Monday, July 01, 2013

Politics: Tax Policy Revisited

In a previous post I discussed how I would revise personal income taxes, if it were up to me. I also have a few ideas about corporate taxes that I would implement, if I had supreme executive power!

One of the arguments that I hear a lot is that corporate taxes hurt the economy and the people by discouraging employment. The corporations have less money available to them due to taxes, so they have less to put into payroll. I think that can be handled by letting corporations deduct legitimate costs of doing business from their income, payroll being one of those costs. Money that goes to payroll is subject to personal income tax, anyway, so there's no need to "double-tax" it.

Now, I would try to limit that by putting a "salary cap" on the payroll deduction. No more than $200,000 in compensation for an individual employee can be deducted, for example. That should keep the payroll deduction from being used as a tax loophole by giving outrageous compensation packages to executives; they would have to pay a lot of people good salaries to avoid taxes that way.

(Edit: To account for inflation, I think calculated value would be better than a fixed number. Instead of $200,000 as the deduction cap, make it ten times the compensation of the lowest-paid person in the organization.)

Other legitimate costs of doing business would be materials used in making a product, utilities, equipment purchases, and equipment maintenance.

Things I would not include are payments on corporate debt, be they loan payments or buying back stocks or bonds. I just don't want to encourage a lot of borrowing. Stock dividends would also be right out. Payouts to shareholders are things that you do with profits, not expenses.

Charitable spending I would make deductible, but only for the amount that actually goes to charitable work. There would be no such thing as a "non-profit organization" that was untaxed: just money used for charitable purposes that's deductible.

That's what strikes me as a fair corporate tax system that encourages investment and employment and doesn't reward stuffing the bank accounts of corporate executives.

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