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Comment by parineum | Hacker News Reader

> So the huge cash reserves of large companies are a brake on the economy which is why all the politicians are so keen to increase corporation tax /s

I don't really understand how increasing corporate tax could encourage corporate spending. It seems to me the opposite is the obvious mechanism. The more money that goes to the government, the less money a corporation has to put into the economy. If the corporation is in a "save" mode, they're more likely to spend less if they are taxed more than they are to continue the same spending and save less.

Maybe that's not what you're saying or maybe the effect is different than I'd expect (economics is weird sometimes) but I don't get your point there.

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IANAA, but my understanding is that corporate profits are taxed, but there are many deductions available for business expenses. If you tax profits more, businesses would be less inclined to take profits, and more inclined to reinvest that in additional steps to expand the business (e.g. buying more equipment). These expenses have a multiplier expense, increasing money velocity and "pushing the gas pedal" on the economy.

Ah, I guess that makes sense but I still don't see how taking more deductions (spending) could lead to the goal of saving unless that spending was and investment like real estate.

Whoops I think I was lost in the context. I was mostly remarking on this dynamic in terms of businesses, not individuals. The dynamic doesn't work exactly for individuals (because individuals don't have "profit"), but tax incentives still rule the day in the individual side too (e.g. 1031 exchanges, 401ks, mortgage interest deduction, cap gains deductions on real estate, etc).

I think you get my point exactly but you disagree with it. That's fine. But companies are sitting on cash reserves of trillions of dollars. Do you think that a profitable company sitting on its profits is a brake on economic growth?

Right now companies are saving up profits in their bank balances. I think if you increase the tax they pay then those balances will grow more slowly and the tax money will flow into the economy via the public sector. You think the companies will spend less but I'm not sure why companies would scale back operations?

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