dave Ramsey likes to say (and I may be paraphrasing here), "What you've got is an income problem and a spending problem. You're not making enough income and you're spending too much."

What family in America would BOTH voluntarily take a pay-cut they didn't have to take AND at the same time go on a borrowing binge to buy tons of perishable goods that will be used up right away? Only a truly dysfunctional family would do that.

And yet that is exactly what our country has done. Our leaders voted in tax cuts and voted to extend them (cumulative estmate of $1.2 trillion so far), while voting to borrow to provide handouts and spending: stimulus checks, more entitlements (Medicare Part D, $272 billion so far, while refusing to allow Medicare to negotiate bulk discounts like the VA does), "Cars for Clunkers", even the $8,000 new home buyer credit that cost the government $29 billion (but the average home is now worth $15,000 less than when the program ended). We even have borrowed heavily to go to war and to maintain military bases. War itself is the ultimate destroyer of value ($1.2 trillion and counting).

Now when your family or my family is faced with such financial difficulties, you'd expect two things: 1. Major spending cuts. AND 2. Working extra hours or getting a second job for income to make up the stupid, STUPID mistake of voluntarily taking a pay cut. Anything else would be dysfunctional for such a family. Who here would dare disagree with that? (What, you would advise such a family to not try to bring in extra income, but only focus on cutting spending?!?)

And yet this is EXACTLY what we have here. Democrats who don't want to make the major cuts the Republicans want (they are willing to make some minor cuts, but not enough, and want to also close some tax loopholes as well as let the temporary tax cuts expire for the wealthiest Americans). Republicans who refuse to consider allowing the temporary tax cuts to expire or closing tax loopholes - only major cuts are in their vocabulary.

Get it? One side won't cut enough. Agreed. And the other side won't even consider letting some of the taxe rates go to the level where they were in 2001. There is no room for compromise, only grandstanding brinksmanship.

Here's an example: Remember last December of 2010, when "Republicans threatened to block any legislation until a deal is reached to extend the expiring Bush-era tax cuts" (New York Times article: http://www.nytimes.com/2010/12/02/us/politics/02cong.html). That's right, all 42 Republican members of Congress signed that letter to Harry Reid with that threat. And their threat worked. Obama compromised with them and the tax cuts were extended even though the original intent were to allow the cuts to expire.

Sadly, Dshields, I have to shake my head in disbelief and utter disgust when you ONCE AGAIN start your one-party bashing with falsehoods. (Are you trying to score political jabs by insulting half of Americans?) You wrote, "For the second year in a row the dem dominated senate has not come up with a budget. It is required to do so by the constitution.  Why would the senate choose to not meet its constitutional obligations (again) ?"

  1. That's called deceitful spin, because as proven in my previous paragraph, an united minority controls the majority. How exactly can the Senate Democrats come up with a budget, when "the tail wags the dog?"
  2. Nevertheless, the Senate Democrats on the Senate Budget Committee does have a budget framework:
  3. But the real kicker is this: You have misinterpreted your Constitution and longstanding Congressional rules. Spending bills must originate in the House. If the Senate tries to do it, the House sends a note back to the Senate saying effectively, "Sorry, not your perogative to start one." That is why Obama is negotiating with the House Republicans.

But imagine if someone didn't know and they only read what you wrote. What would they think of Senate Democrats? Alas, that is how misinformation is passed, and people's opinions are swayed through untruths if left uncorrected. This is why partisan attacks done without research and without "fair and balanced" presentation does a disservice to society and poisons both civil discourse and the minds of citizens.

"This is shameful behavior." Yes it is, Dshields. Yes it is indeed.

Dshields, you also wrote: "We are going to have a desperate emergency if we do not get control of spending.  The repubs are trying to get control of spending with 'cut, cap, and balance'."

The truth is, we need both expirations of tax cuts and we need to get control of spending. Both sides have plans for getting this under control, but the two sides are diametrically opposed and playing a game of chicken just like in a dysfunctional familiy. There are no saints on either side. What I consider repugnant is seeing you always insinuatingly inserting your blatant partisanship.

Also, I should note that "Cut, Cap, and Balance" sounds great on paper in that it would cap federal spending at 18% of the previous year's GDP. But beware of two things:

  • The last time the Federal government spent just 18% of GDP, was 1966. There's gonna be a world of hurt.
  • There are NO provisions for allowing tax cuts to expire nor for closing tax loopholes nor for raising taxe rates. That world of hurt isn't being ameliorated.

Thus, "Cut, Cap, and Balance" is essentially the Republicans' way of bypassing debt ceiling negotiations to get what they want in the first place, without compromise. As much as I abhor Obama and his betrayal of the American middle class on the altar of Wall Street and banks, I can see why he'd veto it. He wants some cuts (not enough in my view), but he wants closure of tax loopholes and expiration of the temporary tax cuts, too.

Again, dysfunctional families refuse to consider all options. They focus OCD-like on just one thing, thinking that doing only one thing all that is needed. (Remember what the Republican minority in the Senate threatend in December 2010?)

Now, I should applaud you for attacking military spending. Yes, I agree. Over the past decades, we have spent trillions more than we should. By the way, 51% of government employees are in the Department of Defense - and that does not include contractors - there may be several million of them. So if we cut military spending, you are right. It will be a major hit to the economy and to millions of workers. Unfortunately, you won't get what you want. the House has voted to increase the military's spending budget again. Who controls the House again?

The biggest problem I see is a myopia on both sides, and a refusal by by both sides to compromise: which I see as a need to cut deeper than the Democrats want, and a need to allow for expiration of tax cuts that the Republicans don't want (although they originally designed it to sunset) and a closing of tax loopholes. The short-sightedness will either lead to a crappy compromise that means nothing, or we will see the markets on the brink by August 1...

Dysfunctional families have a way of imploding... There won't be any "fun" in "dysfunctional" this time around...

Poet

I hear you and actually agree with almost every single point you made.  I just did not write that much.  However, I do disagree with one of your many points.  That one is the tax part.  Nobody really knows exactly it seems, but somewhere between 60 and 70 percent of our GDP is consumer spending.  If we raise taxes there will be by definition less money for consumers to spend.  Also, the so called "Bush Tax Cuts" cut taxes all across the wage spectrum - not just for rich people.  You call them temporary but they have actually been there for 10 years.  Specifically, the highest percentage tax cuts were for what we would call the poor.  I will admit that the soucre of this data leans to the right more than one might hope (they still publish articles pushing for more free trade agreeements which I find unbelievable) but numbers are numbers and these are the first ones I ran into when doing a search.

http://www.heritage.org/research/reports/2007/01/ten-myths-about-the-bush-tax-cuts

There is also a moral issue involved in taxes.  Does the fact that one person makes less money than another person entitle the poorer of the two to the right to have the personal property of the one with more money to be confisgated by the government and given to him ?  If I make moe money than my neighboor does that give him the right to come over and take my car ?  Why is it Ok if the goverment takes my property and gives it to the neighboor and it is not OK for my neighboor to drop in and help himself ?

It seems to me like there should be some kind of fairness in taxes.

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rhare
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Posts: 1271
A very dysfunctional family...

dshields wrote:

It seems to me like there should be some kind of fairness in taxes.

I agree, even if we have a highly progressive tax, everyone needs to pay some amount of taxes and it needs to directly correspond to the spending by governments.  That way people see a direct impact to their well being by voting in government spending.  Without that feedback those that pay few/no direct taxes will always vote for more programs.

