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Allfred


Sep 19, 2011, 9:05 AM
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Regarding the part about the automatic spending cuts:

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His recommendations will go to a congressional "super committee" charged with finding deficit savings of at least $1.2 trillion by November 23. Congress must then vote on the panel's proposal by December 23 or automatic spending cuts will be triggered across government agencies, beginning in 2013.

Do we know what these automatic spending cuts are? Did Obama back himself into a position where the repubs don't have to act in good faith and can continue on their just say No campaign with the only outcome as a positive for the repubs?


Allfred


Sep 19, 2011, 10:13 AM
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Looks like the answer is that nobody's really sure. One site I saw said 1/2 would come from defense.

One site said that farm subsities would lose an across the board equal amount - implying everything gets cut by an equal percentage across all federal spending.


notapplicable


Sep 19, 2011, 4:43 PM
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They talked about this on the radio a bit today and the impression I got was that 50% will come from defense and 50% will come from discretionary spending. It sounds like most of the cuts will be somewhat indiscriminate and should "hurt" both parties.

While I like the idea of no questions asked, gonna happen spending cuts, they won't do a thing to fix our longterm fiscal problems and both parties lose funding they want to keep, so I don't know that there will really be any "winners" if it comes to that. The losers will, once again, be the american people/economy.


styndall


Sep 19, 2011, 6:07 PM
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Honestly, there isn't much but tax increases (if I recall right, treating capital gains like income will solve the entirety of the debt problem) that will actually work here.


scrapedape


Sep 19, 2011, 6:37 PM
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notapplicable wrote:
They talked about this on the radio a bit today and the impression I got was that 50% will come from defense and 50% will come from discretionary spending.

Defense is included in discretionary spending.

styndall wrote:
Honestly, there isn't much but tax increases (if I recall right, treating capital gains like income will solve the entirety of the debt problem) that will actually work here.

I would want to see a source for that.


notapplicable


Sep 19, 2011, 6:53 PM
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styndall wrote:
Honestly, there isn't much but tax increases (if I recall right, treating capital gains like income will solve the entirety of the debt problem) that will actually work here.

That may cover the deficit but there is no way it will pay down the debt. The only solution to our problem is diet and exercise cuts AND taxes.


notapplicable


Sep 19, 2011, 7:04 PM
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scrapedape wrote:
notapplicable wrote:
They talked about this on the radio a bit today and the impression I got was that 50% will come from defense and 50% will come from discretionary spending.

Defense is included in discretionary spending.

Good point. Should have been an "other" in there.

I was working so I wasn't paying real close attention. I remember them saying 50% from defense but I can't be certain about the rest. I suppose it could have been non-discretionary spending but that seems like it would be pretty complicated to execute under such circumstances.


styndall


Sep 20, 2011, 7:20 AM
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scrapedape wrote:

I would want to see a source for that.

I recall reading that somewhere in the last year, but my google-fu is weak - I can't source it.


scrapedape


Oct 11, 2011, 9:23 AM
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styndall wrote:
scrapedape wrote:
styndall wrote:
Honestly, there isn't much but tax increases (if I recall right, treating capital gains like income will solve the entirety of the debt problem) that will actually work here.

I would want to see a source for that.

I recall reading that somewhere in the last year, but my google-fu is weak - I can't source it.

I stumbled across this reference, and I don't think it much supports your argument.

First of all, remember that short-term capital gains are already treated like income.

So, that leaves you only with the long-term capital gains rate to play with. This is currently 15% for higher-income earners, yielding a maximum differential of 20 percentage points between the normal income rate and the long-term capital gains rate (i.e. the 35% top marginal rate minus the 15% long-term gains rate).

Now, assuming that increasing the tax rate on capital gains doesn't reduce the level of those gains (questionable at best), you are looking at increasing revenue by a maximum of $150-200 billion per year, when things are going well. I don't think that would solve the entirety of the deficit problem, would it (never mind the debt problem)?


yanqui


Oct 11, 2011, 12:43 PM
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The US deficit in 2011 is set to be a whopping 1.5 trillion. Obviously that can't continue for long. The capital gains figures you put down seem reasonable.

