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Comment by darawk | Hacker News Reader

The real argument for abolishing the corporate tax is not that they avoid it and therefore its worthless (though that is true). It's that taxing corporations doesn't really make sense. Corporations don't want things. Taxing them is just another way of taxing their customers and employees indirectly. And if you want to do that, why not just tax the customers and employees more in the first place?

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> Corporations don't want things

Indeed they don't need roads, rails, fire departments, police departments, etc. Corporations don't exist in a vacuum.

Let's have a deal: we abolish the taxes if they don't use any these.

You might say: but citizens already pay for this! True. However, if you abolish taxes for companies then citizens will have to pay more for public services. You might say: but we will increase their wages. I say ok then, let's make it part of the deal: a decent minimal wage.

>I say ok then, let's make it part of the deal: a decent minimal wage.

works fine until automation gets rid of most of the jobs

Sure but notice how Samsung and BMW get to use the same roads and police departments as Apple and GM, while their headquarters (with respective taxable wallet) resides some place else.

Only domestic companies' corporate earnings get hit to pay for this.

Because if you tax the margins (as opposed to the revenue, which would be patently absurd), you're not passing on the tax directly: you're incentivizing the corporation to move money smoothly through itself rather than stockpiling.

Because corporations then become vehicles for the wealthiest in society to hide virtually their entire income from tax authorities - whilst still being able to enjoy most of its benefits, and the problem of corporations hoarding huge moats of competition-intimidating money rather than paying out dividends gets even bigger.

Can you be more specific about the benefits? Every potentially benificial outflow of cash from a corporation to a person (dividend, distribution, RSUs, options, company car, corporate housing, phone bill paid by the company) is taxed as personal income to the recipient.

Two exemptions I can think of are health/dental insurance (exempted by law) and free food at Silicon Valley campuses (highly contestable benefit as far as IRS is concerned, the jury is still out on treatment of that).

How can one hide virtually their entire income while still being able to enjoy most of the benefits?

A large group of people (plumbers, electricians, landscapers, solo real estate agents) are actually incorporated and self-employed under this model, and yet are not massively wealthier in comparison to the rest of the population.

Aren't you forgetting power? For lowly employees and freelancers, money is just a voucher for consumption. But where money concentrates beyond the personally consumable level, controlling money equals power and attention, proportional to the amount of money retained, not proportional to outflow. This part is already undertaxed as it is, compared to outflow/consumption, going all the way to exclusively outflow/consumption based taxation would only make that worse.

It seems that if you're after taxing extreme concentrations of cash, annual corporate earnings are somewhere on the list, but not very high on that list (cash cows of yesterday are bleeding money today, and vice versa).

Various non-profits, university endownments, churches and pension funds, charitable trusts and charitable foundations have far higher concentrations of cash (and by your definition, power) that avoids the tax man entirely. States and municipalities also pay zero federal taxes on profits if they happen to end up with budgets in black. If you think the (somewhat easily fungible) corporate earnings are under-taxed, what's your take on non-profits and municipals?

Foundations are the embodiment of using money for power instead of as a consumption voucher. They might still be the lesser evil compared to unbounded dynastic wealth.

I am quite accepting of churches, as long as they keep their beliefs to themselves and fulfill their role as keepers of cultural heritage. Better keep them running than artificially converting churches into living history museums after they died. I would consider it a great cultural loss if, say, St Peter's would be just another ruin owned by the Italian government.

University endowments, at the scale they apparently exist, are weird indeed. Do they grow because giving money to add to the pool gives (temporary) influence over the application of the pool? That would be a surprisingly nasty scheme. A donations race like that is how the Roman bishopric originally became a political force in late antiquity/early middle ages, slowly displacing secular authorities.

Create an shell Corporation, get all your income into the company account tax free, pay your bills and make investments from your company.

You don't even need much money in your personal account, just use the corporation as your personal tax free piggy bank.

The "pay your bills" part gets tricky as IRS considers that a fringe benefit taxable at regular income tax rates. A corporation also is not eligible to deduce a certain variety of bills (e.g. dependant spending, medical bills over certain amount, interest on home mortgage) so it's mainly a way to increase the amount of paperwork and decrease the amount of eligible deductions with very little to show in return.

I am not sure how "make investments from your company" is just an overwhelmingly better option than "make investments from your personal account". Not only the corporation doesn't get a variety of tax advantages, such as 401(k), IRAs and Roth IRAs, there's an added burden of an additional K-1 for the investment vehicle.

Have you ever actually attempted any of the "obvious" optimizations you provide here? Has anyone ever used your advice for their tax planning?

Contrary to popular disbelief, folks at the IRS weren't quite born yesterday.

You could say that about anything that isn't personal income tax. There's nothing about personal income tax that makes it any more authentic than any other kind of tax. The federal government spent most of its existence supported by other forms of taxation, without a personal income tax. An equally valid argument (though it still wouldn't be true) could be made that we should just abolish personal income tax and have nothing but corporate taxes.

Corporations are given many rights by the government, such as diffusion of responsibility.

It seems only reasonable that they pay for this, as it costs society every time a company breaks the law and the directors wring their hands but change nothing.

Either corporations are people--and will therefore be taxed as such--or they're not--and thus have no rights.

Which is it?

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