Poet, you are right, it's completely dysfunctional. However, spending is a far bigger issue than revenue for the simple fact that even if you taxed everyone much higher rates you can't solve the problem.  We have far more promises than we can ever fulfill no matter how much we tax the rich (or everyone for that matter).  I'm also of the opinion that unless we put a hard limit on spending we will never tackle the problems.  It's just too easy to keep kicking the can down the road.  I think a nice cold-turkey no debt ceiling raising event would put things in a bit of perspective and get us to at least discuss what we can afford given the revenues we take in (now or with tax increases).

badScooter wrote:

Sometimes I have those days where my general attitude is "hell with them all".  Sorry, personal defect...

I think we all have days like that.  Sometimes with job, sometimes with politics,...

WARNING: Bad language in the following video - don't push play if those type of things offend you...

How many of us sometimes fell we are "an ordinary guy with nothing to lose" with the theatrics going on in DC?

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darbikrash
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Peoples Budget?

The choice architects have largely succeeded in defining the debate to proposals that simpy pit who will be the losing group when it comes time to pay the bill, with the wealthy elties in a "tails I win heads you lose" scam, using sloganeering and ideology to dicatate that the task is "impossible". And it would seem that there are more than a few on this thread that are more than willing to help them.

Political strategists often refer to “framing” as the way in which the edges of an argument define perceptions of its core. The term also has an older, sharper meaning that implies miscarriage of justice – as in “he was framed.”

Today’s Economist

Perspectives from expert contributors.

In the debate over the budget deficit and debt ceiling, the American people have been framed in both senses of the term. They have been given a misleading picture of the possibilities, and they have taken the blame for unrealistic attitudes.

Nominally, the budget debate focuses on spending cuts versus tax increases, with Republicans in one corner and Democrats in the other. What I see is a three-way tussle among the rich, the not very rich and the not rich at all over who should pay the costs of balancing the budget.

Largely panned by the media, a comprehensive "Pepoles' Budget" has been floated for some time, and  reviewed by the Economic Policy Institiute as being favorable over either the Ryan Plan or Obama's budget. You can read that analysis here.

Top level highlights:

 Bottom Line 

• Deficit reduction of $5.6 trillion

• Primary spending cuts of $869 billion

• Net interest savings of $856 billion

• Total spending cuts of $1.7 trillion

• Revenue increase of $3.9 trillion

• Public investment of $1.7 trillion

• Budget surplus of $30.7 billion in 2021, debt at 64.1% of GDP.

More detailed description:

Overview of  Policies
 
Individual Income Tax Policies
• Allow the Bush-era tax cuts to expire at the end of 2012, but extend marriage relief, credits, and
incentives for children, families, and education
• Immediately rescind the upper-income tax cuts in December’s tax deal
• Index the AMT for inflation for a decade (the AMT patch is fully paid for)
• Schakowsky millionaire tax rates proposal (adding 45%, 46%, 47%, 48%, and 49% top rates)
• Tax all capital gains and qualified dividends as ordinary income
• Progressive estate tax (Sanders’ estate tax, repeal of Kyl-Lincoln)
• Limit the rate at which itemized deductions can reduce tax liability to 28%for high earners
• Replace the tax exclusion for interest on state and local bonds with a subsidy for the issuer
 
Corporate Tax Reform
• Tax U.S. corporate foreign income as it is earned
• Eliminate corporate welfare for oil, gas, and coal companies
• Enact a financial crisis responsibility fee
• Financial speculation tax (derivatives, foreign exchange)
• Reinstate Superfund taxes
 
Health Care
• Enact a public option
• Negotiate Rx payments with pharmaceutical companies
• CMS program integrity and other Medicare and Medicaid savings in the president’s budget
• Prevent a cut in Medicare physician payments for a decade (maintain doc fix)
 
Social Security
• Raise the taxable maximum on the employee side to 90% of earnings and eliminate the taxable
maximum on the employer side
• Increase benefits based on higher contributions on the employee side
 
Defense Savings
• End overseas contingency operations emergency supplementals starting in Fiscal Year 2013,
providing $170 billion in FY2012 to fund redeployment, while saving more than $1.8 trillion
from current law spending levels over ten years.   
• Reduce baseline defense spending by reducing strategic capabilities, conventional forces,
procurement, and R&D programs   
 
Comprehensive Jobs Program
• Invest $1.45 trillion in job creation, education, clean energy and broadband infrastructure,
housing, and R&D
• Infrastructure bank
• Surface transportation reauthorization bill ($213 billion)

Complete text of the budget here.

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darbikrash wrote: The choice

darbikrash wrote:

The choice architects have largely succeeded in defining the debate to proposals that simpy pit who will be the losing group when it comes time to pay the bill, with the wealthy elties in a "tails I win heads you lose" scam, using sloganeering and ideology to dicatate that the task is "impossible". And it would seem that there are more than a few on this thread that are more than willing to help them.

Decades of corporate controlled MSM have conditioned people to spout out on command the correct storyline and slogan of the wealthy elite. And despite all counter-evidence including the kitchen sink thrown in front of the public's eyeballs, all efforts are to no avail in breaking their manufactured worldview.

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Poet
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Let's Compare Apple to Apples

As of right now, Apple, Inc. (AAPL) has a market cap currently at $347.11 billion.

That's more than all of the following:
The Walk Disney Company (DIS) - $$74.60 billion
Kraft Foods (KFT) - $62.16 billion
Ford (F) - $49.57 billion
Barrick Gold (ABX) - $48.37 billion
Anadarko Petroleum (APC) - $41.15 billion
Monsanto Company (MON) - $$39.48 billion
Alcoa Inc. (AA) - $16.36 billion
Marriot International (MAR) - $12.63 billion
Harley Davidson (HOG) - $10.81 billion
Pitney Bowes, Inc. (PBI) - $4.51 billion

That is, more than all of them COMBINED.

Why do I mention this? Aside from the fact that Apple is likely overpriced. The important point is the annual Federal budget deficit is roughly FOUR TIMES that of Apple's market cap. That amount is borrowed and spent every year.

And the amount of money paid on interest on the national debt (not counting future entitlement spending liabilities) was $400 billion last year. That's also clearly  more than the entire market cap of Apple.

No combination of spending cuts and tax increases will be likely to resolve this problem without sinking the entire country nito a depression, when the Federal budget deficit is roughly 10% of our entire country's GDP.

But that doesn't mean we shouldn't have a plan that tackles both spending cuts and tax increases..

Poet

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darbikrash
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Bad apples?

Poet wrote:

No combination of spending cuts and tax increases will be likely to resolve this problem without sinking the entire country nito a depression, when the Federal budget deficit is roughly 10% of our entire country's GDP.

But that doesn't mean we shouldn't have a plan that tackles both spending cuts and tax increases..

You’re quite right to introduce comparisons metrics to help visualize the huge sums of money being thrown about.

I’m not at all sure using the market cap of corporations holds water in this case, although it is an argument widely used to help discredit any suggestion that people might want to look to corporations for additional tax revenue. This goes under the evergreen notion that if its not going to solve the problem in and of itself, let’s ignore it and look elsewhere.

And I do realize it’s all very fashionable to highlight the impossibility of it all, the huge deficits, the annual budget shortfalls, and let’s not get started on unfunded entitlements because then it’s off to the races. Yes, the impossibility of it all.

My point is not to advocate a particular budget or ideological leaning-it’s just to ask why. Why are there no other solutions being looked at? Is it really hopeless? Or is that the choices that really would solve the problem are so antithetical to certain groups of people that they are willing to spend, and spend massively, to insure that these choices are never presented for considered discussion.

Well, I don’t know, but if I were inclined to try and navigate through to a solution, I might look at the tax returns of US Corporations for a reality check on total revenue- not market cap. Market cap is a valuation determined through the stock market, tax returns show reported income. Real money. Every year.