I was looking over some available tax data (from the internal revenue service) which are based on "adjusted gross income" (AGI). One problem is that the definition of this got changed, so the comparison isn't perfect. Also, the most recent data was from 2008, (a bad year for the wealthiest) so I'm assuming the current figures are more like 2007. Anyways, with these mild assumptions, from the tax chart I referenced it follows that if the richest 1% were taxed at the same (average) rate as they were in 1980, this would represent an additional 200+ billion dollars of revenue. This is an easy calculation from this data:

http://www.taxfoundation.org/...show/250.html#table8


No small potatoes, considering you're only talking about raising the taxes on the richest 1% back to the same levels they paid in 1980.


(This post was edited by yanqui on Oct 11, 2011, 12:45 PM)


scrapedape


Oct 11, 2011, 1:29 PM
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No small potatoes indeed. But what I take away from this is that increasing rates for the wealthiest (I personally consider this to be a good idea) and on long-term capital gains (I am less sure about this), while they could contribute significantly to reducing the deficit, are not going to be sufficient on their own.

We're going to need tax increases across a wider part of the spectrum if we want to sustain spending at anything close to current trajectories.


yanqui


Oct 12, 2011, 4:47 AM
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If "long term" capital gains meant 10 years instead of 1 year I might be able to imagine the possible benefit for the whole society. As it stands, the capital gains tax is mostly a perk for the super rich (e.g. a way for CEOs to receive massive salaries taxed at ridiculous low rates) and an incentive to artificially inflate stock values over the short term.

Many economists would argue that some deficit spending is a good thing when the economy is stagnated, although 10% of GDP seems way too high to me. At any rate, the US isn't having any short-term problems getting its hands on the money. One serious long term problem is that health care costs in the US are absorbently high (like twice as expensive as Europe, where the quality of care is comparable). This problem shows up as cripplingly high medicare and medicaid costs and counts for a huge (and growing) chunk of spending. If somehow these costs could be halved without a significant loss in quality of care .... well, imagine that. However, in the current political climate nothing like this seems possible.

Here's my two cents worth: continued unemployment benefits are costing quite a bit (on the order of several hundred billions) but are also an important stimulus to the economy. So why not take this money (or a part of it) and use it to put people to work, for example, rebuilding infrastructure? Maybe it won't reduce the deficit, but at least some much needed work might get done.


(This post was edited by yanqui on Oct 12, 2011, 4:54 AM)


scrapedape


Oct 12, 2011, 6:41 AM
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yanqui wrote:
If "long term" capital gains meant 10 years instead of 1 year I might be able to imagine the possible benefit for the whole society.

I think the problem is that the tax system is ostensibly trying to fulfill two goals: fairness and efficiency. The fairness aspect is subjective, of course, but for many people fairness means that the wealthy should pay a larger share of their income, or at least be prevented from taking income in the form of lower-rate capital gains. This seems to be what you're suggesting.

Of course, a counterargument to this is that capital gains are realized on the basis of after-tax income, so as long as corporations are paying tax themselves (not always the case, of course...), the tax on capital gains amounts to double taxation.

But another rationale for lower rates on capital gains is based on economic efficiency. If we have a level of investment that is generally too low, we don't want to further discourage investment by taxing the gains on investment. Instead, we want to reduce the tax rate and encourage more savings and investment.

In reply to:

As it stands, the capital gains tax is mostly a perk for the super rich (e.g. a way for CEOs to receive massive salaries taxed at ridiculous low rates) and an incentive to artificially inflate stock values over the short term.

I agree with you about the perverse incentives, but 10 years seems a bit too long to me. A period of that length could deter investors from reallocating capital to more productive uses in a timely fashion. It seems to me that the required holding period should roughly align with the rate at which useful amounts of new information become available to investors. I do have the feeling that right now, investment has become more of a shell game and less about the efficient allocation of capital, and that the tax code should be adjusted to reflect this.

In reply to:

Many economists would argue that some deficit spending is a good thing when the economy is stagnated, although 10% of GDP seems way too high to me. At any rate, the US isn't having any short-term problems getting its hands on the money. One serious long term problem is that health care costs in the US are absorbently high (like twice as expensive as Europe, where the quality of care is comparable). This problem shows up as cripplingly high medicare and medicaid costs and counts for a huge (and growing) chunk of spending. If somehow these costs could be halved without a significant loss in quality of care .... well, imagine that. However, in the current political climate nothing like this seems possible.

Here's my two cents worth: continued unemployment benefits are costing quite a bit (on the order of several hundred billions) but are also an important stimulus to the economy. So why not take this money (or a part of it) and use it to put people to work, for example, rebuilding infrastructure? Maybe it won't reduce the deficit, but at least some much needed work might get done.

