How Corporate Tax REALLY Works [you pay for it]

[Diplomatic Immunity]

I find it funny how most people in the US do not understand how corporate taxation really works. I'm going to create a little scenario to help explain, I've kept the tax rate as simple as possible for ease of explanation and understanding.

Company A has a product that cost them 10.00$ per unit to make, typically this cost does not include the labor amount only materials and machinery.

They have a tax rate of 35% on taxable income

Most companies look for at least a 40% profit margin (PM) on goods before payroll expenses.

normally this would mean selling the product then for 14.00$ if there was no taxes.
But there are corporate taxes and the result for selling at 14.00$ is the following

Selling at 14.00$
gives a taxable income of 4.00$
resulting in taxation of 1.40$
and a true PM of 26%

Well that won't do so they increase the sale price.

They sell the product for 16.20$
Giving and taxable income of 6.20$ for this item
resulting in taxation of 2.17$
and a true PM of 40.3%

Company A now has a happy profit margin again.

Well along comes the gov't and raises the corporate tax rate to 40%. Lets see how this affects the current PM

They sell the product for 16.20$
Giving and taxable income of 6.20$ for this item
resulting in taxation of 2.48$
and a true PM of 37.2%

Well that won't do so they increase the sale price.
They sell the product for 16.70$
Giving and taxable income of 6.70$ for this item
resulting in taxation of 2.68$
and a true PM of 40.2%

Company A now has a happy profit margin again.

------------------------------------------------------------​--------------------------------------------

Ok now let look at it from a consumer perspective

Consumer B (CB) has an income tax rate of 20% and an income of 40,000$ Leaving an expendable income of 32,000$.

Let us say that the local sales tax is 5% with partial pennies dropped.

Let us say the only expense that Consumer B is that he uses all of expendable income to buy Company A's product, we'll assume Company A sells their product directly to remove additional markup complications.

3 Scenarios well look at
a) no Corporate tax
b) 35% Corporate tax
c) 40% Corporate tax

a) cost of product is 14.00$, with sales tax the price is 14.70$, CB can buy 2176 units with the 32k they have.

b) cost of product is 16.20$, with sales tax the price is
17.01$, CB can buy 1881 units with the 32k they have.

c) cost of product is 16.70$, with sales tax the price is
17.53$, CB can buy 1825 units with the 32k they have.

Scenario a acts as the base for inflation evaluation
Scenario b purchasing power reduction of 15.7% as compared to a
Scenario c purchasing power reduction of 19.2% as compared to a and of 3.1% compared to b

------------------------------------------------------------​--------------------------------------------

So as you can see ultimately the tax on corporations gets passed down to the consumer on top of all the other taxes we already pay. This is yet more evidence that we need to move to a national consumption tax and eliminate all the other taxes.


In the end...


No corporation or business pays any tax. ALL TAXES are paid by the end consumer. Where do businesses get the money to pay their taxes? The taxes are embedded in the price of theirs goods and services. Businesses don't pay taxes. They only collect them and pass them along to the government.

Meanwhile, how many Americans do these large companies employ? Tens of thousands. These employees are also taxpayers. Where do these employees get the money to pay their taxes? It is embedded in the wages they receive from their employer. Where does the employer get the money to pay the wages? Its embedded in the price of their goods or services.

Raise taxes on the business and prices to the end consumer also rise. The unfairness comes when government targets specific friendly businesses for tax policies not available to other businesses. Obama's government / business "partnership" with GE is a perfect example of this. GE now has access and advantages not available to their competitors = crony capitalism.

ALL corporate taxes should be abolished. they are really only additional taxes on the end consumer, (you and me). I don't know why its so hard for some people to understand this.

 

[BrainChild09]

I find it funny how most people in the US do not understand how corporate taxation really works. I'm going to create a little scenario to help explain, I've kept the tax rate as simple as possible for ease of explanation and understanding.

Company A has a product that cost them 10.00$ per unit to make, typically this cost does not include the labor amount only materials and machinery.