You can find the summary of corporate income here. And you will find the following numbers: (all number from FY 2007- the most recent data available)

-         Total Annual Revenue (receipts) of all US Corporations…......................................................................................................…$28.6 trillion

-         Total Annual Claimed Deductions of all US Corporations…...................................................................................................…$27.7 trillion

-         After allowing for cost of goods sold, the remaining deductions claimed by US Corporations is……………………….. $11.6 trillion

I know its boring accounting stuff, but stay with me:

-         In consideration of $28.6 trillion in total receipts, ….drum roll………we have taxable income of …………………..……..$978 billion

-         And again on $28.6 trillion in annual receipts, we have total tax paid of ....................................................................................$228 billion

So let’s review:

We have a DEFICT of $14.1 trillion in the US, and a budget shortfall of some $1.2 trillion annually, and at the same time we have, in one year, US Corporations claiming $11.6 trillion in deductions, which is to say $11.6 trillion they received in cash, that they not only kept , but also did not pay tax on. Now I’m not suggesting this $11.6 trillion is profit, it’s not. Some of these dollars are legitimate business expenses, but it does give a non traditional (and entirely anti-social) set of metrics that to my mind anyway, shows that there is a whole range of possibilities for a solution that seems to be unmentionable.

And I suppose we could also include the billions in corporate income that does not show up in the tax rolls, as it is deferred in offshore shell corporations, but now we’re just getting silly.

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goes211
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I have seen these stats before...

darbikrash wrote:

You can find the summary of corporate income here. And you will find the following numbers: (all number from FY 2007- the most recent data available)

-         Total Annual Revenue (receipts) of all US Corporations…......................................................................................................…$28.6 trillion

-         Total Annual Claimed Deductions of all US Corporations…...................................................................................................…$27.7 trillion

-         After allowing for cost of goods sold, the remaining deductions claimed by US Corporations is……………………….. $11.6 trillion

I know its boring accounting stuff, but stay with me:

-         In consideration of $28.6 trillion in total receipts, ….drum roll………we have taxable income of …………………..……..$978 billion

-         And again on $28.6 trillion in annual receipts, we have total tax paid of ....................................................................................$228 billion

So let’s review:

Yes, lets review. 

In $29 trillion dollars of gross revenue there is about $1 trillion in profit.  Is it really that hard to believe that corporate america is making a profit of 3.5% of gross receipts?

By throwing out your $11.6 trillion figure are you trying to claim that US corporations have profit margins of  ~ 40% ( $11.6 / $29 ).  If so please point some examples of this.  This should not be hard because if in aggregate corporate america is making 35% profit, some companies are clearly making far higher than 35% to make of for the companies that are lossing money.  Otherwise, I will have to assume you threw out the $11.6 trillion figure just for shock value.

DK, you regularly point out that you yourself are a small business owner.  In what industry are you in and do your profit margins approach 40%?  Inquiring minds want to know.

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goes211 wrote: Yes, lets

goes211 wrote:

Yes, lets review.  Is it really that hard to believe that corporate america is making a profit of 3.5% of gross receipts?

By throwing out your $11.6 trillion figure are you trying to claim that US corporations have profit margins of  ~ 40% ( $11.6 / $29 ).  If so please point some examples of this.  This should not be hard because if in aggregate corporate america is making 35% profit, some companies are clearly making far higher than 35% to make of for the companies that are lossing money.  Otherwise, I will have to assume you threw out the $11.6 trillion figure just for shock value.

And review we shall.

I have posted these numbers before- numbers directly from the IRS tax documentation. I don’t make the numbers, they are what they are.

This is the second time you have made the claim that I have stated that the $11.6 trillion is profit- I have said no such thing, in fact I said this, explicitly:

darbikrash wrote:

We have a DEFICT of $14.1 trillion in the US, and a budget shortfall of some $1.2 trillion annually, and at the same time we have, in one year, US Corporations claiming $11.6 trillion in deductions, which is to say $11.6 trillion they received in cash, that they not only kept , but also did not pay tax on. Now I’m not suggesting this $11.6 trillion is profit, it’s not. Some of these dollars are legitimate business expenses.........

So I hate to deflate your accusation, but it was not true the first time you said it, and it’s not true now. But I digress.

The point of these numbers is not to accuse someone of unfair profit margins (although that might well be true) but to assign some degree of SCALE to the question of deficits and budget shortfalls. Scale in the sense of “Where is the money relative to what we OWE”. Where did it go? Who has it? And how much do they have? It is a very different discussion about what to do with this information, but for now, I’ll settle for making the point challenging the notion that additional taxation on corporations is ineffective to contribute meaningfully to the budget deficit because there is insufficient SCALE to accomplish anything worthwhile. These numbers are quite troubling to many because they indicate the SCALE and volume of the dollars are most certainly there, and this finding does not square with popular understanding as broadcast by the MSM.

I’m not suggesting confiscating surplus value, as I’m sure this is where you’ll go next.

Rather than conclude that the $11.6 trillion represents a 40% profit margin (it doesn’t) and then ask for examples, I’d submit this is precisely the wrong reaction to the data.

Another viewpoint, is to look at the tax burden against total assets where we see that total corporate assets are reported as $76.8 trillion. And the taxable income that the corporations would have us believe is real and the only amount worthy of taxation is $978 billion. So lets do the math, this means the return on investment for the aggregate of the US corporations is just over 1.2%

So these are the numbers. This is what is being claimed. A return on investment of 1.2%. So the correct question is not how many businesses are making 40% margins, it’s is how many are showing a 1.2% ROI. Those $25 million/year CEO’s with the corporate jets and the Maybach’s, yep, when they roll up to the board of directors meetings, it’s the speech all about a 1.2% ROI. Or, you can make the same point using your example, on profit of 3.5% of gross receipts-same argument. And no it’s not credible- not even close

But there is another possibility I suppose, the possibility that maybe, just maybe, that corporations have bought themselves some extremely lucrative tax incentives hidden (?) inside the $11.6 trillion IRS line item, and coupled with veritable armies of tax accountants, are able to shield massive amounts of revenue through off shore shell corporations combined with perfectly legal (bought and paid for legal) tax loopholes allowing them to amass enormous amounts of surplus value, from which they proceed to buy yet more favorable tax treatment and preferential legislation.

In plain English, what the data shows is these large multi-nationals are masking their income. Which means they are stealing it from you and me. They are stealing it when they ship jobs to China and stiff us with a skewed tax burden- and get tax incentives to do it. They steal from us when they create fake offshore tax entities and defer income, leaving the middle class to absorb the tax vacuum they have left behind.

And why someone would defend this practice is beyond me.

And if that weren’t enough, they spread some of this surplus value around think tanks, media outlets, grass roots ideologies, talk shows and yes, internet forums, to “spread the word” that anyone who might make mention of this “little” anomaly is a Marxist and that the only proper way to view this problem is to invoke massive spending cuts on entitlement programs.

To anyone who believes this I have but three words……….. hook, line and sinker.

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it is difficult

It is difficult.  We are currently having a difficult time creating/attracting business in America.  There are a number of reasons.  However tempting it is to point a finger at business and demand higher taxes I don't think it works.  For one, taxes are generally a pass through cost.  You raise taxes on business and they just raise prices to the customer.  Only competition works to keep prices down.  Higher prices does not seem to be in the best interest of the people right now.  Wages are basically capped.  Also, higher taxes would make business more inclined to not move here nor create jobs here and more inclined to move off shore which is very easy these days.  We need more jobs.  If people had decent jobs they would be paying taxes.

Another aspect of raising taxes is I do not believe I ever remember a case where increasing revenue to the government resulted in a decrease in spending.  Do you know of an example ?

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$11.6 trillion in deductions

What I am saying is why bring up the $11.6 trillion in deductions if you are not claiming that somehow this is money that is being cheated ouf of paying taxes.  Either the deductions are legitimate or illegitimate or somewhere in between.  If you think it is illegitimate, what sort of profit do you expect on $29 trillion in sales?  At least to me, 3% - 4% sound like a reasonable amount in aggregate.  Do you think otherwise?