Damn those absorbently high health care costs. Are those due to the aging baby boomers and their increasing demand for incontinence pads?


yanqui


Oct 12, 2011, 8:19 AM
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scrapedape wrote:
I think the problem is that the tax system is ostensibly trying to fulfill two goals: fairness and efficiency. The fairness aspect is subjective, of course, but for many people fairness means that the wealthy should pay a larger share of their income, or at least be prevented from taking income in the form of lower-rate capital gains. This seems to be what you're suggesting.

Of course, a counterargument to this is that capital gains are realized on the basis of after-tax income, so as long as corporations are paying tax themselves (not always the case, of course...), the tax on capital gains amounts to double taxation.

But another rationale for lower rates on capital gains is based on economic efficiency. If we have a level of investment that is generally too low, we don't want to further discourage investment by taxing the gains on investment. Instead, we want to reduce the tax rate and encourage more savings and investment.

Sorry, but this "efficiency" thing sounds like navel gazing and doesn't seemed to based on anything empirical. When has the level of investment been "too low"? On the other hand, since capital gains benefits were installed has there been, for example, any significant increase in economic growth? What I see is the stock market went through its worse collapse since the great depression, unemployment has been stuck at almost historical highs and the country now has its second highest historical deficit (which actually began long before the collapse ... in part thanks to the capital gains tax). There seems to be at least strong circumstantial evidence, for example, that the capital gains component, for example for CEOs (more specifically the stock option component, which the capital gains makes more appealing), encourages risk seeking for short term gain. So where's the beef? Can you give me one, clear concrete (real life) example of how this efficiency works?

Also: the "double taxation" stuff doesn't have anything to do with what individuals pay, so I don't get why that's even a point, unless you could show this somehow had been destructive of American business and was causing harm to, say, a majority of Americans.

You might be able convince me that capital gains should continue for the middle class (something like what Obama wanted), considering the current hard times and the fact that consumption is such an important part of the American economy, but I don't see any reason why they should exist for the wealthiest.


(This post was edited by yanqui on Oct 12, 2011, 8:23 AM)


styndall


Oct 12, 2011, 8:32 AM
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Scrapedape, you're surely right about my post above.

scrapedape wrote:
Of course, a counterargument to this is that capital gains are realized on the basis of after-tax income, so as long as corporations are paying tax themselves (not always the case, of course...), the tax on capital gains amounts to double taxation.

This argument has always been ridiculous. Corporations pay tax on their gains, then the shareholders, who also make gains, pay tax on their gains.

I pay taxes on my paycheck, then, when I spend it to buy groceries, I get taxed again.

Honestly, capital gains taxes should be much higher than regular income taxes (which should honestly also be much higher). There's a strong historical connection between strongly-progressive tax structures and economic growth. Also, it means our roads and bridges don't fall apart.


(This post was edited by styndall on Oct 12, 2011, 8:33 AM)


scrapedape


Oct 12, 2011, 8:36 AM
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yanqui wrote:
scrapedape wrote:
I think the problem is that the tax system is ostensibly trying to fulfill two goals: fairness and efficiency. The fairness aspect is subjective, of course, but for many people fairness means that the wealthy should pay a larger share of their income, or at least be prevented from taking income in the form of lower-rate capital gains. This seems to be what you're suggesting.

Of course, a counterargument to this is that capital gains are realized on the basis of after-tax income, so as long as corporations are paying tax themselves (not always the case, of course...), the tax on capital gains amounts to double taxation.

But another rationale for lower rates on capital gains is based on economic efficiency. If we have a level of investment that is generally too low, we don't want to further discourage investment by taxing the gains on investment. Instead, we want to reduce the tax rate and encourage more savings and investment.

Sorry, but this "efficiency" thing sounds like navel gazing and doesn't seemed to based on anything empirical. When has the level of investment been "too low"? On the other hand, since capital gains benefits were installed has there been, for example, any significant increase in economic growth? What I see is the stock market went through its worse collapse since the great depression, unemployment has been stuck at almost historical highs and the country now has its second highest historical deficit (which actually began long before the collapse ... in part thanks to the capital gains tax). There seems to be at least strong circumstantial evidence, for example, that the capital gains component, for example for CEOs (more specifically the stock option component, which the capital gains makes more appealing), encourages risk seeking for short term gain. So where's the beef? Can you give me one, clear concrete (real life) example of how this efficiency works?

