> A corporation spends money on tax specialists to benefit itself. Any benefit to the shareholders is usually incidental, and the corporation would eliminate these benefits if it increased the benefit to the corporation.
This doesn't make any sense. Any benefit to the corporation is a de facto benefit to the shareholders of that corporation.
> The type of shenanigans you have suggested as a means of increasing expenses are what tax practitioners call "tax evasion schemes" that (a) would not work and (b) would result in heft fines and/or prison sentences for the executives, board members, and accountants involved.
It is only tax evasion if the code is explicit enough to rule it out as allowable behavior...a feat of endurance for tax authorities. Even then, many legal tax avoidance behaviors would be non-existent or drastically less common if it weren't for corporate taxation.
Employee benefits, for example, only make sense if there is a bulk discount on those benefits sufficient to make sense to buy as a group. Sometimes vendors offer those discounts. But the existence of benefits as tax deductable expenses means an additional 40% discount over individual purchase. If your corporate lunchroom is subsidized (extremely common in mid to large size corporations), it is likely because that subsidy is tax deductible, whereas an individual purchasing their own lunch is not.
Compliance and enforcement costs are roughly proportional to the cartesian product of the complexity of the rules and the number of entities. Sure, pushing taxes onto shareholders increases the number of entities, but drastically reduces the number of rules, due to the fact that personal income tax is not a profit tax. The corporate tax has to have millions of rules and exceptions to rules because businesses are drastically different and legitimate expenses for one business may be illegitimate for another. I totally understand that there are way more shareholders than there are companies, but the difference in the number of rules between corporate taxes and and the marginal increase in rules on personal income taxes easily makes up the difference.
I work as a tax specialist. What you said is categorically not true. You can make as many ideological statements as you like; they have no bearing on how corporate taxation works in reality.
It is only tax evasion if the code is explicit enough to rule it out as allowable behavior...a feat of endurance for tax authorities. Even then, many legal tax avoidance behaviors would be non-existent or drastically less common if it weren't for corporate taxation.
The tax code includes provisions allowing enforcement authorities (generally, the IRS) to take the "spirit" of the law into account when evaluating a transaction, structure, or tax return. This means that something can be completely kosher under the letter of the law but still be treated as tax evasion if it violates the spirit of the law. The 90's off shore tax shelters are probably the most notorious example of these. Nearly all tax evasion schemes are centered around individual taxpayers. Not many people are willing to put their own necks on the line to facilitate widespread corporate tax evasion. (And indeed, individual non-compliance is estimated to be more than 4x the size of corporate non-compliance in the US as a matter of unpaid tax liabilities.)
If your corporate lunchroom is subsidized (extremely common in mid to large size corporations), it is likely because that subsidy is tax deductible, whereas an individual purchasing their own lunch is not.*
Companies absolutely do not subsidize lunches or healthcare for the tax savings that accrue to the employees. They do so because because such subsidies are financially beneficial from a business perspective (i.e., employee recruiting/retention).
Compliance and enforcement costs are roughly proportional to the cartesian product of the complexity of the rules and the number of entities.
Definitely not true. Compliance costs are roughly logarithmic. Scale increases disproportionately at mid-size companies but once you approach multinational status the increase in the number of entities results in significantly less than a linear increase in costs. The advantage of scale is a primary factor in the structure of accounting firms.
Sure, pushing taxes onto shareholders increases the number of entities, but drastically reduces the number of rules, due to the fact that personal income tax is not a profit tax.
Hahahahaha. Pushing taxes onto shareholders increases the number of rules. You see a reduction in statutory laws but a vast increase in non-statutory rules (i.e., court cases and administrative decisions). It's very easy to keep track of statutory law; it's relative a nightmare to track non-statutory rules.
The corporate tax has to have millions of rules and exceptions to rules because businesses are drastically different and legitimate expenses for one business may be illegitimate for another.
This is not how the tax code actually works. A business expense is generally deductible regardless of the industry if the expense is legitimately related to a business need of the enterprise. Very few business expenses are not legitimate, though due to exceptional levels of fraud and abuse "meals and entertainment" and employee vacation expenses (i.e., paid holidays or vacation time) are usually not fully deductible by a business.
I totally understand that there are way more shareholders than there are companies, but the difference in the number of rules between corporate taxes and and the marginal increase in rules on personal income taxes easily makes up the difference.
