Wednesday, January 07, 2009

Tax Transparency

A lot of talk going on about the President-elect’s tax concessions in order to get the Rethugs, or at least some of them, to go along with his economic recovery plan.

One of the ideas I’ve heard floated is a sort of tax holiday in which, instead of rebates, employers simply wouldn’t deduct any income taxes from the employee paychecks for a certain period. I used to think this would never happen because it would give taxpayers a painful reminder about taxes once the holiday ended and their checks went back down to the pre-holiday amount. It would make that income tax too transparent. Of course, any taxpayer with a brain sees the amount that is deducted but I believe there are many taxpayers who see their refunds as some sort of windfall they get every spring. I know people who actually ask employers to withhold at higher rates than necessary to enforce saving when they should have been using the time value of money to increase net worth. Because of lunacy like this, maybe a holiday can be safely implemented.

I also hear it tossed around a lot on the right that among industrialized nations, only Japan’s corporate income tax rate exceeds ours. I have never understood corporate income taxes except that politicians know they can succeed because they are not transparent. Corporations are not taxpayers; they are tax collectors. At least one’s local sales taxes are visible. Lawyers out there know there are ways to avoid those corporate income taxes on the federal level (at least for smaller businesses) by making a sub-S election or jumping through other hurdles. I don’t get why a corporation, upon reaching a certain size, should become a tax collector. If we want transparency, let’s drop the corporate income tax and increase my income tax accordingly.


Stephanie said...

I realize it's true that corporate taxation isn't transparent (and I appreciate that that alone is reason for capitalist purists to be wary), but it doesn't strike me as unfair. The corporations pass the taxes through to their customers (or their stockholders) and then those who make use of that corporation (buying its products or owning its stock) pay those taxes; isn't that more fair than everyone paying those taxes as income taxes? I mean, it's sort of a use fee. The corporation (and thereby its customers, employees and stockholders) get a benefit from national defense, for example; it's fair for them to pay for that benefit.

Scooter said...

Everything you say is correct (except I'm not sure shareholders really pay very much). I'm just talking transparency.

Some rate is fair if only because of the limited liability of the shareholders that the corporate structure provides. I don't like that we are so high.

Scooter said...

Wait a minute. I do pay taxes on dividends or capital gains so maybe I should change that.

Stephanie said...

I was thinking that stockholders "pay" in the same theoretical sense that customers "pay". Either the price is higher (customers pay) or the profit is less (shareholders pay).

And yep, also taxes on dividends/cap gains.