Also: the "double taxation" stuff doesn't have anything to do with what individuals pay, so I don't get why that's even a point, unless you could show this somehow had been destructive of American business and was causing harm to, say, a majority of Americans.

You might be able convince me that capital gains should continue for the middle class (something like what Obama wanted), considering the current hard times and the fact that consumption is such an important part of the American economy, but I don't see any reason why they should exist for the wealthiest.

Your questions are good ones and they're above my pay grade. I could talk about how I might assess whether investment was "too low" or "too high" (obviously a subjective measure, but I would consider benchmarking savings rates and levels of investment against other countries, and looking at the pre-tax returns to capital), or how I might assess the effectiveness of the capital gains tax rate cut (looking at a single time series since 2000 is not my preferred approach; it would be better to look at panel data for multiple countries over multiple years, where capital gains tax rates have varied across and within countries).

Unfortunately I don't really know the literature on these topics, but it seems reasonable to think that it's not overly difficult to test some of these hypotheses.


scrapedape


Oct 12, 2011, 8:47 AM
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styndall wrote:
Scrapedape, you're surely right about my post above.

scrapedape wrote:
Of course, a counterargument to this is that capital gains are realized on the basis of after-tax income, so as long as corporations are paying tax themselves (not always the case, of course...), the tax on capital gains amounts to double taxation.

This argument has always been ridiculous. Corporations pay tax on their gains, then the shareholders, who also make gains, pay tax on their gains.

I pay taxes on my paycheck, then, when I spend it to buy groceries, I get taxed again.

I think your argument is the one with the problem here. The shareholders are the owners of the corporation. If the corporate earnings were not taxed, those earnings would go to the shareholders. So taxing the corporation is effectively the same as taxing the shareholders. Now if you tax the gains realized by the shareholder, that's double taxation.

That's a descriptive statement, not a normative one. It's up to you to judge for yourself whether that's "fair" or not, but it's pretty hard to dispute that there is double taxation at work.

And yes, of course you get taxed when you spend your paycheck on groceries. But remember: a company is not paying taxes on the portion of revenue that it spends on paychecks; and shareholders pay taxes when they spend their earnings on consumption too.



In reply to:
Honestly, capital gains taxes should be much higher than regular income taxes (which should honestly also be much higher). There's a strong historical connection between strongly-progressive tax structures and economic growth. Also, it means our roads and bridges don't fall apart.

Sorry, that simply doesn't follow from anything you wrote above. Why should capital gains taxes be higher than those on regular income? Because rich people accrue more of the capital gains, and we ought to have a more progressive tax structure? That might be a good argument for treating capital gains as regular income, and for raising rates in higher income brackets, but how does it lead to the conclusion that capital gains rates should be higher than earned income rates?


styndall


Oct 12, 2011, 10:53 AM
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scrapedape wrote:
styndall wrote:
Scrapedape, you're surely right about my post above.

scrapedape wrote:
Of course, a counterargument to this is that capital gains are realized on the basis of after-tax income, so as long as corporations are paying tax themselves (not always the case, of course...), the tax on capital gains amounts to double taxation.

This argument has always been ridiculous. Corporations pay tax on their gains, then the shareholders, who also make gains, pay tax on their gains.

I pay taxes on my paycheck, then, when I spend it to buy groceries, I get taxed again.

I think your argument is the one with the problem here. The shareholders are the owners of the corporation. If the corporate earnings were not taxed, those earnings would go to the shareholders. So taxing the corporation is effectively the same as taxing the shareholders. Now if you tax the gains realized by the shareholder, that's double taxation.



Except the corporation is its own entity. That's what incorporation does. The profits don't belong directly to the shareholders, but rather to the corporation.

Non-incorporated businesses don't have this issue.


scrapedape


Oct 12, 2011, 11:33 AM
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styndall wrote:
scrapedape wrote:
styndall wrote:
Scrapedape, you're surely right about my post above.

scrapedape wrote:
Of course, a counterargument to this is that capital gains are realized on the basis of after-tax income, so as long as corporations are paying tax themselves (not always the case, of course...), the tax on capital gains amounts to double taxation.

This argument has always been ridiculous. Corporations pay tax on their gains, then the shareholders, who also make gains, pay tax on their gains.

I pay taxes on my paycheck, then, when I spend it to buy groceries, I get taxed again.