They have a tax rate of 35% on taxable income

Most companies look for at least a 40% profit margin (PM) on goods before payroll expenses.

normally this would mean selling the product then for 14.00$ if there was no taxes.
But there are corporate taxes and the result for selling at 14.00$ is the following

Selling at 14.00$
gives a taxable income of 4.00$
resulting in taxation of 1.40$
and a true PM of 26%

Well that won't do so they increase the sale price.

They sell the product for 16.20$
Giving and taxable income of 6.20$ for this item
resulting in taxation of 2.17$
and a true PM of 40.3%

Company A now has a happy profit margin again.

Well along comes the gov't and raises the corporate tax rate to 40%. Lets see how this affects the current PM

They sell the product for 16.20$
Giving and taxable income of 6.20$ for this item
resulting in taxation of 2.48$
and a true PM of 37.2%

Well that won't do so they increase the sale price.
They sell the product for 16.70$
Giving and taxable income of 6.70$ for this item
resulting in taxation of 2.68$
and a true PM of 40.2%

Company A now has a happy profit margin again.

------------------------------------------------------------​--------------------------------------------

Ok now let look at it from a consumer perspective

Consumer B (CB) has an income tax rate of 20% and an income of 40,000$ Leaving an expendable income of 32,000$.

Let us say that the local sales tax is 5% with partial pennies dropped.

Let us say the only expense that Consumer B is that he uses all of expendable income to buy Company A's product, we'll assume Company A sells their product directly to remove additional markup complications.

3 Scenarios well look at
a) no Corporate tax
b) 35% Corporate tax
c) 40% Corporate tax

a) cost of product is 14.00$, with sales tax the price is 14.70$, CB can buy 2176 units with the 32k they have.

b) cost of product is 16.20$, with sales tax the price is
17.01$, CB can buy 1881 units with the 32k they have.

c) cost of product is 16.70$, with sales tax the price is
17.53$, CB can buy 1825 units with the 32k they have.

Scenario a acts as the base for inflation evaluation
Scenario b purchasing power reduction of 15.7% as compared to a
Scenario c purchasing power reduction of 19.2% as compared to a and of 3.1% compared to b

------------------------------------------------------------​--------------------------------------------

So as you can see ultimately the tax on corporations gets passed down to the consumer on top of all the other taxes we already pay. This is yet more evidence that we need to move to a national consumption tax and eliminate all the other taxes.


In the end...


No corporation or business pays any tax. ALL TAXES are paid by the end consumer. Where do businesses get the money to pay their taxes? The taxes are embedded in the price of theirs goods and services. Businesses don't pay taxes. They only collect them and pass them along to the government.

Meanwhile, how many Americans do these large companies employ? Tens of thousands. These employees are also taxpayers. Where do these employees get the money to pay their taxes? It is embedded in the wages they receive from their employer. Where does the employer get the money to pay the wages? Its embedded in the price of their goods or services.

Raise taxes on the business and prices to the end consumer also rise. The unfairness comes when government targets specific friendly businesses for tax policies not available to other businesses. Obama's government / business "partnership" with GE is a perfect example of this. GE now has access and advantages not available to their competitors = crony capitalism.

ALL corporate taxes should be abolished. they are really only additional taxes on the end consumer, (you and me). I don't know why its so hard for some people to understand this.

Agreed. Yes, corporate taxes can only be paid by people. & those people are either the end consumers or the employees. A corporation or business cannot "pay" taxes. Only people can pay taxes. Average working class people have been duped into believing that a corporate/business tax simply takes money out of the pocket of the owner or CEOs (the richest people) while sparing others from experiencing any loss from that tax. Of course it does no such thing other than raising the costs of the business and hurting ordinary people either in their wages or in the costs they pay when the patronize those businesses.

But prepare to be either roasted for posting this or simply having your post ignored. Peace.