Nope. Scale matters. It's easier and more efficient for the corporation to determine its tax liability than it is for an individual, and the corporation has greater resources to do so. You trade having a few thousand taxpayers spending an average of 10-1000 hours dealing with compliance with many millions of taxpayers spending 10-100 hours dealing with compliance. Definitely not a net benefit to society.
I know you think that might give some extra authority to your argument, but you aren't fooling me. You are no more an expert on the Economics of Taxation than a Wall Street Financial Analyst is an expert on Industrial Economics. You might see one tiny side of the picture better than most, but it is just one tiny side.
Companies absolutely do not subsidize lunches or healthcare for the tax savings that accrue to the employees. They do so because because such subsidies are financially beneficial from a business perspective (i.e., employee recruiting/retention).
Of course they do it because of recruiting and retention, but you can't possibly be this naive. I know of several companies that explicitly provide certain benefits because it is cheaper for them to provide the benefits than to pay employees more to get those benefits. There is an inherent tax benefit to this scheme compared to the alternative of additional salary. If I have a 40% tax rate, $1000 in revenue, $100 in costs, then providing $100 in lunches only costs me $60. I would normally have a liability of $360, but after providing the lunches, my tax liability is $320. If you just pay your employees more, the tax goes down just as much, but then it is taxed on the individual, and the effective cost of the lunch goes up.
This exact incentive is the reason why employee provided health plans are so compelling. Health care is deductible to the employer, but not to the employee. If you got rid of the corporate tax, corporations would no longer have the incentive to be the payer of health care, because the relative benefit of employer-pays vs employee-pays goes away.
Definitely not true. Compliance costs are roughly logarithmic. Scale increases disproportionately at mid-size companies but once you approach multinational status the increase in the number of entities results in significantly less than a linear increase in costs. The advantage of scale is a primary factor in the structure of accounting firms.
You are only describing compliance costs. Enforcement costs are not the same as compliance costs. There is no economies of scale to enforcement costs.
Hahahahaha. Pushing taxes onto shareholders increases the number of rules. You see a reduction in statutory laws but a vast increase in non-statutory rules (i.e., court cases and administrative decisions). It's very easy to keep track of statutory law; it's relative a nightmare to track non-statutory rules.
Except that those costs already exist because we already have personal income taxes and dividend taxes and captal gains taxes. Taxing dividends and capital gains as personal income would be a rule change, but it wouldn't be an increase in rules.
This is not how the tax code actually works. A business expense is generally deductible regardless of the industry if the expense is legitimately related to a business need of the enterprise. Very few business expenses are not legitimate, though due to exceptional levels of fraud and abuse "meals and entertainment" and employee vacation expenses (i.e., paid holidays or vacation time) are usually not fully deductible by a business.
How much fraud and abuse on meals, entertainment, and travel would exist if the corporation had no incentive to do so? Would your company provide for employee training in the Bahamas if it couldn't be sold to the employees as a vacation? Jesus, when was the last time you hung out with an Enterprise Salesman? Their entire lifestyle can be attributed to the corporate tax.
This doesn't make any sense. Any benefit to the corporation is a de facto benefit to the shareholders of that corporation.
> The type of shenanigans you have suggested as a means of increasing expenses are what tax practitioners call "tax evasion schemes" that (a) would not work and (b) would result in heft fines and/or prison sentences for the executives, board members, and accountants involved.
It is only tax evasion if the code is explicit enough to rule it out as allowable behavior...a feat of endurance for tax authorities. Even then, many legal tax avoidance behaviors would be non-existent or drastically less common if it weren't for corporate taxation.
Employee benefits, for example, only make sense if there is a bulk discount on those benefits sufficient to make sense to buy as a group. Sometimes vendors offer those discounts. But the existence of benefits as tax deductable expenses means an additional 40% discount over individual purchase. If your corporate lunchroom is subsidized (extremely common in mid to large size corporations), it is likely because that subsidy is tax deductible, whereas an individual purchasing their own lunch is not.
Compliance and enforcement costs are roughly proportional to the cartesian product of the complexity of the rules and the number of entities. Sure, pushing taxes onto shareholders increases the number of entities, but drastically reduces the number of rules, due to the fact that personal income tax is not a profit tax. The corporate tax has to have millions of rules and exceptions to rules because businesses are drastically different and legitimate expenses for one business may be illegitimate for another. I totally understand that there are way more shareholders than there are companies, but the difference in the number of rules between corporate taxes and and the marginal increase in rules on personal income taxes easily makes up the difference.