So in 2007 corporate america paid $228 billion in taxes.  I assume you would like that number to be much higher.  So how much of the $1.5 trillion deficit do you think we can make up with changes to corporate taxes?  I am guessing not more than a few percent of it. 

Since you don't believe we have a spending problem, where do we make up the rest?

darbikrash wrote:

But there is another possibility I suppose, the possibility that maybe, just maybe, that corporations have bought themselves some extremely lucrative tax incentives hidden (?) inside the $11.6 trillion IRS line item, and coupled with veritable armies of tax accountants, are able to shield massive amounts of revenue through off shore shell corporations combined with perfectly legal (bought and paid for legal) tax loopholes allowing them to amass enormous amounts of surplus value, from which they proceed to buy yet more favorable tax treatment and preferential legislation.

In plain English, what the data shows is these large multi-nationals are masking their income. Which means they are stealing it from you and me. They are stealing it when they ship jobs to China and stiff us with a skewed tax burden- and get tax incentives to do it. They steal from us when they create fake offshore tax entities and defer income, leaving the middle class to absorb the tax vacuum they have left behind.

And why someone would defend this practice is beyond me.

Who's defending that?

Of course corporations and the extremely wealthy have gamed the system.  They have partnered with their friends in government to rig the system in their favor.  No reasonable person disputes this.

Internation taxes are dizzyingly complex.  You tell me what taxes and to whom they should be paid when Apple designs the iPad in the US, from parts made in Taiwan, assembles them in China, and sells them the Germans?  It is a bloody mess to try and figure out a fair way to allocate the costs and profits.  One thing for sure is that if it is up to them to allocate these costs and profits, they will do so in ways that minimizes their tax exposure. 

Is this really fair?  I don't think so but unless we can replace the current nonsensical international tax structure with a far simpler, common sense structure, it will continue as it is.  There is really very little chance of it changing.

One thing which I assume you would agree with is I don't really understand the current (Republican / Conservative / Tea Party) mantra about eliminating tax deductions as being equal to tax raises.  I am personally against raising rates and eliminating caps on SS payments ( because I don't own my SS account ) but I have no problem with the elimination of many tax loopholes and subsidies.  These must be on the table.

As part of the budget deal, people should be very willing to raise revenues (without raising rates) by fixing broken parts of the tax system.

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dshields wrote: It is

dshields wrote:

It is difficult.  We are currently having a difficult time creating/attracting business in America.  There are a number of reasons.  However tempting it is to point a finger at business and demand higher taxes I don't think it works.  For one, taxes are generally a pass through cost.  You raise taxes on business and they just raise prices to the customer.  Only competition works to keep prices down.  Higher prices does not seem to be in the best interest of the people right now.  Wages are basically capped.  Also, higher taxes would make business more inclined to not move here nor create jobs here and more inclined to move off shore which is very easy these days.  We need more jobs.  If people had decent jobs they would be paying taxes.

Another aspect of raising taxes is I do not believe I ever remember a case where increasing revenue to the government resulted in a decrease in spending.  Do you know of an example ?

We’re having a hard time with business expansion here not because of regulations and high taxes, but because of demand destruction. Corporations have record amounts of cash, and Business 101 this should tell you something is seriously wrong, as in capitalism that money should be constantly reinvested in growth strategies. The investors demand it, and the fact that is isn’t being invested should speak volumes about how serious the crisis is- and don’t you believe the nonsense about uncertainty due to Obama and tax regulation.

Let’s be clear, no one is talking about raising corporate taxes. I’m talking about them paying the same amount you and I pay, if the rate is 35% than General Electric ought to pay 35%, (they pay 4.4%) same as me, same as you. That is not corporate bashing, it’s just stating the obvious, that is just because you can afford an army of tax accountants you should not be entitled to buy your way in to paying an obscenely low rate, which is in effect stealing from the rest of us as someone has to make up for what was stolen.

So the issue is equality among tax payers, not raising taxes.

To the comment about corporate taxes being a pass through to consumers, this is false. I see this comment frequently, it is prevalent especially among traders, ZH, Turd Ferguson, and many other sites that have a lot of traders routinely make this remark. It’s not true.

The reason it is not true has its roots in liberal classical economics, where it has long been held that taxes are passed through directly as increased pricing. It’s false. Modern economic theory debunks this notion, which has it’s origins in flawed scaling relationships between individual price/demand curves and large scale price/demand curves. They do not scale, and you cannot draw conclusions at the macro level based on individual demand curves. In short, companies maximize pricing to reflect very specific consumption profiles, the more it costs, the fewer units are sold. They exploit a very sensitive relationship between cost and unit volume, they fine tune this (at the retail level for example) using discounting to move inventory when it makes sense to move excess inventory, and raise prices when inventory is low, to maximize the indifference curve.

To alter this pricing strategy with a externalized cost like extra taxation will damage this relationship. For example, if the optimum utility curve for widgets is $11.50 each, at which point the factory is producing for optimized cost of goods. If the price is raised, (for any reason) the company will sell fewer units, and the factory production volume will no longer be operating at maximum utility. So the profit margin will be lower, as the cost of goods to produce less than optimal output quantities will rise.

The manufacturer will have a hard time maintaining optimum price margins if output drops, and some or most of the cost increase will have to be absorbed from surplus value- which is exactly what they don’t want.

Bottom line, tax increases will not be passed entirely on to the consumers. Taxes should be assessed, at the same rate as the rest of us, to any and all corporations selling into our market, irrespective of geographic location.

There is no linkage between spending cuts and tax revenue increases, they have nothing to do with one another.

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darbikrash

darbikrash wrote:

Bottom line, tax increases will not be passed entirely on to the consumers. Taxes should be assessed, at the same rate as the rest of us, to any and all corporations selling into our market, irrespective of geographic location.

There is no linkage between spending cuts and tax revenue increases, they have nothing to do with one another.

It is an interesting point of view.  Let us explore it some.  How does one tax corporations that do not reside in this country ?  The only way I can think of is to tax their imports.  Would that would raise the prices of their goods in the US as compared to domestic companies or would you apply the same tax structure to domestic companies also ?  How would you defend this in light of the free trade agreements we so foolishly entered into.  I am forced to admit that I may classify myself as a republican but I am a renegade repub.  For instance, I am pro-choice.  I do not believe that the government has the right to control our bodies.  I do not care about gay marriage.  Why should I care about that ?  As long as I do not have to look at it I do not care what people do in the privacy of their own homes.  To me that is the essence of being a republican - minimize government intervention in our lives - less government intervention means more freedom.  Freedom is good.  I like freedom.  I have become convinced that free trade agreements have destroyed the middle class.  I do not have a problem with withdrawing from our free trade agreements and taxing imports to make for a level playing field for labor as long as there are not high taxes on our domestic companies.  The bottom line is we need decent paying jobs.  Being raped by third world countries does not create jobs.  Being raped by our own government does not help either.

I will once again state that I have never seen a case in government where increasing the inbound revenue stream by increasing taxes resulted in a decrease in spending - and a decrease in spending is what we need right now or we are going to have a financial emergency.

While we are at it we need to withdraw from the UN.  I would let the UN keep their building and all that, we already agreed to that obligation.  I would just withdraw our funding and our representation there.  Nothing good comes from the UN these days for America.

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Amazonian

dshields wrote:

It is an interesting point of view.  Let us explore it some.  How does one tax corporations that do not reside in this country ?  The only way I can think of is to tax their imports.  Would that would raise the prices of their goods in the US as compared to domestic companies or would you apply the same tax structure to domestic companies also ?

Good point, you can’t just send them a 1040 can you. But this brings to light an interesting and altogether very current discussion, one which we are in the throes of right now in our fair state of California.