 

[Diplomatic Immunity]

Agreed. Yes, corporate taxes can only be paid by people. & those people are either the end consumers or the employees. A corporation or business cannot "pay" taxes. Only people can pay taxes. Average working class people have been duped into believing that a corporate/business tax simply takes money out of the pocket of the owner or CEOs (the richest people) while sparing others from experiencing any loss from that tax. Of course it does no such thing other than raising the costs of the business and hurting ordinary people either in their wages or in the costs they pay when the patronize those businesses.

But prepare to be either roasted for posting this or simply having your post ignored. Peace.

Don't worry, in the times we are living in the truth is often ignored while threads about bullshit have a hundreds of replies and lots and lots of pages

 

[Lamarr]

Don't worry, in the times we are living in the truth is often ignored while threads about bullshit have a hundreds of replies and lots and lots of pages

Props, Excellent clinical analysis!

Truth is treason in an empire of lies!

I'm really waiting for a Factcheck article to appear from the usual cast of characters

 

[RepostKing]

we get taxed to the point where we work 4 months out of the year for the gov. Then have to buy products and pay more taxes

The IRS is the biggest and most notorious ganga in America

 

[thoughtone]

Agreed. Yes, corporate taxes can only be paid by people. & those people are either the end consumers or the employees. A corporation or business cannot "pay" taxes. Only people can pay taxes. Average working class people have been duped into believing that a corporate/business tax simply takes money out of the pocket of the owner or CEOs (the richest people) while sparing others from experiencing any loss from that tax. Of course it does no such thing other than raising the costs of the business and hurting ordinary people either in their wages or in the costs they pay when the patronize those businesses.

But prepare to be either roasted for posting this or simply having your post ignored. Peace.

Agreed. Yes, corporate taxes can only be paid by people. & those people are either the end consumers or the employees. A corporation or business cannot "pay" taxes. Only people can pay taxes.

So lets get rid of Corporate Personhood. Corporations have enjoyed the same rights has natural persons for years with out the responsibilities. For example, Union Carbide's negligences kills almost 4000 people in India and all they have to do is pay a joke of a fine which is still being litigated over 20 years later. Enron's Ken lay dies (did he really?} and he is no longer liable for the crimes he has done.

It's not that corporations can't pay taxes, it's that they are allowed to pass them on to consumers.

This is at least the second time you have posted this ridiculous logic. You are assuming that a businesses profits are a fixed percentage. The current tax structure puts no burden on corporate profits to be reinvested back in to their business. This is explains the record amounts of cash corporations have amassed. They are doing nothing to expand their business and least here in the US.

 

[Gunner]

Excellent post!

 

[deputy dawg]

"...Company A has a product that cost them 10.00$ per unit to make, typically this cost does not include the labor amount only materials and machinery...."

Starting on this premise negates your point. You have to include labor as part of the cost of any product/service. That's like saying a TV show has production costs that only include the cameras, film/tape/digital media, location fees, marketing budget and the craft services (food/beverages. etc.). No salaries for directors/sound,all the hangers on (per union agreements) and the talent used in the production. Example: ESPN wants to cover a college football game. Production costs include things like getting equipment, on-air talent and behind the scenes staff to and from the game site, their hotel accommodations and meal costs, blah-blah-blah. Once costs are determined ad rates can then be set to cover costs and more fora profit. Taxes are on the profits.

In a property management/landscaping company your premise says the cost of doing business is only your equipment, gas to travel to project sites, gas for your tools and materials needed to repair or improve properties. The labor required has to be factored in to set rates to charge for services. You cover your expenses and make a profit beyond the costs of doing business. You pay taxes on your profits.

The cameras don't work by themselves, the mowers won't cut grass by themselves. The TRUE costs have to include the labor.

Businesses are helped additionally by deducting many of your business expenses from your taxes (travel costs/mileage deductions, meals, uniforms, etc.) It was just a few years ago the mantra regarding new companies was that nearly half of them fail. Now these "job creators" are the backbone of American progress.

You make some semi-valid points, but they like many people talking these days, you leave out part of the story.

