Disclaimer: I own no companies. I don't even own stocks at the moment.
Because that's how we decided to build our societies. Money flows up very easily but doesn't flow down anywhere as fast, that's why we tax companies and people.
The sole purpose of a company is to make as much money as possible. Laws are there to make sure they do it safely (ie. don't send 12 years old kids to the mine, don't make employees work 7 days a week), make sure the system isn't abused (Amazon trucks use public infrastructures to deliver goods, why shouldn't they participate to the maintenance of said infrastructures ? &c.), and make sure the country benefits of having such companies operating within their borders.
Not sure about other countries but in France taxes are used to finance schools, universities, hospitals, justice courts, reduce the cost of doctor visits, train tickets, housing assistance, allowance for disabled people, active solidarity income, public education and a lot of other things.
I could find endless arguments to support why companies _should_ pay taxes but none to support the opposite, besides "I own a company and want to accumulate more money"
The government already tries to reduce double taxation. There is not supposed to be a penalty for incorporating vs. doing business as a sole proprietor or general partnership. That’s why the capital gains tax is lower than the income tax.
This is all about ease of administration and making creative accounting more difficult or impossible. If you’re looking at it through some moral lens, you don’t get it.
We tax corporate profits, not income. That takes out of the dividend stream, so we tax capital gains (the tax the investors pay on dividends/stock appreciation) correspondingly lower.
You could in theory get rid of the corporate tax and just tax capital gains at the same rate as income. It would fix a lot of problems. But you would upset a lot of people who don’t understand finance and taxation, like the people seeing red in this thread, who have some moral gripe with these corporations (who are mostly just doing what the law incentivized them to).
It would have one small effect though. Since the US taxes the worldwide income of its citizens and permanent residents, it would probably overtax them, making them pay the higher capital gains rate for profits made in countries that do retain the corporate tax. The most obvious ways to fix that would just reintroduce the problem of sorting out where the profit was “made”, which is where we are now. Ideally, you’d get all of the western countries to sign up to end this stupid corporate tax at the same time. That’s difficult because a few important countries have used low corporate tax rates as a way to attract business that would otherwise have no reason to be there.
Companies certainly do keep cash balances. That cash balance directly adds to the company’s valuation. They’re not obligated to pay it out or spend it. The owners of the company can sell the company, including cash balance, as an asset.
Suggesting that a company’s cash balance somehow doesn’t count because it’s inside a company structure is disingenuous.
And just what do you think a cash balance does to the sale price of a company? Btw, that sale is a capital gain.
All companies will hoard all cash waiting (perhaps decades) until the tax rates are lower, and then pay it out as salaries/dividends with a lower rate; it’s already happening with overseas profit and “tax holiday” years, but so far only Apple/Google size companies can participate.
Once you enable this for domestic companies, every employee making >$80K will incorporate, keep money in company and draw minimal salary actually needed for everyday life, waiting for favorable tax day or needing the money. The tax base would be reduced by 10-50% if not more (due to progressive taxation) and though it may even out in the end, it would make tax receipts unpredictable and likely somewhat lower overall.
I don’t see the issue with corporate taxation - it’s a liability shield, and it has a cost. Those who don’t like it can do a tax pass-through and risk the liability. Almost no one wants to do that.
It is 100% possible for a C corporation to pay no tax because it pays out all profits (income minus deductions) or operates at a loss.
Many large firms are hiring contractors to perform 'capex' work that qualifies for R&D Tax credits: https://www.cpajournal.com/2017/10/30/u-s-research-developme...
Tax laws drive some crazy incentives.
But with your model the US government and the government of California would receive no taxes beyond those owed by the employees.
Similar to VAT you could argue that you pay with money that got already taxed.
But if companies have rights, you can argue that they also have burdens.
There are better explanations, including that a corporation is a beast of the state etc.
It causes companies to seek loopholes, yes. They'll incorporate in Ireland for example, but they'll continue to operate wherever they need to.