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View Diary: BP’s Wanton Decimation of the Gulf--ROV 78 (324 comments)

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  •  corporate taxes (8+ / 0-)

    It is a lot more complicated than that.  They are arguably escaping double taxation.  Here is a little on the convoluted tax situation, with some tie ins to our present disaster.

    The corporate profits are taxed once as corporate profits and then again as  tax on the dividends paid to shareholders.      However, rates of the different taxes may be different.  The dividend tax is progressive, people in lower income brackets pay less but they still effectively pay the corporate tax.   Dividend tax (federal) 15-40%, Corporate tax (federal) 15-35%, Corporate tax (state) 0-10% (why many large corporations are registered in Delaware).

    The corporate tax also comes into play when they try to set aside a nest egg for capital equipment purchases or to have a pool of money for emergencies like this.   They get taxed on it.  In the former case, they are likely to end up borrowing money unnecessarily for major investments, effectively paying an investment banking tax.

    The corporation doesn't pay tax on income used to pay for business expenses, but large capital expendatures have to be depreciated over many years (often decades), meaning they have to essentially make a sizeable loan to the government everytime they buy major equipment or property or borrow money from the bank so they pay taxes on the money used to pay interest in the same years they get the depreciation writeoff - again giving money to the banks unnecessarily.

    There is an interesting argument that the corporate tax is essentially an insurance dividend against the liability limitations.
    Though a dividend tax can do the same thing.   Also, if you like that argument, you don't get to bitch when the government ends up holding the bag for cleaning up some corporation's mess, since they have effectively paid the government premiums to do just that.

    The corporate tax means that corporations have to earn a lot more money to give their investors the interest rate return they expect.     Perhaps higher profits than they can obtain from ethical business practices, thus contributing to the psychopathic behavior of corporations.  Like bypassing safety protocols on a deep sea oil well.   Various attempts to evade the tax can have other consequences, thus corporate taxes could run afoul of the law of unintended consequences.

    It all gets more complicated with multi-nationals.   US subsidiaries probably still pay US tax on US profits but by moving to the cayman islands, for example, they can escape paying US (double) tax on foreign profits.   Large multi-nationals can afford to play these games unlike smaller companies, thus the system gives them an edge over the smaller companies (extremely small SOHO corporations already have a way to bypass this double taxation - the subchapter S corporation)     Foreign investment in US companies and US shareholder investment in foreign companies further complicates things.

    If you have seen the documentary The Corporation video, you know that corporations when psychoanalized as people behave like psychopaths.    But the very rules established by the government create the incentives for this to happen.   Like fiduciary responsibility.

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