 

[QueEx]

"...Company A has a product that cost them 10.00$ per unit to make, typically this cost does not include the labor amount only materials and machinery...."

Thats an interesting point Dep'ty! But, what about the various deductions that the hypothetical corporation may have been entitled to; I know that the OP didn't add those in, but would those also have an impact on prices, taxes payable and the bottom line = profits ?

 

[slick1]

I find it funny how most people in the US do not understand how corporate taxation really works. I'm going to create a little scenario to help explain, I've kept the tax rate as simple as possible for ease of explanation and understanding.

Company A has a product that cost them 10.00$ per unit to make, typically this cost does not include the labor amount only materials and machinery.

They have a tax rate of 35% on taxable income

Most companies look for at least a 40% profit margin (PM) on goods before payroll expenses.

normally this would mean selling the product then for 14.00$ if there was no taxes.
But there are corporate taxes and the result for selling at 14.00$ is the following

Selling at 14.00$
gives a taxable income of 4.00$
resulting in taxation of 1.40$
and a true PM of 26%

Well that won't do so they increase the sale price.

They sell the product for 16.20$
Giving and taxable income of 6.20$ for this item
resulting in taxation of 2.17$
and a true PM of 40.3%

Company A now has a happy profit margin again.

Well along comes the gov't and raises the corporate tax rate to 40%. Lets see how this affects the current PM

They sell the product for 16.20$
Giving and taxable income of 6.20$ for this item
resulting in taxation of 2.48$
and a true PM of 37.2%

Well that won't do so they increase the sale price.
They sell the product for 16.70$
Giving and taxable income of 6.70$ for this item
resulting in taxation of 2.68$
and a true PM of 40.2%

Company A now has a happy profit margin again.

------------------------------------------------------------​--------------------------------------------

Ok now let look at it from a consumer perspective

Consumer B (CB) has an income tax rate of 20% and an income of 40,000$ Leaving an expendable income of 32,000$.

Let us say that the local sales tax is 5% with partial pennies dropped.

Let us say the only expense that Consumer B is that he uses all of expendable income to buy Company A's product, we'll assume Company A sells their product directly to remove additional markup complications.

3 Scenarios well look at
a) no Corporate tax
b) 35% Corporate tax
c) 40% Corporate tax

a) cost of product is 14.00$, with sales tax the price is 14.70$, CB can buy 2176 units with the 32k they have.

b) cost of product is 16.20$, with sales tax the price is
17.01$, CB can buy 1881 units with the 32k they have.

c) cost of product is 16.70$, with sales tax the price is
17.53$, CB can buy 1825 units with the 32k they have.

Scenario a acts as the base for inflation evaluation
Scenario b purchasing power reduction of 15.7% as compared to a
Scenario c purchasing power reduction of 19.2% as compared to a and of 3.1% compared to b

------------------------------------------------------------​--------------------------------------------

So as you can see ultimately the tax on corporations gets passed down to the consumer on top of all the other taxes we already pay. This is yet more evidence that we need to move to a national consumption tax and eliminate all the other taxes.


In the end...


No corporation or business pays any tax. ALL TAXES are paid by the end consumer. Where do businesses get the money to pay their taxes? The taxes are embedded in the price of theirs goods and services. Businesses don't pay taxes. They only collect them and pass them along to the government.

Meanwhile, how many Americans do these large companies employ? Tens of thousands. These employees are also taxpayers. Where do these employees get the money to pay their taxes? It is embedded in the wages they receive from their employer. Where does the employer get the money to pay the wages? Its embedded in the price of their goods or services.

Raise taxes on the business and prices to the end consumer also rise. The unfairness comes when government targets specific friendly businesses for tax policies not available to other businesses. Obama's government / business "partnership" with GE is a perfect example of this. GE now has access and advantages not available to their competitors = crony capitalism.

ALL corporate taxes should be abolished. they are really only additional taxes on the end consumer, (you and me). I don't know why its so hard for some people to understand this.

