Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.2 9/18/84; site amdahl.UUCP Path: utzoo!watmath!clyde!burl!ulysses!gamma!epsilon!zeta!sabre!bellcore!decvax!decwrl!sun!amdahl!ems From: ems@amdahl.UUCP (ems) Newsgroups: net.taxes Subject: Re: Corporate income tax Message-ID: <1692@amdahl.UUCP> Date: Tue, 18-Jun-85 18:04:04 EDT Article-I.D.: amdahl.1692 Posted: Tue Jun 18 18:04:04 1985 Date-Received: Thu, 20-Jun-85 23:57:43 EDT References: <3035@drutx.UUCP> <6493@styx.UUCP> Organization: Circle C Shellfish Ranch, Shores-of-the-Pacific, Ca Lines: 67 > The faction that has been clamoring for increased corporate taxes is going > to be rather surprised by the intermediate- and long-term effects of a blanket > increase in corporate tax rates. The fact is that an across the board > corporate tax increase (that is not easily avoidable through use of income > sheltering and special credits) will ultimately have a REGRESSIVE effect on > the tax structure. (I'm not against this, by the way; I think it will have > the beneficial effect of "flattening" the progressivity of the individual > rate structure.) There are a great many assumptions that must be made for the tax effect to be REGRESSIVE. You have not demonstrated that these are, in fact, proven assumptions. 1) That all firms in an industry have the same margin. 2) That the elasticity of all markets is such that a price increase can be passed on to the consumers. 3) That the market is not an international market and is free of international competitors. 4) That all competitors in the market will pass the cost to consumers, rather than to stockholders or supliers, or creditors, or ... I am sure there are other hidden assumptions, but these are the ones that I can see from a moments observation. > > Most experts agree that the proposed changes will affect all > firms in the same industry in the same way. (Unlike other tax changes > which would favor cash-rich firms over cash-poor firms, etc.) This means > that (say) the taxes for all the firms in the general retail business > would go up X%. Since all the firms are operating on essentially the same > profit margin, there is no incentive to do anything other than pass the > entire cost on by way of price increases. (There are exceptions to this, > but they are short-term and not economically meaningful.) Ahem, are you sure you mean this? *ALL* firms on the same margin? IBM, AT&T, Amdahl, HP, Compaq, Tandy, ONYX, Joes Computer Startup, ... all on the same margin? Macys, Pennys, Gemco, K Mart, Mom&Pop shop, all the same margin?? On what do you base the *ASSUMPTION* that they are short term or not economically meaningful? > Analyzed in a macroeconomic sense, this means that every > household's purchasing power is diminished approximately the same > amount, which is a regressive outcome. > ASSUMING that the effect was to pass on the increased cost in higher prices (An UNPROVEN assumption) then the effect would still be progressive as the increase would be born in proportion to the quantity of goods bought; ie in proportion to disposable income. (I know the rich spend a lower percent on consumption, but the absolute dollar amount is more, not 'the same amount' at all). > What the people who want to raise corporate taxes REALLY want to > do is exact a greater amount of taxes from the owners of the > corporations. There are a number of ways of doing this, ranging > from the obvious (eliminating the preference on capital gains > income) to the ridiculous (a special tax on corporate dividends), > but raising the corporate income tax isn't one of them. If the goal is to communicate the cost of the social goods consumed to the company consuming them, the best thing to do is to tax the company directly. For instance, a severence tax on mining minerals to pay for the costs to the society of a damaged land ... -- E. Michael Smith ...!{hplabs,ihnp4,amd,nsc}!amdahl!ems This is the obligatory disclaimer of everything. (Including but not limited to: typos, spelling, diction, logic, and nuclear war)