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Comment by whiddershins | Hacker News Reader

I’ve never understood how taxing corporations isn’t just double taxation.

The corporations end up distributing the money to stakeholders who then owe taxes on it.

What would happen if corporate tax rates were 0% because ... they aren’t really people after all?

Double taxation is a funny concept because the economy is cyclic anyway. If any given dollar could only be taxed once, eventually you'd run out of untaxed dollars to tax.

So... wouldnt that mean that there should be a government MAXIMUM amount of taxes that can be collected?

Why are their taxes on every single transaction?

Because taxes are necessary and we just make up a rule that works in practice. This is not "foundations of logic", it is just "where can I shoehorn a tax so I can fund the public services and the military". It does not need to make sense when put in weird hypothetical made up edge cases.

Taxes on corporate net income should not count as "double taxation" because the corporation is legally distinct in nearly every way from its shareholders. That's the whole point of corporations. The corporation gets taxed once on net income because that corporation exists as a construct within govt structures. The shareholders get taxed because of the relationship they have with the corporation. It's literally fee for service.

This argument falls apart for flow through entities. They are essentially treated the same as the shareholders by the IRS but they are treated as distinct by other parts of the government, banks, courts, etc.

So what service are you actually paying for besides just... Getting taxed by the IRS?

I do not have any professional expertise that would allow me to make recommendations or financial/legal advice. Do you know if these flow through entities provide any limits on liabilities for the people who benefit from owning the pass through entity? If so, I would consider that as a benefit.

That's my point. They are not taxed separately but they do provide liability protection. In your other comment you made it sound like they are taxed separately and that was the cost to pay for being treated like a separate entity.

It looks like I misunderstood your comment. The point I want to drive home is that when the government "backs" one entity, paying for that backing via taxes on net income should not count as double taxation because I consider that tax a fee to pay for that one entity. Whether the government offers some other kind of entity with different tax advantages is, to me, beside the point because as someone who is not a corporate tax expert, I have to assume that there must be some kind of advantage to running a C corp vs an llc.

Income tax and sales tax are double taxation.

Double taxation happens a lot. I don't think it's a good rule for determining if a tax is fair.

Apart from the material question of whether or not it’s double taxation: why does it matter? Plenty of things are doubly taxed: I pay taxes once on my income, and then I pay it again when I exchange my income for goods or redeem any financial instrument that my income went into.

Personally, I would say it matters because that scenario is BS.

Further, don't forget that while the IRS knows exactly how much you have made - they still require you to figure it out at the end of the year and then in all likelihood pay more taxes than what was taxed.

In scandanavian countries - their taxes are high - but at least the system is simple; they send you a summary of what you made, what you were taxed and you basically just sign it (according to some friends from there - I do not have first hand knowledge of how its actually done in Sweden/Norway/Finland)

> Personally, I would say it matters because that scenario is BS.

Which scenario?

To be clear, I agree that the IRS’s guessing game system is ridiculous. I’d much prefer the Scandinavian system. But I’m not clear on what that has to do with double taxation, seeing how those countries do it as well (via VAT or any discretionary tax.) No country can accurately tax you ahead of time on discretionary spending, and I don’t believe any does.

There's double taxation all the time. For instance, if I run a store, and I pay sales tax on what I sell, and then I pay income tax on net revenue, the income from the same transaction is taxed twice.

And your employees are paid from that taxed income and that is taxed. When the employee buys something with that money that is taxed as is their dwelling via property tax. And the cycle continues.

I do wonder how long it takes for a dollar to be 100% taxed as it is exchanged. Transactional taxes certainly give government incentive to stoke consumption as the faster the dollar is exchanging hands the more tax revenue they are collecting.

Nope. Employees are an expense. Expenses are subtracted from income before taxes are calculated.

Yeah sort of. But whatever they are paid restarts the tax machine.

I’m not railing against taxes here. Just curious how long it takes the government to completely reconsider each dollar put into circulation.

As I understand it, many countries set the rate of tax on dividends, and on gains from selling shares, to be below the rate of income tax by roughly the rate of corporation tax.

In particular, things tend to be set up so that for small companies it doesn't make much difference whether the owner takes money out by paying themselves a salary or a dividend.

Who is saying it isn't double taxation?

It's one of the reasons why dividend tax is much lower that income tax.

It is, but it's there to protect the liability of the owners

Taxes are incurred when money flows. It's taxed once when it flows to the corporation, and it's taxed again when it flows to the individual.

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