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NJ gave some of the biggest corporate tax breaks in the US; guess what happened?

#31Sir WillPosted 4/2/2013 7:55:12 AM
Taking that argument to the extreme, would you say that a 99.9% corporate income tax rate would have no effect on employment?

We live int he real world. Obviously something this stupid would have an effect, but let's stick to more realistic numbers shall we?
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#32awittyusernamePosted 4/2/2013 8:15:56 AM
Sir Will posted...
Taking that argument to the extreme, would you say that a 99.9% corporate income tax rate would have no effect on employment?

We live int he real world. Obviously something this stupid would have an effect, but let's stick to more realistic numbers shall we?


The argument is a kind of reductio ad absurdum, designed to illustrate that corporate tax rates must have some effect on employment lest we accept absurd conclusions. You seem to be suggesting that they have zero effect up until some point, after which point the effects occur, but the problem with this is that it's hard to construct a model where this could possibly be the case. The only way I could see this occurring is with tiny rates (e.g. 0.1%); such changes are at such a fine level of granularity that, for instance, it may not be possible for employers to match this precision with marginal revenue productivity estimates. However, for "realistic numbers", this argument is highly implausible. It is, of course, almost certain that the employment effects are lower at lower tax rates, but the idea that they could be zero over such a large range of tax rates from 0% to, say, 25% (a "realistic number") is hard to accept, especially given that the empirical evidence doesn't seem supportive of that. The empirical studies I referred to are using "realistic numbers" (because they're using numbers that actually exist!) and find corporate taxes reduce growth (and wages, incidentally). If we accept the uncontroversial theory that growth affects employment, it suggests that corporate taxes do have employment effects. In any case, I did give an argument below what you have quoted (and I also made many points above it!), so I'm not sure why you're focusing on that sole statement as though it were the foundation of my position!
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#33Silencer SPosted 4/2/2013 3:39:10 PM
I have to disagree with the "after tax" line in regards to Corporate profit. You guys are acting as if Corporate pre-tax profits is the only evaluated metric of performance, and the only thing they strive for. More realistically, Corporations are looking to generate shareholder value (short term or long term, depending on their goals, generally performed through capital appreciation or distributions, which are indeed impacted by taxes). More important than taxable income is the net cash flow generated by the Corporation's operating units. Having to pay tax evidently reduces this. Furthermore, it's inherently wrong to say profit always comes before taxes. It is correct to say that taxable income is before tax, but Net Income (as defined by US GAAP or IFRS, which is generally a far more reflective and utilized metric for profit than taxable income is) is after tax. Many bankers do look at pre-tax profits to assess a Corporation's operational earnings (and even then, they exclude more things than just taxes, such as depreciation, interest and so forth) but it is wrong to say profit is pre-tax by nature, and even more wrong to say taxes do not impact a Corporation's incentives.

That logic only really holds if the Corporation is interested in generating taxable income, or some kind of earnings measure that excludes income tax expense, but that's rarely the case for successful and non-fraudulent Corporations. Enron, for instance, was laser-focused on Earnings per Share whereby the earnings were indeed defined as pre-tax. Of course, poor incentivization like that (and crap upper management control) inevitably led to fraud.

I also think Corporate taxes are a joke in the United States and need to be reformed such that the effective rate averages out to be much higher, but the issue is far more complex than this board tends to make it seem. Changes in tax law can have a severe impact on how a business operates. For example, a shift in a CCA/MACRS percentage for a single class of assets may prevent an entity from making an investment decision. Tax law is deep and complex, and its hard to find a "fit" that best does the job and eliminates loopholes (because as you'll find if you get into the nitty gritty, "closing" some loopholes either make it uneven for some, or even opens some more).
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#34Nitro378Posted 4/2/2013 4:10:16 PM
awittyusername posted...
Sir Will posted...
Taking that argument to the extreme, would you say that a 99.9% corporate income tax rate would have no effect on employment?

We live int he real world. Obviously something this stupid would have an effect, but let's stick to more realistic numbers shall we?


The argument is a kind of reductio ad absurdum, designed to illustrate that corporate tax rates must have some effect on employment lest we accept absurd conclusions.


Running a business is worth it to make 5m in profit if you get to take home 4m after tax, it's probably not worth it if you get to take home a couple thousand.
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#35Silencer SPosted 4/2/2013 4:20:19 PM
It also gets much more dirtier than that, depending on the situation. A business wants to build a some kind of plant in an area to manufacture a good (creating jobs in an area), and they'll make their investment decision depending on whether the plant will yield a strong net present value. Even if the base corporate tax rate is reduced (yielding *higher* after tax cash flows), if MACRS or CCA on the asset class decreases a lot too (leading to lower deductions), then the net effect could be actually be a reduction in the value of the investment due to the weaker tax shield. The Company would then choose not to build the plant, despite seemingly "favorable" tax rates.

Similarly, changing the wording around the definition of a qualifying expenditure on certain investment for tax credit purposes may also severely impact how a Corporation makes its decisions.

Corporate tax is a sticky, complex topic and to adequately address the problems with it, all aspects of it must be critically assessed together.
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"Give him a fair trial. Then shoot him." - Napoleon Bonaparte after the capture of Andreas Hofer
#36Barenziah Boy Toy(Topic Creator)Posted 4/7/2013 2:18:31 PM
Running a business is worth it to make 5m in profit if you get to take home 4m after tax,
Only for the investor class.

it's probably not worth it if you get to take home a couple thousand.
It's worth it for the president and other managers, if his salary is included as part of the costs.
.
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#37willythemailboyPosted 4/7/2013 2:30:51 PM
Barenziah Boy Toy posted...
Running a business is worth it to make 5m in profit if you get to take home 4m after tax,
Only for the investor class.

it's probably not worth it if you get to take home a couple thousand.
It's worth it for the president and other managers, if his salary is included as part of the costs.
.


But not worth it for the investors.
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#38sith_acolyte15Posted 4/7/2013 2:43:23 PM
Clutch posted...
82xeno posted...
Clutch posted...
mystic belmont posted...
Sativa_Rose posted...
Corporate taxes shouldn't even exist.


Corporations are people, so you are saying that no one should pay taxes.


Try harder.


It's actually sound logic, if corporations are people, I shouldn't pay an income tax.


It's actually not. Corporate and individual taxes are two completely different things.


But, apparently, corporations are people. So they shouldn't be. If corporations are people, and corporations shouldn't have to pay taxes; that means people shouldn't have to pay taxes.

It's a simple A=B, B=C; therefore A=C.
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