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Comment by whiddershins | Hacker News Reader

I don’t fully understand why corporations are taxed in the first place.

All the money the corporation takes in ultimately gets spent on operating expenses, or is profit that is then distributed to shareholders who then owe taxes on that income.

If it’s annoying and counter intuitive that corporations are in some legal senses considered people, it is even more confusing that they pay taxes.

This sets up a crazy situation where employees of the corporations start lobbying and messing with policy and regulations so it favors the organization.

Seems like bad piled on top of bad. Increasing the tax rate on investment income is basically the same thing as taxing corporations, but would remove all these perverse incentives.

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>I don’t fully understand why corporations are taxed in the first place.

Because as economically inefficient as a corporate income tax is, without it you would create an enormous incentive for individuals to incorporate, filter all their income through the corporation, have the corporation pay all their expenses as business expenses, purchase their assets for them as business assets, and compensate them in the form of loans which never get paid back. Yes, you could write the law in such a way as to prohibit this and spend a fortune on enforcement, but ultimately it would fail against such incentives.

The UK has laws that prevent all of these things AND still has corporation tax.

Expensing anything is difficult as it must be solely for the business purposes and not personal use.

For example, you cannot generally expense food, clothes, housing, education etc. (You can probably expense an insignificant part of that though under some circumstances.) It’s not possible to take loans for extended periods of time without them actually counting as income for individuals (and being subject to income tax).

You can do all that today no problem.

That can be easily fixed by making loans taxable and payback creditable. Want a $100K loan? Get a $140K loan, pay $40K tax. Pay back the loan? Deduct from taxes.

But I can already do that using an LLC, which also doesn’t pay any tax.

They are taxed because they are beneficiaries of society's investment in infrastructure and people. They benefit directly from a healthy, educated population, enforcement of construction codes, the operation of the legal system, roads and waterways, etc. Companies aren't entirely benign, either, so part of those taxes goes to environmental impact assessment and handling they don't pay for, such as pollution, health hazards, etc.

If you were to make the case the healthy, educated employees could be compensated through their wages, then that still leaves infrastructure, externalities and the legal system.

While you could privatise infrastructure, I think it would be a bad idea. It could lead to shady schemes where a corporation "taxes" its employees on the toll road leading up to the building. Considering historical examples like company stores, I'm not sure we could rule that scenario out. Also, where does infrastructure stop and what does it include? The last miles of telecoms, power, water and other utilities or more?

As to the legal system, it seems self-evident we don't want that privatised. Do you disagree?

On the topic of externalities: I suppose it's feasible to create new taxes specifically for what are now considered externalities, so corporations pay for them: pollution, carbon footprint, burnouts/boreouts, etc. Would you be in favour of those?

A corporation is an abstraction that does not exist, so it cannot benefit from those things you listed.

The human shareholders and human staff benefit (and profit) from those things, and there are already mechanisms in place to tax those human beings, either as shareholders or as staff with ordinary income.

A corporation exists, just as a thought exists, they are both information and they can both change "reality" quite profoundly. Just because you can't touch it doesn't mean it doesn't exist and can't change things.

Corporations can be criminally charged. They are not abstractions, they are associations of people. You need to rethink your arbitrary definition of "abstraction".

> Corporations can be criminally charged.

Are you sure about that? Corporations cannot act (they have no hands, and no brains), and thus they cannot break the law. It also is relatively difficult to throw a corporation in jail for a criminal violation.

Even a much more informal association of people, a "criminal conspiracy", cannot be criminally charged as a single abstracted entity: the individuals who performed that conspiracy must be charged.

I didn't kill 'im, m'lud! The murder did!

Can a corporation be sent to jail?

No but they can be fined as well as "killed". So it's not like there isn't punishment.

Abstraction != does not exist

Are humans abstractions that do not exist, because they are made of cells ?

A while ago I listened to a podcast [1] where the guest Stephan Kinsella argued that the state justifies taxing and regulating corporations by granting them special rights like limited liability. The guest then continued to explain that this justification is flawed since the these supposed special rights are actually not special at all. The argument made a lot of sense but it only explains the justification and not the reason for corporate taxation. In my opinion the reason is obviously to increase the state's control over us.

[1] http://www.stephankinsella.com/paf-podcast/kol-026-freedomai...

I believe an income tax should be the only tax, since it covers any and all economic transactions, and it's the only progressive tax.

- There's only a single loophole: People who use their business to pay for personal expenses. They are easy to catch, and the simplicity of the tax scheme allows collectors to focus on this one loophole.

- It's simple to collect: Ask all the banks for everyone's statement, and apply a percentage to their calendar year's income. You could even deduct tax when people deposit money.

- It's simple to forecast and calculate: Everyone knows how much tax they owe, and knows how much tax they will owe.

- It's progressive: The more people make the more they pay. Property tax, sales tax, gas tax, etc. all disproportionately affect people with less money.

Don’t forget inflation: an uncontrolled, regressive back door tax that primarily affects the poor and poor-adjacent that don’t hold securities.

Sale of labor should be treated as exactly that, a sale. There should be no special income tax rate.

Property tax can easily be made progressive. The only barrier is that some state Constitutions ban progressive property tax due to "originalist constructionist" misinterpretations.

> This sets up a crazy situation where employees of the corporations start lobbying and messing with policy and regulations so it favors the organization.

How is that part crazy? It isn't ideal certainly but the same thing held for farmers, fishermen, and tradesmen back when it was cottage industry. That is fundamentally a result of representative government and them being able to vote. Everybody has interests of some sort.

This makes a lot of sense. There’s no way for the money to get out of the corporation without being taxed, we have all these R&D deductions to make many companies able to pay nothing, why not be direct about it?

On the other hand, is the status quo ok? Are we getting something out of companies having to do these specific activities to deduct?

>There’s no way for the money to get out of the corporation without being taxed

Not totally true. Interest free loan to the owner or his mother in law. Company buys a house / car / jet owner can use. Company buys consultancy services from the owners other company based in the Bahamas etc

Those expenditures aren’t tax deductible; they aren’t r&d.

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