In what is a nearly identical concept to the dilemma you propose, corporations that sell goods with stores located outside of California to residents of the good state of California, do in fact incur a tax obligation on these goods. However, there are some confounding details of this which must be highlighted. If the corporation that manufactures outside of the state, sells to a resident of the state, and the corporation has a office or warehouse or even just a mailbox, they are responsible for collecting the taxes owed and forwarding these taxes to the Franchise Tax Board- just like what would occur if you walked into a retail store.

Now, if the corporation which manufactures outside of California does NOT have a physical presence of any kind inside the state, the taxes are still due and payable, but they are supposedly due and payable by the consumer, who must fill out a special tax form and “fess up” to any out of state purchases. Guess how well this works out? Virtually no one pays tax this way.

A good example of this is anything purchased on the internet, which brings us to the current situation of Amazon.com. You may know that there is a huge deal brewing wherein Amazon.com has refused to charge tax for goods shipped to California. Wow, a corporation has defied the government and said not only no, but hell no. This gets interesting, and in the context of this discussion, I think it brings to light some very important concepts.

But first back to the comments about corporations making things outside of the US, in China for example, and owing or not owing tax. As anyone can tell you, jobs are being shipped to China as fast as they can get the tooling packed up and sent out, in lock step with US layoffs:

Why aren’t U.S. corporations hiring?
Actually, many of them are. They’re just not hiring Americans. In the two years after the Wall Street meltdown triggered the Great Recession, large American corporations slashed U.S. payrolls by a net of 500,000 jobs. At the same time, they hired 729,000 workers overseas. As globalization transforms the world economy, in fact, many U.S.-based companies are shifting the balance of their workforces overseas. Ford, for example, reported in 1992 that 53 percent of its employees worked in the U.S. and Canada. By 2009, its North American workforce (by then Ford had expanded to Mexico) made up only 37 percent of total payroll. With 53 percent of big U.S. firms implementing off shoring strategies, “there is no job security now,” said Lauren Asplen of the IUE-CWA, an electrical-workers union.

When did offshoring become so prevalent?
The trend began in earnest in the late 1970s at large manufacturers such as General Electric. GE’s then CEO, Jack Welch, who was widely respected by other corporate chieftains, argued that public corporations owe their primary allegiance to stockholders, not employees. Therefore, Welch said, companies should seek to lower costs and maximize profits by moving operations wherever is cheapest. “Ideally,” Welch said, “you’d have every plant you own on a barge to move with currencies and changes in the economy.” Not only did GE offshore much of its manufacturing, so did its parts suppliers, which were instructed at GE-orchestrated “supplier migration seminars” to “migrate or be out of business.”

Obviously, with labor rates 1/10th of what they are in the US, companies are outsourcing jobs as fast as they can, which depletes the tax base back home. Unemployed workers that cannot get replacement jobs fall into social programs that you and I must pay for, while the right claims the underclass is lazy and slovenly. Make sense? And the faster these corporations outsource, the faster our tax base declines, all the while profitability shoots up-for the corporations. No amount of spending cuts can keep up with this tidal wave,  it’s a race to the bottom and guess who’s holding the checkered flag?

Back to California with a near perfect real time illustration of how the dynamics of this plays out. In a stunning example of the newfound power of corporations, Amazon.com has announced they now have approval to take a referendum directly to the voting public in a ballot initiative that will allow them to defy California law and eliminate the requirement than they collect taxes exactly as any bricks and mortar retailer would- while they enjoy a de facto competitive advantage over retailers that do have stores here, which of course is the point, an unfair advantage. It’s not enough that they can out-compete with traditional retailers (which they should) but they must also have the “tax free” advantage as well. California estimates that these types of internet transactions account for nearly $2billion worth of tax revenue, in a state that is near bankruptcy.

So now of course, riding in to the rescue is all the conservative think tanks, the Rush Limbaugh’s, the Fox news, Heritage Foundations and every one else suckled up to the Amazon.com teat of temporary insanity, this will be positioned as just another example of big government trying to run your life. The ballot measure is constructed so that you have to vote no to really mean yes, effectively fooling a voting bloc that is barely literate anyway, amplified by a peanut gallery of right wing pundits and foaming at the mouth Ann Coulter types who lament the infiltration of Socialism, and by God, let’s leave Amazon alone, taxation is theft!

So what say Dshields, shall we pick up the pom-poms and cheerlead our way to more cuts and smaller government? Are you getting this yet?

Link

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darbikrash wrote: dshields

darbikrash wrote:

dshields wrote:

It is an interesting point of view.  Let us explore it some.  How does one tax corporations that do not reside in this country ?  The only way I can think of is to tax their imports.  Would that would raise the prices of their goods in the US as compared to domestic companies or would you apply the same tax structure to domestic companies also ?

Good point, you can’t just send them a 1040 can you. But this brings to light an interesting and altogether very current discussion, one which we are in the throes of right now in our fair state of California.

In what is a nearly identical concept to the dilemma you propose, corporations that sell goods with stores located outside of California to residents of the good state of California, do in fact incur a tax obligation on these goods. However, there are some confounding details of this which must be highlighted. If the corporation that manufactures outside of the state, sells to a resident of the state, and the corporation has a office or warehouse or even just a mailbox, they are responsible for collecting the taxes owed and forwarding these taxes to the Franchise Tax Board- just like what would occur if you walked into a retail store.

Now, if the corporation which manufactures outside of California does NOT have a physical presence of any kind inside the state, the taxes are still due and payable, but they are supposedly due and payable by the consumer, who must fill out a special tax form and “fess up” to any out of state purchases. Guess how well this works out? Virtually no one pays tax this way.

A good example of this is anything purchased on the internet, which brings us to the current situation of Amazon.com. You may know that there is a huge deal brewing wherein Amazon.com has refused to charge tax for goods shipped to California. Wow, a corporation has defied the government and said not only no, but hell no. This gets interesting, and in the context of this discussion, I think it brings to light some very important concepts.

But first back to the comments about corporations making things outside of the US, in China for example, and owing or not owing tax. As anyone can tell you, jobs are being shipped to China as fast as they can get the tooling packed up and sent out, in lock step with US layoffs:

Why aren’t U.S. corporations hiring?
Actually, many of them are. They’re just not hiring Americans. In the two years after the Wall Street meltdown triggered the Great Recession, large American corporations slashed U.S. payrolls by a net of 500,000 jobs. At the same time, they hired 729,000 workers overseas. As globalization transforms the world economy, in fact, many U.S.-based companies are shifting the balance of their workforces overseas. Ford, for example, reported in 1992 that 53 percent of its employees worked in the U.S. and Canada. By 2009, its North American workforce (by then Ford had expanded to Mexico) made up only 37 percent of total payroll. With 53 percent of big U.S. firms implementing off shoring strategies, “there is no job security now,” said Lauren Asplen of the IUE-CWA, an electrical-workers union.

When did offshoring become so prevalent?
The trend began in earnest in the late 1970s at large manufacturers such as General Electric. GE’s then CEO, Jack Welch, who was widely respected by other corporate chieftains, argued that public corporations owe their primary allegiance to stockholders, not employees. Therefore, Welch said, companies should seek to lower costs and maximize profits by moving operations wherever is cheapest. “Ideally,” Welch said, “you’d have every plant you own on a barge to move with currencies and changes in the economy.” Not only did GE offshore much of its manufacturing, so did its parts suppliers, which were instructed at GE-orchestrated “supplier migration seminars” to “migrate or be out of business.”

Obviously, with labor rates 1/10th of what they are in the US, companies are outsourcing jobs as fast as they can, which depletes the tax base back home. Unemployed workers that cannot get replacement jobs fall into social programs that you and I must pay for, while the right claims the underclass is lazy and slovenly. Make sense? And the faster these corporations outsource, the faster our tax base declines, all the while profitability shoots up-for the corporations. No amount of spending cuts can keep up with this tidal wave,  it’s a race to the bottom and guess who’s holding the checkered flag?

