I think the idea is that corporations are the most efficient entities in the economy in terms of allocating capital. They have to be, or they go under. And when they have extra cash, investors tend to demand that it be deployed or paid back to them as dividends. So the natural incentive is for companies to run with the leanest possible capitalization and generate the biggest possible profits.
So when you take cash away from companies and allocate it to the government, you're reducing the overall capital efficiency of the economy a lot.
If you set corporate taxes to 0%, you can still keep the same size government budget if you then tax dividends and executive salaries, except you'll take the money away from less efficient entities (individuals). By the way, this also removes the incentive to deduct all sorts of personal expenses from your business tax, because there isn't any.
And if the government wants to reign in this or that monopoly or incentivize certain activities, it can do so via regulation rather than tax breaks / increases.
Same level of government budget & control, higher economic growth.
You are also assuming the tax incidence of corporation tax will fall mostly upon shareholders. For example if the incidence was 70% on workers and 30% on shareholders then this should not be a progressive form of taxation. I think most economists believe the tax incidence is shared between parts of the corporation (workers, consumers, and shareholders) but I don't think there is much consensus on the proportions.
The annual Global Wealth Report from UBS [0] usually shows a very wide base of millionaires in the rich countries (there are 23 million millionaires in the US) and a rapidly rising crop of new rich people all over the world, especially the rapidly growing countries like India and China.
Even for those at the very tip of the pyramid, the 0.01%, there's a ton of turnover. Who was the richest family 0, 10, 25, 50, 100, 150, 200 years ago? The answers are all very different.
Don't forget a large amount of US stocks are held by overseas individuals. So the burden is put on American workers in order to protect the capital of overseas millionaire investors.
Or overseas investors are sending capital to America, where it enlarges existing businesses and creates new ones, leading to more jobs, more competition for the consumer's dollar, and more tax for the US government when money is paid out to those investors.
If it was so simple to use capital to exploit the rest of society, why would these investors not simply invest where they are? Why go to the trouble and expense of investing their money in a different country?
Edit: Nevermind, it looks like the big beautiful big specifically goes after sovereign wealth funds, retirements funds, etc and overrides existing treaties. So at least we aren't subsidizing other countries on the back of high taxes on American workers.
Public entities can, theoretically, be more efficient because they operate at greater economies of scale and with lower barriers. Centrally-controlled systems become unbelievably efficient when the scale is very large. In addition, public entities enjoy the absence of the shackles of profit, which allows them to make longer-term decisions.
Now, if this is really the case in the US today is debatable. But, it was the case in the past, and is still the case in many very functional countries.
It seems to me that the capitalist economics mostly end up in capitalisms favor because it simply ignores a lot of variables.
1) Capital is allocated according to the wishes of the capital owner, generally to gain more capital and buy luxury goods. My question then is what does the people who have no capital get out of this system!
They are of course free to sell their labour, which is different part of the equation all together.
You may trade the few chips you have made from selling your labor for capital, but the chips you will receive will be of extremely low values, compared to the vast fortunes accumulated by wealthy families over generations.
Often these capital owners are descendants from feudal lords and others who gained their capital via dubious means.
I don't think the studies account for a 0% tax rate and $0 government subsidy. If you're running a large deficit then adding in a tax rate is like having a fire that you're pouring lighter fluid on. Of course when you take away the lighter fluid the fire gets smaller. However, how are you getting that lighter fluid in the first place?
It also doesn't mean that 0% is the correct tax rate. This gives pretty strong evidence that during boom (bull) years you should increase the corporate tax rate to prevent the formation of bubbles and then during bane (bear) years you should decrease it to stimulate growth.
I think the easy way to think about this is that individuals tend not to spend all of their income especially at the higher income brackets. While companies are not as severe in that effect. So if you increase taxes on a business in order for the government to pay back debt to an individual who then saves the money instead of consumes it, you're going to decrease overall consumption.
> I really need a good explanation for the assertion about corporate taxes, as it makes no real sense. Frankly, it sounds like corporate propaganda.
Corporations have many tax avoidance strategies available, and the incentives to activate them based on tax changes, so basically because capital is much freer to move than labour (in most places) one would see the effects suggested in the linked article.
That being said I'm sceptical of this research, does anyone have more detailed links to the simulations on which the analysis is based?
