Then what would be your tax rates?

 

For me the ideal tax rate for corporations is 0%. Any taxes levied on a business invariably are passed on to the consumer. A corporate tax is another hidden tax on everyone. Since everyone pays the tax in goods they buy, an increase in taxes on everyone in lieu of corporate taxes amounts to the same ending. This will also lower the cost of accounting professionals in the business world further increasing profits for the corporations and tax receipts from the owners/employees.

 

I am sure business will slash their prices and hire droves of people immediately if the corporate tax goes away to reflect their savings.

I would be very supportive of such an inititiave if that were the case...maybe we can tie tax rates to job creation? Certainly more people working and paying taxes instead of getting government aid would be a win-win.

I am all for people bringing themselves up and being proserous. I know it is not realistic to expect there to be only rich people and for everyone to prosper. Some are just lazy and will never amount to anything. I just don't want to create an environment where the rich get even richer and the numbers of poor people swells out of control due to no fault of their own.

 

How about the Senate stop wasting time on trying to violate the constitution ?

Rather than doing some actual work ( the budget process ), the Senate is grabbing some headlines by creating ( yet another ) committee to go after a group of corporations.
The media reports on it ( incomplete as usual ) and the budget process is forgotten about for the mean time.

How about unless some huge sweeping tax code changes are made, just leave it alone. There are enough problems that need to be addressed already.

It has worked for years, and the fact that the earnings are not there now to support the spending going on, is not the problem of corporations, it is the problem with the ones spending the money.

If you want to do a modification to your truck that costs money that you do not have, do you make that cash short fall your employers problem by demanding a raise ?

 

I would say this would make expansion much easier. They might still charge the same amount, but with additional cash on hand, either the dividends would increase or more jobs could be created or both.
Making cash just to stuff it in the bank makes no sense to a corporation with the rate of returns available today. Could also be used as a share by back program, which also helps the corporation.
Let's not try to make it seem like companies would just use this to make a pile of cash to sit on. Else they would get the GM stigma ( where GM was called a pension plan that happens to also make cars ).

So you think the Bill of Attainder that the Senate is starting is wrong ?
The deductions they want to take away from just the oil companies ( GE, Walmart, Ford, GM, etc all still get the same, less 1 ) are doing just this thing.

 

The purpose of a business is to make money, period. They are not charities, they are there to make money. What does a corporation do with money. The corporation does not have any greed (that is a human emotion a corporation is not human). The corporation does not care if it has a billion or a dollar in the bank. The only reason for a corporation to have money in the bank is to cover unexpected expenses and short term cash flow reductions. The corporation is not going to just sit on the money, it is going to use it for the purpose of the corporation which is to make money. That means hiring more people, expanding business, and/or giving pay/dividend raises.

 

But, the world economy is not a pie where the wealth is distributed. Wealth is created.

It shouldn't matter if the rich are getting richer.

 

I mostly agree with this, but there is a human factor that enters in. Many corporations tie the compensation of the people who run the corporation, to the health of the corporation itself. The human emotion of greed thus does enter into things.

For example, at the company I work for, the majority of the corporate officers' pay is given as stock option incentives -- their pay is basically determined by how much they can make the company's stock price go up. As a result, they are using corporate earnings not to expand, invest in new product development, or hire more people, but to buy back the stock in order to make its price go up (fewer shares on the open market results in the remaining shares increasing in price). Are there more efficient uses for that cash? Perhaps, but the linking of the corporate officers' "greed" emotion into the picture leads them to favor using it to buy back the stock instead.

 

If the stock options are ISOP - Non Qualified and vest over years ( 4 or 5 ), making the stock price go up today by a share buy back will not help them when the next block comes available to transact,and they are out of the black out, which usually leaves 22 days in the center of the quarter.

What physiological impact, on the market, does it have for an officer of the company to be selling shares when the company is buying them back ?
The buy back times are usually part of the blackout time for officers of the company, and they cannot do anything at that time either, in terms of the announcement that they are selling or actual selling.

Officers of a company are generally required to file intention to sell notices, and usually this is only allowed out of black out times.

The thought that buying back shares of the company help those with large ISOP grants is not really true, as the timing makes it very difficult for them to take advantage of any possible bump in the stock price from this action.

An employee that is not an officer of the company might have a better chance of taking advantage of this bump in the price, but this is a person that has no part of the decision or action or knowledge of the buy back program, until the street hears about it.
Companies might not contractually limit these employees from transacting during buy backs ( and out of the smaller black out window ), but it generally frowned upon.

This is one of those items that someone figured out on paper that it could help an officer of the company with a up tick in the price of the stock on the market, but do not know enough about ISOP programs to know it only works in theory, real world implementation it is useless.

 

RSchnier--You are correct that the officers of a corporation can become greedy. With that said, I know of no well run large corporation that allows any of the officers to set their own pay. The board of directors (most directors are minimally compensated) sets that pay. If the top leaders of the company are not making the company profitable their pay does not go up. If they make the company profitable their pay goes up. When pay goes up so does income taxes.

There have been stories of the golden parachute for many executives, but in reality they would have received better pay if they had been able to perform well at the company. The size of the parachute is determined when the person is hired and is based on the promise the person brings to the company.

 

This is just a guess, but you may be misunderstanding what I stated earlier.

The company share buybacks take these shares off the market and out of circulation permanently; they reduce the number of shares outstanding by the amount of the repurchase, and thus increase earnings per share (even though the absolute amount of earnings has not increased).

The bump in share price on the market is permanent, all other things being equal, and thus it does not matter that the corporate officer cannot sell their ISOP grants immediately. (In the case I'm speaking of, the grants vest 25% per year over four years, so the officer can sell 25% of the grant after 1 year, the next 25% after two years, and so on.)

One can argue that because all shareholders get to benefit from the increased earnings per share and permanent increase in the stock price, that the share repurchase is goodness for all. However, it can also be argued that closely linking the officers' pay to how much they can increase the stock price (regardless of the technique used to accomplish that), gives them an incentive to use the company earnings not to expand or invest in growing the business, but instead to use the earnings to take shares off the market, a move that results in no actual economic output.

Example: Company has earnings of 1M per year and has 100,000 shares outstanding; earnings per share is thus $10. If the company then does a share buyback of 25,000 shares, 75,000 are left outstanding which raises EPS to $13.33. People bid up the remaining shares due to increase in EPS (remember that the EPS increase is permanent, all other things held equal); corporate officers pocket the increase in share price as their ISOP gain.

 

This is true, no question here.

This is the part in error.
No part of the price of a stock is permanent.
The stock price might run up a bit during the buy back, but the next quarter, if the earnings target ( or more correctly the whisper number ) is not met, the price will fall back. This would be due to the quarter over quarter increases not being met.

This is the best route to get the officers of the company goals aligned with the share holders.
They can use these "tricks" ( as some call them ) to drive up share price, but the quarter over quarter EPS growth is adjusted for the new number of shares.
Same if there is a stock split, a 2:1 split would cut the share price in half, double the number of shares and cut the EPS in half. The market is not going to punish the stock for the EPS changing, only missing the next earning number.