Your Model is way to simplistic leading to a simple minded conclusion.

Companies have competitors, companies compete for market share against other companies, and price is generally the product of supply and demand; it is further influenced by substitute products. For example, if the market wants soda but it cost to much the consumers may drink more water and pressure sellers to sell soda at a lower price.

Some long term strategic companies may seek to reinvest gains in operating margins to buy company assets that can be fully depreciated in the near term but position the company for greater gains in the future. Moreover, the higher the tax the greater the incentive to reinvest gains in the long term future of companies.

A tax increase depending on how it is applied can driver the economy as a whole to better performance. As for consumers, they generally dictate price by its demand for the product. If company A's product cost the consumer $16.20 and they start to sit on the shelves then.......

Because of the tax loopholes corporations like GE (that paid $0 in taxes this past year depite billions in profits) to some extent collect the tax ,but, they do not forward it to the government. Therefore the government taxes the people even more to maintain its comitments.

 

[Lamarr]

The power to tax is the power to Destroy!

 

[BrainChild09]

It's not that corporations can't pay taxes, it's that they are allowed to pass them on to consumers.

QUOTE]

So corporations can pay taxes and no actual human being ends up paying that tax at all? How is that? Answer this directly please.

Also, if the goal is to force businesses to reinvest in the company more than they already would (businesses reinvest in their businesses when they feel it will be profitable), wouldn't it be better to completely eliminate the entire corporate tax on profits that are reinvested & keep the current tax rate on dividends paid out to shareholders the same? You know, reduce the tax burden rather than raise it. Even John Maynard Keynes knew lower taxes are needed when economic growth is the goal.

 

[QueEx]

So corporations can pay taxes and no actual human being ends up paying that tax at all? How is that? Answer this directly please.

Absolutely. In the case of the corporate income tax, simplistically, the corporation pays taxes on its earnings.

Of course, you assume that the price of the good or service from which the corporation earned the profits were manuipulated to account for that taxation (assuming, of course, that the corporation hasn't avoided the tax in the first place by some deduction, etc., that it might be available). In some cases you may be right and in others that assumption might be incorrect. Whether there is price manipulation, however, is not always so easy to assess -- since the price of the good or service might be more influenced by market forces, i.e., supply/demand, than the desired corporate profit margin, vel non.

No ?

Also, if the goal is to force businesses to reinvest in the company more than they already would (businesses reinvest in their businesses when they feel it will be profitable), wouldn't it be better to completely eliminate the entire corporate tax on profits that are reinvested & keep the current tax rate on dividends paid out to shareholders the same? You know, reduce the tax burden rather than raise it. Even John Maynard Keynes knew lower taxes are needed when economic growth is the goal.

Some form of "Honest" tax reform could be a good thing. More people might get the chance to better understand: who is or is not paying; what might or might not be equitable; and more precisely where and how tax collections are being spent, at the municipal, county, state and national levels.

 

[BrainChild09]

Absolutely. In the case of the corporate income tax, simplistically, the corporation pays taxes on its earnings.

Of course, you assume that the price of the good or service from which the corporation earned the profits were manuipulated to account for that taxation (assuming, of course, that the corporation hasn't avoided the tax in the first place by some deduction, etc., that it might be available). In some cases you may be right and in others that assumption might be incorrect. Whether there is price manipulation, however, is not always so easy to assess -- since the price of the good or service might be more influenced by market forces, i.e., supply/demand, than the desired corporate profit margin, vel non.

No ?



Some form of "Honest" tax reform could be a good thing. More people might get the chance to better understand: who is or is not paying; what might or might not be equitable; and more precisely where and how tax collections are being spent, at the municipal, county, state and national levels.