Back to California with a near perfect real time illustration of how the dynamics of this plays out. In a stunning example of the newfound power of corporations, Amazon.com has announced they now have approval to take a referendum directly to the voting public in a ballot initiative that will allow them to defy California law and eliminate the requirement than they collect taxes exactly as any bricks and mortar retailer would- while they enjoy a de facto competitive advantage over retailers that do have stores here, which of course is the point, an unfair advantage. It’s not enough that they can out-compete with traditional retailers (which they should) but they must also have the “tax free” advantage as well. California estimates that these types of internet transactions account for nearly $2billion worth of tax revenue, in a state that is near bankruptcy.

So now of course, riding in to the rescue is all the conservative think tanks, the Rush Limbaugh’s, the Fox news, Heritage Foundations and every one else suckled up to the Amazon.com teat of temporary insanity, this will be positioned as just another example of big government trying to run your life. The ballot measure is constructed so that you have to vote no to really mean yes, effectively fooling a voting bloc that is barely literate anyway, amplified by a peanut gallery of right wing pundits and foaming at the mouth Ann Coulter types who lament the infiltration of Socialism, and by God, let’s leave Amazon alone, taxation is theft!

So what say Dshields, shall we pick up the pom-poms and cheerlead our way to more cuts and smaller government? Are you getting this yet?

Link

You and I basically agree on almost everything.  The exporting of the middle class jobs has wrecked America.  Corporations have done exactly as you described - export the jobs as fast as you can.  It is true.  For doing that the big shots have driven up profits and reaped simply enormous compensation rewards.  I have been watching this for years and I find it all pretty amazing stuff.  The free trade agreements the repubs pushed the hardest (with the dems bringing up a close second place) have simply been a disaster for this country.

The Amazon deal is an interesting one.  I am not sure about the ballot measure, this is the first I have heard of that.  It sounds like Amazon has a choice - if they have a presence in CA then under the law they have to collect the taxes and turn them over to the state - or they can remove any presence they have in CA - or they can stop selling stuff to people in CA.  It is a tough decision for them.

In general though your post presents the essence of the problem that is leading us to the first real crisis we have had since the great depression - exporting our decent paying jobs, combined with reduced tax revenue, combined with increased demand for gov services = equals disaster.  I believe there is going to be a disaster.  I did not used to believe that but now I do.  I got side tracked with exuberance during the mid-term election.  My exuberance was misplaced.  After further study I have now realized it is all too far gone.  The size and nature of the cuts required to set things right in America at this point exceed the ability of the politicians to do and exceed the ability of the American people to absorb without serious social problems - violence.  So, we are done.  Run the numbers - it is not going to work.  I get paid twice a month.  Every pay day I order or otherwise purchase something I think we will need when things get bad.

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xraymike79
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And we all get prostituted

And we all get prostituted out by the corporate-controlled stooges we call our 'leaders'.

                     

Is there any doubt who's really in control of not only politics, but also the fourth estate(to mold and foment public opinion in the fat cat's favor) as well as all manner of free market/conservative think tanks, astroturf groups, and other acronym-named organizations who claim Milton Friedman as their godfather.

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darbikrash
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Corporate tax holiday-really!

But it's about the jobs you know...........

Matt Taibbi writes:

Have been meaning to write about this, but I’m increasingly amazed at the overall lack of an uproar about the possibility of the government approving another corporate tax repatriation holiday.

I’ve been in and out of DC a few times in recent weeks and one thing I keep hearing is that there is a growing, and real, possibility that a second “one-time tax holiday” will be approved for corporations as part of whatever sordid deal emerges from the debt-ceiling negotiations.

I passed it off as a bad joke when I first saw news of this a few weeks ago, when it was reported that Wall Street whipping boy Chuck Schumer was seriously considering the idea. Then I read later on that other Senators were jumping on the bandwagon, including North Carolina’s Kay Hagan.

This is what Hagan’s spokesperson said:

Senator Hagan is looking closely at any creative, short-term measures that can get bipartisan support and put people back to work. One such potential initiative is a well-crafted and temporary change to the tax code that encourages American companies to bring money home and put it towards capital, investment, and–most importantly–American jobs.

For those who don’t know about it, tax repatriation is one of the all-time long cons and also one of the most supremely evil achievements of the Washington lobbying community, which has perhaps told more shameless lies about this one topic than about any other in modern history – which is saying a lot, considering the many absurd things that are said and done by lobbyists in our nation’s capital.

Here’s how it works: the tax laws say that companies can avoid paying taxes as long as they keep their profits overseas. Whenever that money comes back to the U.S., the companies have to pay taxes on it.

Think of it as a gigantic global IRA. Companies that put their profits in the offshore IRA can leave them there indefinitely with no tax consequence. Then, when they cash out, they pay the tax.

Only there’s a catch. In 2004, the corporate lobby got together and major employers like Cisco and Apple and GE begged congress to give them a “one-time” tax holiday, arguing that they would use the savings to create jobs. Congress, shamefully, relented, and a tax holiday was declared. Now companies paid about 5 percent in taxes, instead of 35-40 percent.

Money streamed back into America. But the companies did not use the savings to create jobs. Instead, they mostly just turned it into executive bonuses and ate the extra cash. Some of those companies promising waves of new hires have already committed to massive layoffs..

It was bad enough when lobbyists managed to pull this trick off once, in 2004. But in one of the worst-kept secrets in Washington, companies immediately started to systematically “offshore” their profits right after the 2004 holiday with the expectation that somewhere down the road, and probably sooner rather than later, they would get another holiday.

Companies used dozens of fiendish methods to keep profits overseas, including such scams as “transfer pricing,” a technique in which profits are shifted to overseas subsidiaries. A typical example might involve a pharmaceutical company that licenses the rights or the patent to one of its more successful drugs to a foreign affiliate, which in turn manufactures the product and sells it back to the U.S. branch, thereby shifting the profits overseas.

Companies have been doing this for years, to incredible effect. Bloomberg’s Jesse Drucker estimated that Google all by itself has saved $3.1 billion in taxes in the past three years by shifting its profits overseas. Add that to the already rampant system of loopholes and what you have is a completely broken corporate tax system.

And the whole thing is predicated on that dirty little secret – the notion, long known to all would-be major corporate taxpayers, that there would come a day when there would be another tax holiday.

That time, they hope, is now. According to Drucker, lobbyists met with President Obama last December to ask for another holiday. And now the drumbeats are rolling on the Hill for a new holiday to be included in the debt-ceiling deal.

Senator Carl Levin of Michigan, the same Senator who produced the damning report of corruption on Wall Street, has been trying to fight the problem, introducing a measure that would prevent companies from accessing offshored money through correspondent accounts and branches of offshore banks.

Levin’s Permanent Subcommittee on Investigations has also been investigating how companies might use the cash they save from a tax holiday, surveying companies like DuPont, presumably to find out just how many of these firms really intend to create new jobs with their tax savings.

I’m shocked there isn’t more of an uproar about this. Could you imagine what the Tea Party would be saying right now if there was a law on the books that allowed immigrants to indefinitely avoid taxes on income sent back to family members in the old country, in Mexico and Venezuela and India?

Imagine the uproar if Barack Obama, in the middle of this historic revenue crunch and "We're so broke the world is going to end tomorrow!" debt-ceiling hystgeria, decided to declare a second “one-time tax holiday” for, say, unwed single mothers, or recipients of public assistance? Middle America would be running through the streets, firing shotguns out its truck window, waving chainsaws in mall lobbies, etc.

