Zeke5123 wrote:
You raise I think a good rebuttable, but notice that you are suggesting a benefit basis for taxation. However, the whole progressive tax scheme is based on ability to pay. If you want to move to a benefit test basis, isn’t the reasonable response to try to tax the amount of the benefit?
Reasons are legion why some firms ornaize as corporate entities and others as partnerships, but presumably there is a delta of value between the two and that should be the basis for corporate tax if you believe benefit tax is the right way to tax things. Alternatively, you could tax corporations based on the cost of providing services to corporation eg a toll is an example of this kind of benefit tax
However, the current scheme is untethered to any cost or benefit. Thus, it is clear that it is ability to pay. If ability to pay, then integration appears to be appropriate given that the ability to pay must be the ability to pay at the level of the natural person who owns the corporation.
To the extent I am able to follow, that makes good sense. Not sure how relevant the following response is, but here goes:
Benefits (protections) yes, but also
cost of regulations. Artificial persons must be regulated in addition to receiving whatever benefits they are entitled to (set aside figuring out what regulations are overreach for the sake of argument; but we don't want the Cuyahoga catching on fire again for the sake of the public good). Natural persons must be regulated as well, but I would imagine that at least some regulation is unique to artificial persons. E.g., can a natural person be responsible for a blow out at an extraction site in the Gulf and liable for clean up costs?
Regarding benefits, I would imagine at least some of the benefits (protections) companies receive are unique to their artificial status as well. Other benefits are not unique (use of roads, etc). A tax proportionate to the level of benefit received seems totally reasonable.
If some protections and regulations are unique to the artificial status of the company (i.e., it is an artificial person, not natural), then I am hard pressed to agree that the natural person is being double-taxed as Kodiak points out.
"Thus, it is clear that it is ability to pay. If ability to pay, then integration appears to be appropriate
given that the ability to pay must be the ability to pay at the level of the natural person who owns the corporation."
Walk me through the necessary connections between the clauses, here.
Conclusion: integration is appropriate.
Premise: the ability to pay must be (why?) the ability to pay at the level of the natural person who own the corporation.
What connects the premise to the conclusion?
Forgive the question, this is just not something I am used to thinking about.
Sorry for taking so long to respond Lit. Real world (if you haven't guessed, I work in tax and thus have been very busy).
There are two arguments. First, corporate stock is an asset. While there is some argument regarding the incidence of corporate tax (i.e., who bears the burden of the tax), I think what is unambiguous is that shareholders bear a meaningful share of the tax; more so where the product produced by the corporation is highly elastic. Accordingly, taxes reduce the value of assets. A reduction in assets reduces the ability-to-pay of shareholders, but there is no reduction in the shareholder's individual taxpayer. Consequently, imagine two persons: A and B. A purchases a bond and B purchases stock. A is taxed only on income from the bond; whereas B is taxed once at the corporate level and then at the shareholder level. However, the marginal tax rate only accounts for income at the level of A or B. Now, things like taxing dividends or capital gain generally at preferential rates are designed to solve this, but it is really inexact.
Second argument would be that we don't know who bears the incidence of corporate tax, and thus cannot determine whether the payer has greater or lesser ability-to-pay. By taxing solely at the shareholder level, you eliminate this concern.
However, what theses arguments all ignore is that cost of administration.