We all understand that prices, wages, etc. are influenced by market forces. What we're saying is not too simplistic. What you all are saying is completely illogical. So let me word the question differently:

Which human being(s) suffer the loss in the money taken by the government in corporate taxes? Surely you won't say that the money that the corporation earned had it not been taxed away would not have been available for a human being. Or do you somehow assert that that is indeed the case, that at times the money taken away makes absolutely no difference in how much money either the company pays to employees, the prices that are set, money reinvested in the company, or paid out in dividends to shareholders who invest in the company? How is it mathematically possible for all four of these circumstances to be avoided at the same time?

No matter what you call a tax, it can only be paid by a human being. But I ask these questions so you can enlighten me as to how something other than a human being can bear the final costs of any tax. Looking forward to it. & to your response to my reply to your question a week or so ago.

 

[QueEx]

We all understand that prices, wages, etc. are influenced by market forces. What we're saying is not too simplistic. What you all are saying is completely illogical.

Whats up with all the “We’s” and “You’s” ??? I don't think I approached your question from a group-think perspective. Is there some underlying thought that I’m not aware of ???

Which human being(s) suffer the loss in the money taken by the government in corporate taxes?

I have no idea what you’re asking here.

Surely you won't say that the money that the corporation earned had it not been taxed away would not have been available for a human being.

Bro, the ultimate aim of damn near everything is to benefit a person, one way or another. The way I see it there are intended beneficiaries, incidental beneficiaries and unintended beneficiaries. Tied to every benefit is a burden, i.e., the cost of producing that benefit, the cost of maintaining social order making the benefit possible, the price society may pay in order for the benefit to flow to those intended and incidental beneficiaries, etc., – and one way that burden is satisfied is through taxation. If the beneficiaries take without paying the cost, the benefit cannot and will not continue.

Now, you can make the Pennzoil argument, pay me now or pay me later (impose a tax at the corporate level or impose the tax at the individual level) but, unfortunately, because I would like to take as much of mine home as the next guy, if the oil & filter are not changed the engine will self-destruct and if the tax is not imposed the economic engine too, will self-destruct.

Tax Reform? Hell yes. Equitable Taxation? Hell Yes. Its still going to boil down to a pay me now or pay me later.

Surely you won't say that the money that the corporation earned had it not been taxed away would not have been available for a human being. Or do you somehow assert that that is indeed the case, that at times the money taken away makes absolutely no difference in how much money either the company pays to employees, the prices that are set, money reinvested in the company, or paid out in dividends to shareholders who invest in the company? How is it mathematically possible for all four of these circumstances to be avoided at the same time?

Now, I have given you credit that you know something about the subject. In keeping with that notion, I am certain that you are aware that income taxation occurs AFTER deduction for expenses, etc. Hence, whatever income tax a corporation might owe would be assessed AFTER payment of employees and other expenses tied to production and allowable investment into future production. Therefore, taxation does not affect what amount that might have been available to pay employees. Or do I have that wrong ? ? ?

No matter what you call a tax, it can only be paid by a human being.

Well, if I may quote the infamous Gunner, "You're entitled to your opinion, but not to your version of the facts." It is what it is and neither of us can change the fact that a corporation (a legal person with the power to sue and be sued, contract and enforce contracts), can pay taxes on its earnings. Whether or not a human being might push the button that causes the transfer of funds from the corporate accounts to the IRS to accomplish the act (though, in these times, a person is not essential to cause that transfer), it is in fact the act of and for the corporation and NOT the act for or in behalf of an individual.

But I ask these questions so you can enlighten me as to how something other than a human being can bear the final costs of any tax. Looking forward to it. .

I've given it to you, plain and simple. Whether you’re enlightened is for your subjective determination. If you reject what is clearly the law in these United States, I just don't know what further I can or should do to explain it.

& to your response to my reply to your question a week or so ago

I will be happy to respond to any question of yours -- as I have the time to respond. Lately my time has been extremely limited and I haven't the usual time to devote to this forum.

I also seem to detect some degree of perturbation because I have not responded as you seem to believe I should have. LOL. I hope thats not what it is. Nevertheless, I will, as time permits, look back to see what it is that seems to have raised your ire. Meanwhile . . .