Eyeing your 401k?
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Kamala Harris keeps changing her tax plan, but her latest proposal is to raise the corporate tax rate to 28%. She would also raise the top capital-gains tax to roughly 32%, the highest since the 1970s.
Extracting money from those big and faceless corporations with profits in the tens of billions of dollars has populist appeal. But the more accurate way to think of the corporate income tax is that it puts Uncle Sam first in line to take a share of all the profits an American corporation earns. Only after the government takes its pound of flesh does anyone else get a return on his money.
At a 28% federal corporate tax and an average of roughly a 5% state and local tax, the government would snatch away roughly 33 cents of every dollar of profit. This leaves 67 cents to the shareholders. Those include the more than 100 million Americans who own stock directly or through pension and other retirement funds. Every percentage point that Congress and Ms. Harris raise the tax would dilute the value of the stock owned by the rest of us.
Things get even bleaker when one factors in her plan to raise the capital-gains rate. She favors raising the rate to roughly 32% from 23.8%. Add state capital-gains taxes and the rate can easily reach 36%. This is the government taking a second bite out of the corporate apple before the rest of the country has even taken its first. Remember: The value of a share of stock is the present value discounted by the expected after-tax future earnings of the company.
Add it all up and government would snatch at least 50% of nearly every corporation in America under the Harris tax scheme. That sounds an awful lot like socialism. Everyone with stock—not only the Warren Buffetts of the world—and the more than 70 million Americans with 401(k) plans and millions more with other retirement stock holdings would be made poorer.
Companies could find loopholes and deductions to bring the effective corporate rate lower than the statutory rate. But many of those require companies to follow government orders by spending money on green energy and the like. And many of these are effectively back-door taxes: They divert dollars away from companies’ core mission—providing profitable products—and toward unrelated causes.
It is a mathematical certainty that Ms. Harris’s tax scheme will lower the value of stocks a great deal. What we find troubling is that most investors who own as much as half of a company don’t vilify it as a “price gouger” or hassle them with inane and costly regulations. Ms. Harris would treat corporate America as a fat goose to be plucked, and the rest of us would pay the price.
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Government takes a cut of the profits of big faceless corporations, the money get used for services for all people (e.g., national defense) or for the poorer people (e.g., welfare). Leave all the profits to big faceless corporations, the money gets soaked up by the shareholders -- typically the already rich, the upper echelon.
Corporations can spend more to reduce profits thus reduce tax liabilities -- e.g., pay workers more, higher more workers, buy more equipment to increase production capacities, etc. That would yield broad benefits to more people, that would be nice.
But after the last corporate tax cuts, most companies use the tax savings to buy back shares instead. This benefits only the shareholders -- typically the already rich, the upper echelons. With this track record, go ahead and tax 'em more.
(Your next argument may be "but the corporations will just move offshore to tax havens." Counter arguments are 1. they do that anyway regardless of whether it's 21% tax rate or 28% tax rate, and 2. there is a concerted effort to erect some sort of minimum tax rate for corporations across all economically advanced countries; too lazy to look up the specifics, Janet Yellen has been working on it.)
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I think that proposal has about a zero chance of happening.
The odds of Democrats having President, Representatives, and Senators is about zero% also.
I think that @George-K pointed out one time that having different parties among the three areas is usually the best way to govern, as it forces some compromise and things more to the center.
