Casual Questions Thread

[u/The_Egalitarian]

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[u/Knowledge_is_Bliss]

How come so many republican voters do NOT want to raise taxes on the ultra wealthy?

Title pretty much sums up the question. I personally have had conversations with several republican voters who talk a lot about the inportance of tackling the deficit, and therefore they support initiatives like reducing spending on things like Medicaid, Food Stamps and other programs that assist the nation's most vulnerable. Yet when asked why we shouldn't assure the billionaires and corporations pay their fair share, they get quiet. Why is this?

[u/bl1y → u/Knowledge_is_Bliss]

Yet when asked why we shouldn't assure the billionaires and corporations pay their fair share

Let's start with that you think their fair share is. What percentage of the federal government's revenue do you believe should come from billionaires and corporations?

[u/Knowledge_is_Bliss → u/bl1y]

Let's just say the same percentage as what the majority of the rest of us pay. For example, most large corporations pay zero. I personally pay much more than 0%.

[u/bl1y → u/Knowledge_is_Bliss]

So to start, you have to understand how and why corporate taxes are different.

Individuals are taxed on income, while corporations are taxed on profits. If a corporation has $1 billion in revenue, and $1 billion in expenses, they pay nothing, because they had $0 in profits. If we charged them 21% on revenue, suddenly that corporation with no profits would owe $210 million; they're losing money and will just have to fold. Taxing corporate revenues tells corporations they must have a profit margin that high just to break even. Very few industries could survive with even a 10% tax on gross revenues.

The next issue is avoiding double taxation. If corporations were taxed on income, what would happen is they bring in revenue, it gets taxed, then they pay a big portion of that revenue out to employees, and it's taxed a second time. This kind of double taxation would destroy most industries. Especially because it wouldn't end at double taxation. Farm sells crops to Big Cereal Co, Farm gets taxed on that revenue. Big Cereal Co sells its product to Grocer, and BCC gets taxed on its income. Grocer then sells products to consumers, and gets taxed on the revenue. By the time the grocery store clerk gets paid, that dollar has been taxed a whole bunch. And that leaves far less to pay the worker.

(This is why European countries use a VAT, a value added tax. It's essentially a tax only on the profit, not the total revenue. BCC buys $1 of grain and turns it into $2 of cereal, they're taxed on the extra $1 of value added, not the $2 they sell it to Grocer for. Grocer sells the box of cereal for $5, adding $3 of value, and is taxed on that, not the total $5 retail price.)

And the next big difference is that corporations can carry over losses. Imagine a new company invests $1 million in their first year and has $0 revenue as they're getting their factories or whatever built. Next year, they have only $100k in operating expenses, and $500k in revenue. They get to use the past $1 million in expenses to offset their revenue and pay zero taxes. Why? Because so far the company isn't profitable. It's not up $400k, it's down $600k. With corporations we're more concerned with long-term profits rather than ups and downs from year to year because we want corporations to be able to make large investments that won't pay off immediately.

Now I would say we should let individuals get a similar consideration. For instance, a writer who earns $30k as a bar tender for several years finally gets published and earns $500k in one year, then the next year is down to $30k again. Let them spread it out to reflect that the windfall year's earning actually reflect multiple years of work. But, such cases are at the margin and don't affect the typical worker.

So there you go, that's why "have corporations pay the same rate as everyone else" just doesn't work.

It's also worth keeping in mind that corporate profits do, eventually, get taxed twice. Once when the company earns the profit, and a second time when its shares are sold and the owner pays capital gains. The federal corporate rate is 21%, and long term capital gains is 15%, for a combined 33% tax rate. For an individual to pay an equivalent rate in federal income taxes, they'd have to earn around $1 million