I think your argument is the one with the problem here. The shareholders are the owners of the corporation. If the corporate earnings were not taxed, those earnings would go to the shareholders. So taxing the corporation is effectively the same as taxing the shareholders. Now if you tax the gains realized by the shareholder, that's double taxation.



Except the corporation is its own entity. That's what incorporation does. The profits don't belong directly to the shareholders, but rather to the corporation.

Non-incorporated businesses don't have this issue.

So why shouldn't an unincorporated business pay taxes twice? Why specifically penalize companies that have incorporated?


styndall


Oct 12, 2011, 12:08 PM
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scrapedape wrote:
styndall wrote:
scrapedape wrote:
styndall wrote:
Scrapedape, you're surely right about my post above.

scrapedape wrote:
Of course, a counterargument to this is that capital gains are realized on the basis of after-tax income, so as long as corporations are paying tax themselves (not always the case, of course...), the tax on capital gains amounts to double taxation.

This argument has always been ridiculous. Corporations pay tax on their gains, then the shareholders, who also make gains, pay tax on their gains.

I pay taxes on my paycheck, then, when I spend it to buy groceries, I get taxed again.

I think your argument is the one with the problem here. The shareholders are the owners of the corporation. If the corporate earnings were not taxed, those earnings would go to the shareholders. So taxing the corporation is effectively the same as taxing the shareholders. Now if you tax the gains realized by the shareholder, that's double taxation.



Except the corporation is its own entity. That's what incorporation does. The profits don't belong directly to the shareholders, but rather to the corporation.

Non-incorporated businesses don't have this issue.

So why shouldn't an unincorporated business pay taxes twice? Why specifically penalize companies that have incorporated?

Incorporation provides a lot of benefits, such as shielding the owners' assets from seizure in bankrupcy proceedings, which come from the corporation's status as an independent entity.

If you'd like to do away the concept of incorporation, I'd be open to listening, but as it stands, if the corporation is a separate entity, than transfer of wealth between it and its stockholders seems reasonably subject to taxation, and definitely isn't anything like double taxation.


scrapedape


Oct 12, 2011, 12:24 PM
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styndall wrote:
scrapedape wrote:
styndall wrote:
scrapedape wrote:
styndall wrote:
Scrapedape, you're surely right about my post above.

scrapedape wrote:
Of course, a counterargument to this is that capital gains are realized on the basis of after-tax income, so as long as corporations are paying tax themselves (not always the case, of course...), the tax on capital gains amounts to double taxation.

This argument has always been ridiculous. Corporations pay tax on their gains, then the shareholders, who also make gains, pay tax on their gains.

I pay taxes on my paycheck, then, when I spend it to buy groceries, I get taxed again.

I think your argument is the one with the problem here. The shareholders are the owners of the corporation. If the corporate earnings were not taxed, those earnings would go to the shareholders. So taxing the corporation is effectively the same as taxing the shareholders. Now if you tax the gains realized by the shareholder, that's double taxation.



Except the corporation is its own entity. That's what incorporation does. The profits don't belong directly to the shareholders, but rather to the corporation.

Non-incorporated businesses don't have this issue.

So why shouldn't an unincorporated business pay taxes twice? Why specifically penalize companies that have incorporated?

Incorporation provides a lot of benefits, such as shielding the owners' assets from seizure in bankrupcy proceedings, which come from the corporation's status as an independent entity.

If you'd like to do away the concept of incorporation, I'd be open to listening, but as it stands, if the corporation is a separate entity, than transfer of wealth between it and its stockholders seems reasonably subject to taxation, and definitely isn't anything like double taxation.

Limited liability is hardly restricted to companies that pay corporate taxes. Why single out one class of businesses?

Edit to add: according to this link, basically the only difference between an S corporation (pass-through taxation) and a C corporation (double taxation) is that the number of shareholders in a C corporation is unlimited. To me, this suggests that double taxation of C corporations could actually be disadvantageous to the goal of more progressive taxation. Why? Because lower-income folks will probably never have the opportunity to own an S corporation, since I am guessing they are less likely to start one, and don't have enough capital to be one of the select 100 owners of an S corporation. So they are left with large, publicly-traded C corporations as opportunities for investment - and are doomed to see their returns more heavily taxed.