As it is, leading members of the Senate are seriously considering giving the most profitable companies in the world a total tax holiday as a reward for their last seven years of systematic tax avoidance.  Hundreds of billions of potential tax dollars would disappear from the Treasury. And there isn’t a peep from anyone, anywhere, on this issue.

We’re seriously talking about defaulting on our debt, and cutting Medicare and Social Security, so that Google can keep paying its current 2.4 percent effective tax rate and GE, a company that received a $140 billion bailout en route to worldwide 2010 profits of $14 billion, can not only keep paying no taxes at all , but receive a $3.2 billion tax credit from the federal government. And nobody appears to give a shit. What the hell is wrong with people? Have we all lost our minds?

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dshields
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Business Taxes

America has one of the highest business tax rates in the world.  Check it out -

http://en.wikipedia.org/wiki/File:Income_Taxes_By_Country.svg

Now, I do not believe there should be a business tax holiday, but it is difficult to understand how with one of the highest business tax rates in the world we are going to look good to businesses searching for a place to do business and thereby create jobs.

http://www.taxfoundation.org/news/show/22917.html

You have to add the Fed biz tax rate to the State biz tax rate to get the total.  You always hear stuff about oil companies not paying enough taxes.  They pay more taxes than they get in profit.  Read about it...

http://www.businessweek.com/bwdaily/dnflash/content/may2008/db2008051_59...

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dshields wrote: America has

dshields wrote:

America has one of the highest business tax rates in the world.  Check it out -

http://en.wikipedia.org/wiki/File:Income_Taxes_By_Country.svg

Now, I do not believe there should be a business tax holiday, but it is difficult to understand how with one of the highest business tax rates in the world we are going to look good to businesses searching for a place to do business and thereby create jobs.

http://www.taxfoundation.org/news/show/22917.html

You have to add the Fed biz tax rate to the State biz tax rate to get the total.  You always hear stuff about oil companies not paying enough taxes.  They pay more taxes than they get in profit.  Read about it...

http://www.businessweek.com/bwdaily/dnflash/content/may2008/db2008051_59...

dshields,

    You seem to be trying real hard to defend big corporations. 


Debunking another GOP myth: The U.S. already has low corporate ...


7-5-2011

During negotiations over raising the federal debt limit, congressional Republicans have been defending tax loopholes for corporations (corporate welfare subsidies), Paul Ryan Responds To David Brooks: We Won’t Cut Tax Loopholes To Reduce Deficit, Only To Finance More Tax Cuts, asserting that America has a high corporate tax rate that is stifling economic growth and job creation. Contrary To GOP Claims, U.S. Has Second Lowest Corporate Taxes In The Developed World:

[T]he Center for Tax Justice (CTJ) has crunched the most recent data from the Organization for Economic Cooperation and Development (OECD), the Office of Management and Budget, and the Census Bureau, and finds that “the U.S. is already one of the least taxed countries for corporations in the developed world.”

As a share of GDP, the U.S. had the second lowest tax rate, behind only Iceland. This statistic flips on its head the often-repeated Republican charge that America has the second highest corporate tax rate in the world (which is only true on paper). In 2009, U.S. corporate taxes had fallen to only 1.3 percent of GDP, from 4 percent in 1965.

Final-chart

Conservatives love to point out that other OECD countries have lowered their corporate tax rates in recent years, but they conveniently ignore that “these countries have also closed corporate tax loopholes while the U.S. has expanded them.” As CAP Director for Tax and Budget Policy Michael Linden has noted, the U.S. is actually a very low-tax country across the board.

Recently, conservative commentator Bill Kristol chastised his own party for pretending that lowering the corporate tax rate is a cure-all for America’s economic woes. . . “Republicans are making a mistake if they focus on big businesses and corporate tax rates. Corporations have a ton of cash. The corporate tax rate is not killing big business in America.”

Despite this low corporate tax rate, two-thirds of corporations operating in the United Stated paid no income taxes (1998-2005), Most U.S. Corporations Pay No Income Tax - NYTimes.com, and many received a tax refund due to tax credits and tax subsidies (corporate welfare). G.E.’s Strategies Let It Avoid Taxes Altogether - NYTimes.com (March 24, 2011).

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A level playing field is all that we ask for...

xraymike79 wrote:

dshields,

    You seem to be trying real hard to defend big corporations. 

XRM,

Not all corporations are the same and no one is trying to defend corporations that have gamed the to effectively pay little or no taxes on their profits like GE, GMAC, ...  What I think everyone should be in favor of is a level playing field. 

It may be true that although the US has a 35% corporate tax rate, in aggregate US corporations only pay around 20%.  But what does this really mean?   It means that for every GE that is pay little or no taxes on billions of profit there are other corporation that is paying far higher than 20% to make the averages work out.  Looking at only the average is lazy and silly.

It is morally equivalent to trying to skew the average poor persons income upward statistically by adding in massive criminal incomes that were made by a only few via theft or the drug trade.  That might make the average poor person look richer but it certainly does not help those at the bottom that did not resort to illegal means for support.

It is the level playing field that is key and it is not fair to bash all corporations for the deeds of only some.

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Tax on coporations just another political ploy

goes211 wrote:

It may be true that although the US has a 35% corporate tax rate, in aggregate US corporations only pay around 20%.  But what does this really mean?   It means that for every GE that is pay little or no taxes on billions of profit there are other corporation that is paying far higher than 20% to make the averages work out.  Looking at only the average is lazy and silly.

I would go quite a bit farther.  Corporate taxes are just plain stupid.  They are a tax designed to hide the cost of government from the average citizen.  After all, any tax a corporation has to pay is simply passed on to either the consumer in the way of higher prices or to the investor in the way of lower return.  Just like inflation it's a way for politicians to spend more and hide the costs.   Then on top of it, we have those who wish to steal in secret vilifying corporations.

So yes, we do need to level the playing field, by removing all corporate taxes.  Either tax the income (which I also consider counter productive because it's taxing savings) or tax the sales (consumption).

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The Corporate Veil Is The Reason

rhare wrote:

I would go quite a bit farther.  Corporate taxes are just plain stupid.

Corporations pay taxes, and then investors pay taxes, in a "double" taxation because of the privilege of the corporate veil. The veil protects investors from liabilities beyond their investments in the corporation, because the corporation is treated as a separate entity, including being taxed.

This is very much unlike sole proprietorships and partnerships, where an individual's home, investments, and other assets unrelated to a business can be sued for if the business that individual runs becomes liable for debts or criminal or civil damages in breaking the law. These forms of businesses do not have double-taxation, but are vulnerable to pass-through consequences.

The corporate veil allows corporations the ability to injure or kill people through negligence and only pay fines for rule-breaking (shoddy construction, spoiled food, malpractice, etc.), and in many cases allow employees themselves to not be sued, and allow investors who own the corporation to not have their non-corporate equity subject to seizure/forfeiture so long as the corporate veil is not pierced.

This is a Faustian bargain that our society allows, and that corporations pay for to enjoy the advantages of that corporate veil. To remove extra taxation while maintaining that corporate veil would be to give something away for free, while receiving the shit end of the bargain.

So many people think that somehow, corporations should NOT pay taxes. But they have not thought of the consequences.

Well, here's another thought. Perhaps corporations should begin being treated like individual entities just like humans are. There are so many who fight for the right of a corporation to be an entity, though there is nothing in the Constitution about that. If it were a real entity, then if a corporation's actions or negligence result in a person being injured or a law being broken, treat it like a person. Maybe it should be put into receivership for several years, with executive leadership fired, and all profits during that time go to the victim and government - just like a prisoner in prison. If a corporation's criminal actions results in a person's death, maybe the corporation should be liquidated, with all proceeds going to the victim's family and the government. Employees can be sued or punished. And if there are not enough assets in the corporation, then reach-through should include the financial assets of investors.

