Biden’s $2T infrastructure plan to be funded by corporate tax hike proposal

Fox Business News ^ | March 31, 2021 | Brittang De Lea

[napscoordinator]

Why not have a telethon. Let’s see those big mouth liberals put their money where their mouth is. I’d love to see those companies who screamed raise our taxes at trump do with this option. Costco I’m talking to you. Although there were others.

[Alberta's Child]

You could not be more wrong about this.

Profit = Revenue - Costs

Corporate taxes are NOT costs to the business. They are paid on the profits ... which are computed AFTER the costs are established.

[Alberta's Child]

Is that supposed to be a trick question? See Post #22.

[RWGinger]

Customers buying at the prices the company sets create the profits.

[Alberta's Child]

Customers buying at the prices the company sets creates the REVENUES. And what does that have to do with whether the corporate tax rate is 21%, 28% or 95%?

[1Old Pro]

Elimination of capital gains tax breaks for the “rich” making sales ordinary income taxed 100%. Look for a massive selloff.

[ClearCase_guy]

Profit = Revenue – Costs

My goal is to make a million dollars profit (net).

My costs are 900,000.
My corp taxes are 10% of my profits. I figure 100,000 in corp taxes.
I want to sell 200,000 widgets at $10/widget
I want my revenue to be 2,000,000.
I pay costs and taxes, I pretty much walk away with $1M and I meet my goal.

Then corp taxes go up to 300,000.
I need to sell more widgets (not easy in the current widget market) or I increase my prices.
I can sell 200,000 widgets at $11/widget, generate 2,200,000 revenue, subtract 900,000 costs, pay 300,000 in corp taxes, and walk away with $1M. Because I raised by prices to pay the tax.

[RWGinger]

How do you figure profit? What factors do you have to consider?

[Vinnie]

...corporations are merely tax collectors for the government...

But to the uninformed it sounds like the gov is sticking it to 'the man'.

[Alberta's Child]

There are two flaws in your analysis there:

1. The statement "my goal is to make a million dollars" might make sense if you are a sole proprietor who draws no salary and only gets compensated from the profit of the company. But in that scenario you wouldn't be paying corporate tax rates anyway; you'd be taxed at the personal income tax rate for an individual taxpayer or married couple filing jointly.

2. You're making a very questionable assumption that you have full flexibility in your pricing, and that the price of your widgets is totally elastic. If you are able to sell widgets at $11 per unit with the higher corporate tax rate, then why would you only sell them for $10 per unit at the lower rate? The price of the product should be based on what the market will pay for it -- not on your personal tax situation. The more likely scenario is that you were selling widgets at $10/unit before, and you have competitors who will continue selling widgets at $10/unit even at the higher corporate tax rates because they have reasons not to be concerned at all (they have paper losses and other deductions that reduce their corporate taxes considerably, for example). In that case, you'd be out of business before long if you try to sell your widgets for $11 per unit. And even if you're not out of business, you are going to have a very hard time meeting your sales target.

[griswold3]

Nice explanation of “Profit Margin”

[ClearCase_guy]

I bet my analysis has more than two flaws.

But I think the key concept under discussion is — “Does an increase in taxes to be paid by a corporation tend to lead to a price increase so that money from customers ultimately flows to the revenue agents so that corporate tax payments can be made?”

I say “Yes, ultimately customers pay corporate taxes.”

I think you believe otherwise?

[Alberta's Child]

When you're dealing with major corporations, it's good to know a certain term they use to describe their "operating earnings" -- EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Think of "Earnings" as another word for "Profit" in this context. This is basically an estimate of what their earnings would be if they operated an all-cash business, had no loans outstanding on their property or equipment, and have no assets to depreciate on their financial statements. This is the best measure to measure the financial state of business operations, which may not be the same as the company's finances.

The earnings are computed by taking the revenues of the business and subtracting the costs of generating that revenue. Corporate taxes are paid on the earnings/profits, so they aren't a cost of generating revenue. Property taxes on company-owned property ARE a cost of generating revenue. So are payroll taxes for company staff, as well as sales taxes on supplies and equipment the company purchases in the course of doing business.

Let's say you and I are both in the business of baking cookies. We each make 100,000 cookies and sell them for $0.50 apiece -- for total sales (revenue) of $50,000 last year.

Let's say we have no staff and bake all these cookies at home, and the main cost of doing business is the $25,000 worth of ingredients we both buy -- and we always pay up front for these ingredients and don't have to borrow money for it.