(This post was edited by scrapedape on Oct 12, 2011, 12:39 PM)


styndall


Oct 12, 2011, 1:14 PM
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It looks like S-corporation status is specially set off for smaller businesses with smaller numbers of directly-involved owners.They're unrelated to most kinds of investing, since its losses, as well as its profits, come straight from the owners. This is a lot riskier for shareholders, and it also doesn't create a separate entity with its own funds.

The C corporation is its own entity, which has its own funds, and can transfer wealth to shareholders. These shareholders pay taxes on their gains, just as the corporation paid taxes on its gain. That's two different taxes paid by two different entities.

This isn't hard.


scrapedape


Oct 12, 2011, 1:36 PM
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styndall wrote:
It looks like S-corporation status is specially set off for smaller businesses with smaller numbers of directly-involved owners.They're unrelated to most kinds of investing, since its losses, as well as its profits, come straight from the owners. This is a lot riskier for shareholders, and it also doesn't create a separate entity with its own funds.

The C corporation is its own entity, which has its own funds, and can transfer wealth to shareholders. These shareholders pay taxes on their gains, just as the corporation paid taxes on its gain. That's two different taxes paid by two different entities.

This isn't hard.

You're right. It's not very hard. And you're a smart guy, which is why I wonder what is giving you so much trouble here.

Where is the extra risk in an S corporation? If the company is overly exposed to liabilities, the owners can choose to dissolve the company.

If a C corporation loses money, the shareholders take a loss in the form of foregone dividends, capital losses, and/or dilution of their equity through the sale of new shares.

The S corporation is a separate legal entity, as is a C corporation. Each one can hold assets, accrue liabilities, transfer earnings to shareholders, and insulate them from losses beyond the value of the company. So why should the one with a restricted set of shareholders be subject to additional taxation?


styndall


Oct 12, 2011, 1:45 PM
Post #24 of 47 (2167 views)
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Registered: May 29, 2002
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Re: [scrapedape] SUPER COMMITTEE [In reply to]
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The S corporation is a separate legal entity, as is a C corporation. Each one can hold assets, accrue liabilities, transfer earnings to shareholders, and insulate them from losses beyond the value of the company. So why should the one with a restricted set of shareholders be subject to additional taxation?

This is just not true. You're missing the primary distinction between the S and C corporations. The S corporation doesn't have its own profits/losses. Those are directly to and from the shareholders.

A C corporation makes its own profits and losses, and then it may or may not offer its shareholders dividends. The C corporation is an entity that has funds, then can choose to disperse them or not.

In the C corporation case, the C corporation makes a profit, then pays taxes on that profit. If it chooses to pay dividends, then the dividend recipients pay taxes on those dividends.

In the S corporation case, there is never a situation in which the corporation has funds and then disperses them to shareholders. The structure is considerably different.

If you don't see that difference, then what do you think is the difference between the S and C corporation?


curt


Oct 12, 2011, 3:37 PM
Post #25 of 47 (2161 views)
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Registered: Aug 26, 2002
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Re: [styndall] SUPER COMMITTEE [In reply to]
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styndall wrote:
In reply to:
The S corporation is a separate legal entity, as is a C corporation. Each one can hold assets, accrue liabilities, transfer earnings to shareholders, and insulate them from losses beyond the value of the company. So why should the one with a restricted set of shareholders be subject to additional taxation?

This is just not true. You're missing the primary distinction between the S and C corporations. The S corporation doesn't have its own profits/losses. Those are directly to and from the shareholders.

A C corporation makes its own profits and losses, and then it may or may not offer its shareholders dividends. The C corporation is an entity that has funds, then can choose to disperse them or not.

In the C corporation case, the C corporation makes a profit, then pays taxes on that profit. If it chooses to pay dividends, then the dividend recipients pay taxes on those dividends.

In the S corporation case, there is never a situation in which the corporation has funds and then disperses them to shareholders. The structure is considerably different.

If you don't see that difference, then what do you think is the difference between the S and C corporation?

You both have it partially right. Both S and C corporations can "hold assets, accrue liabilities, transfer earnings to shareholders, and insulate them from losses beyond the value of the company."

There are differences between the two types of corporations with regard to who can and can't own shares in the particular type of corporation (no foreign shareholders, other corporations, LLCs or partnerships can own S corporation shares.) There are also restrictions on how many shareholders an S corporation can have.

The main difference, however (as already mentioned) is in the tax treatment of the corporate earnings. S corporations do not pay taxes--they are "pass through" entities, just like LLCs and Partnerships are.

Curt

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