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Comment by hvidgaard | Hacker News Reader

I don't know the US tax system, but I assume you have both VAT and income tax. With that assumption, why should a company pay tax of their profit? As soon as they spend some of that profit some of it is taxed in the form of VAT and income tax.

When you have a system where profit is taxed, you get companies investing the money in the most risk free thing they can, to avoid the profit tax. If profit tax is 0% it's far simpler to keep the money home, and to use it when they want to.

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> As soon as they spend some of that profit some of it is taxed in the form of VAT and income tax.

VAT-rated companies claim-back VAT again VAT-rated sales. In fact, a VAT-rated company can earn more in VAT rebates than it collects in sales.

The traditional moral reason for taxing profit is that it's excess money for which the company couldn't find a use; they've already paid the staff, invested in R&D and maintained the corporate jet fleet and they still have money left over. The Government can quite easily find a use for that excess cash in providing infrastructure which the company needs in order to operate.

If a company keeps getting more in VAT rebate, it will at some point be denied to get the rebate. At least in Denmark.

In any case, I just cannot wrap my head around that way of thinking "you cannot find a use for it, therefore you must give it to me". The company already generated taxes and probably jobs. It just seems greedy.

I mostly agree with you. We could and probably should eliminate corporate income tax. However, this repeal should only come after many years (I'd say decades) of stable growth in personal income tax rates (going as high as 90% of income above a certain threshold -- I recommend the threshold be at 100x the natuonal minimum wage times two thousand or about $3M annually) and criminal penalties for failure to report income that pushes people above that threshold (I'd recommend a minimum sentencing guideline of 10 years in prison). Here income will include any expenses the "employer" corporation makes for the employee.

The idea is to not affect police officers who make $60k a year and get free lunches worth $2k a year but to affect executives who make $2M and live in a corporate owned home, drive a corporate owned car, take corporate jets and so on.

Sure, the corporation can stash unlimited wealth but you can't spend any for personal reasons without paying your fair share in taxes.

Thoughts?

> The traditional moral reason for taxing profit is that it's excess money for which the company couldn't find a use; they've already paid the staff, invested in R&D and maintained the corporate jet fleet and they still have money left over. The Government can quite easily find a use for that excess cash in providing infrastructure which the company needs in order to operate.

This is complete absurdity. There should be no "moral" reason behind taxes; only logical. Taxes on profit are punitive against small businesses and encourage tax optimization strategies that are not remotely related to any sort of sound business. Assuming any government is going to better spend money than private enterprise is one of the funniest things I've read today.

"Assuming any government is going to better spend money than private enterprise is one of the funniest things I've read today." As someone that works in the same industry as Pfizer (and Valeant), yes it is true that sometimes the government is going to spend money better than private enterprise. The Cost and success rate of R&D in drug devleopment is not sustainable without the significant funding the US government (and to some extent other governments) contributes to basic science. The Valeant CEO (now Ex) has used the phrase "value destroying R&D" and Pfizer is Pfamous in the industry for R&D Pfailures. Both have been serial acquirers where they find much of their post-consolidation synergies in R&D, leading to deep cuts (often total cuts in Valeant's case). While they are acting economically rational way, the long-term consequences are that they are subsidized by the government.

Right, and ignoring Bush-era tax cuts, that money will be taxed well when it is payed out to investors.

One good reason to tax corporate profit is that (large) corporate profit is a market failure (lack of competition) - and a profit tax can help lessen that failure.

Or, just maybe, you could eliminate or lessen whatever regulation exists that enables that lack of competition.

Possibly. For Pfizer that would surely mean eliminating patents on medicine.

Apple for example, that would mean eliminating patents on software and hardware, copyright on software, design-patents etc.

We don't have VAT. We have sales tax, and it varies per state and locality, and rarely makes any sense.

With sales taxes, the point still stands though.

There is no national sales tax.

The US does not have VAT.

Personally I believe that tax both personal and corporate is justified by the fact that companies and people use the infrastructure of the country they are operating or living in. That includes currency, legal system, implicit and explicit use of the education system, physical security and of course physical infrastructure.

VAT as a tax only taxes their use of the locally available marketplace of goods and services.

That some of that should be taxed by taxing things like fuel, water and electricity.

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