I'd be okay with corporations being in an arrangement as described in the above paragraph - basically a different kind of liability - in exchange for corporations not paying income tax. Otherwise, no. It is foolish for society to give up more while (once again) getting less.

There is a way to get what you want, Rhare. If a corporation doesn't want to pay taxes, they can become a partnership. But they'd rather lobby politicians to eliminate taxes while getting to keep the corporate veil, which is what they are doing.

Poet

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rhare
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Extortion by the state - not a Faustian bargain!

Poet wrote:

To remove extra taxation while maintaining that corporate veil would be to give something away for free,

But it's not free.  There is still considerable risk on the side of the investors in a corporation.  If the corporation does something stupid and is sued, then the investors loose their investment and employees loose their jobs.  Also, the corporate veil only protects against civil issues, not criminal issues of individuals running the coporation.  

I also still believe your justification for "double taxation fails".  You could just as easily tax the investment or the consumption side to cover this costs and it would be much more transparent. 

Poet wrote:

A corporation can always become a sole proprietorship or partnership if it wants to not be taxed.

Only if your very small.  There are limits on the size and number of investors for each of the incorporation types.  I don't think you will see GE becoming a partnership anytime soon.

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Not Extortion, Faustian Disadvantage For Society

rhare wrote:

There is still considerable risk on the side of the investors in a corporation.  If the corporation does something stupid and is sued, then the investors loose their investment and employees loose their jobs.  Also, the corporate veil only protects against civil issues, not criminal issues of individuals running the coporation.

I also still believe your justification for "double taxation fails".  You could just as easily tax the investment or the consumption side to cover this costs and it would be much more transparent. 

Yes, but a sole proprietor can have his home and car and boat and family computer and other assets taken away if he can't pay his debts or is sued in civil court. (Which is why anyone who is a sole proprietor or partner really should make sure a large chunk of their assets are protected, such as having retirement savings held within specifically ERISA-protected retirement plans - not all such plans are.)

Corporate investors face no such risk to personal assets. Therefore that "considerable risk" for a corporate investor is not as considerable as the risk born by a sole proprietor or partner.

rhare wrote:

Poet wrote:

A corporation can always become a sole proprietorship or partnership if it wants to not be taxed.

Only if your very small.  There are limits on the size and number of investors for each of the incorporation types.  I don't think you will see GE becoming a partnership anytime soon.

Which is why I gave the example of another form of liability that may be substituted: treating corporations like actual people who, if they break the law, are subject to "jail" (receivership), "prison work" (confiscation of earnings), and "death" (liquidation). If corporations want to have all the rights of citizenship (like freedom of speech and the ability to spend cash on political campaigns), they should face the consequences that we individuals face, too, rather than only pay fines for breaking the law.

Poet

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darbikrash
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Eliminate taxation, oh sure

Poet, you’re right about shielding as applied to corporations, and this is an advantage that all corporations enjoy. I’ve not heard the argument before as to using this functionality as an offset to double taxation.

But we do need to capture Goes211 comments about a “level playing field” in this discussion as well, as he also has a point. To roll this together, we need to talk a little bit about corporations and assign some specific categories and participatory numbers to these categories.


75% of the businesses in America have no employees. But .004% of all businesses account for nearly 75% of the income. Source  To the category of corporations, that vast majority of these are Chapter S, REIT’s, or LLC entities that are not subjected to double taxation, rather, the incomes flow directly through to the owner(s) 1040 personal income. Chapter C corporations pass through earnings through to the shareholders. These pass-through profits are distributed as dividends, which are taxed at a much lower rate than earned income.

The dominant advantage for Chapter C corporations is the ability to amass large numbers of shareholders to distribute investment costs, such as is the case for publicly traded corporations. These (numbers) are in the minority, yet, they account for the majority of revenue (note the word revenue is used- not profits). It is this distributed investment environment that justifies the double taxation principle.

So what does this mean, in the context of taxation and a level playing field? It means that a very small number of Chapter C corporations, which are quite large in size dominate the vast majority of the income stream, and as such, are able to exercise means and methods to reduce taxation not available to the vast majority of Americans. They use excess surplus value to buy legislation, top notch legal teams,. And armies of tax accountants all directed to essentially mask as much income from taxation as possible. This is tantamount to stealing from those that do not have surplus value at a sufficient scale to afford these tactics, so in effect, those that can most afford the tax can also afford to buy their way out of paying, which they gladly do.

This phenomena is called consolidation of capital, and what happens when capital consolidates like this without effective oversight is axiomatic and 100% predictable, the rich get richer- at the expense of everyone else.

And as we have discussed in this thread, labor is excised from the host country to a country where labor is very cheap, the .004% of the corporations then hire expensive tax professionals to further reduce their reported profit, and then, last but not least, they defer even more revenue by shifting income to foreign owned subsidies and then bribe legislators for periodic tax holidays allowing these crooks to “repatriate” the deferred income tax free once again.

So yes, a level playing field would be nice, but once you understand who the players are and the axiomatic tendencies that that govern any corrective action (spending cuts-really?) you begin to get a sense of the futility of it all.

And eliminating corporate taxation reflect nothing more than a profound delusion and misunderstanding of even basic principles of economics.

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Everyone With An Accounting Degree Knows That

darbikrash wrote:

Poet, you're right about shielding as applied to corporations, and this is an advantage that all corporations enjoy. I've not heard the argument before as to using this functionality as an offset to double taxation.

Darbikrash

The relationship between "double" taxation and the corporate veil was explained very well to us in the Business Law, Federal Income Tax, and Corporate Accounting courses I took while getting my degree in Business Accounting.

Most people don't know. Others prefer it (the lack of knowledge) to remain that way.

Poet

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darbikrash
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rhare wrote: I would go

rhare wrote:

I would go quite a bit farther.  Corporate taxes are just plain stupid.  They are a tax designed to hide the cost of government from the average citizen.  After all, any tax a corporation has to pay is simply passed on to either the consumer in the way of higher prices or to the investor in the way of lower return.  Just like inflation it's a way for politicians to spend more and hide the costs.   Then on top of it, we have those who wish to steal in secret vilifying corporations.

So yes, we do need to level the playing field, by removing all corporate taxes.  Either tax the income (which I also consider counter productive because it's taxing savings) or tax the sales (consumption).

I’d say rhare needs to spend some time with a textbook describing remedial economic theory. Specially, the concept of indifference curves mentioned in post #45 would be a good start.

Consumer theory uses indifference curves and budget constraints to generate consumer demand curves. For a single consumer, this is a relatively simple process. First, let one good be an example market e.g. carrots, and let the other be a composite of all other goods. Budget constraints gives a straight line on the indifference map showing all the possible distributions between the two goods; the point of maximum utility is then the point at which an indifference curve is tangent to the budget line (illustrated). This follows from common sense: if the market values a good more than the household, the household will sell it; if the market values a good less than the household, the household will buy it. The process then continues until the market's and household's marginal rates of substitution are equal.[6] Now, if the price of carrots were to change, and the price of all other goods were to remain constant, the gradient of the budget line would also change, leading to a different point of tangency and a different quantity demanded. These price / quantity combinations can then be used to deduce a full demand curve.[6]

 

Taxes imparted on corporations are not passed on to consumers. This is false. Taxes are absorbed from profits, and yes, these lower profits are passed on to shareholders.  And the investors and principals should indeed receive lower profits as a result of taxation, as the corporation has used collective resources, bought and paid for by the taxpayer, to reap these profits.  The taxpayer does not receive a dividend, the shareholders do. The shareholders do not pay for the collective infrastructure allowing the corporation to conduct business, the taxpayer does.

But of course reasoning with this type of mindset is an impossibility, just another “it’s the gubmint Martha” rant.

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