Let's say you bake your cookies in the oven you've used at home for 20 years, while I went out last year and purchased a new $10,000 oven that I only use to bake these cookies. And let's suppose the $10,000 oven is depreciated on my taxes over five years under IRS rules.

For both of us, we have an EBITDA of $25,000 ($50,000 in sales minus $25,000 in direct costs). This means we pretty much operate the same type of business, with the same operating results.

You report $25,000 as your "profit" on your tax return this year.

I report $23,000 as my "profit" on my tax return this year ... because my $25,000 in earnings gets reduced by $2,000 this year to account for 1/5th of the depreciation on my new oven. Our financial results are different because I happen to be using a new oven that is depreciated for five years -- even though all the rest of our operations are the same.

In other simple terms ... the COSTS associated with the business are basically those expenditures that are incurred even if the company has a profit of $0 and pays no corporate taxes at all.

[Alberta's Child]

Does an increase in taxes to be paid by a corporation tend to lead to a price increase so that money from customers ultimately flows to the revenue agents so that corporate tax payments can be made?

For corporate taxes -- no. For many other taxes paid by the corporation, the answer would be yes -- like sales taxes, payroll taxes, etc. These taxes are embedded in the cost of doing business for the company. A corporate tax on profits is not.

I say "Yes, ultimately customers pay corporate taxes."

That's a very distorted way of looking at it. It's like saying that you are your employer's tax-collection agent because your income taxes are based on the income you receive as compensation for your work. The fact that money passes from A (employer) to B (employee) to C (the IRS) doesn't make A the ultimate payer of the taxes. The taxes are paid by B, and A is responsible for them only if B is embedding costs from A into the income that is being reported to the IRS.

[Alberta's Child]

Perhaps a better explanation would involve a real-life example:

In 2016, major U.S. energy companies like Exxon-Mobil and Texaco/Chevron were taxed at a top corporate tax rate of 35%. Gasoline was selling for an average of $2.20/gallon that year.

The company was taxed at a top corporate tax rate of 21% in 2019. Gasoline was selling for an average of $2.70 that year.

Where is this direct relationship between corporate tax rates and consumer prices?

[RWGinger]

It is clear you have never signed the front of a check.
Have a good day

[SuperLuminal]

More communist propaganda...

The exorbitant taxes on corporations are imposed, but the actual "funding" occurs out of the pockets of the consumer (sheeple) in the form of exorbitant price increases...

It is the sheeple who will fund the communist agenda!
Corporations will feel little financial pain...

[Alberta's Child]

I run THREE businesses myself, and before this I worked in senior corporate management roles in my primary industry. I also serve on two corporate boards right now.

You don’t think I know how to run a business? LOL.

[Svartalfiar]

In 2016, major U.S. energy companies like Exxon-Mobil and Texaco/Chevron were taxed at a top corporate tax rate of 35%. Gasoline was selling for an average of $2.20/gallon that year.

The company was taxed at a top corporate tax rate of 21% in 2019. Gasoline was selling for an average of $2.70 that year.

Where is this direct relationship between corporate tax rates and consumer prices?

Gasoline is probably the worst example of this - actual costs have very little to do with how much you pay at the pump, except as an absolute minimum of price point. Corporate taxes could be dropped to 1% - but a major conflict in the ME would still push gas prices to $4+ per gallon.

And of course many/most companies will raise their prices if their taxes go up by 7%, those profits are what pay for expansions, more RnD, boni (huge motivator this one!), the annual company party, and so on. Sure, many of your business costs are tax-deductible, but those profits are a big part of company success. And most companies won;t be pricing themselves out of the market - chances are extremely good that all of their competitors are raising their prices by 5-7% also!

[Svartalfiar]

For corporate taxes -- no. For many other taxes paid by the corporation, the answer would be yes -- like sales taxes, payroll taxes, etc. These taxes are embedded in the cost of doing business for the company. A corporate tax on profits is not.

And yet, it is. If your business is making money, it will be paying tax on those profits. Part of being in business.

The thing is, though, is that companies like to make money - not just be the middleman to hand it to the government. If you live on the State border, and two miles down the road, the other State is charging 10% less in taxes, why would you not locate in the lower-tax State? (Assuming all other considerations to be about the same.) If company LTS is paying 10% less in taxes than company HTS, then LTS can price their product 5% lower, still make more money, and capture more market share. Because for HTS to lower their prices enough to match, means they might not even make any profit whatsoever!