"I think it's very important that Americans understand... tax cuts are always popular, but about half of these tax cuts since 2001 have gone to people in my income group, the top 1 percent. I've gotten four tax cuts.

If really rich people, like Clinton (and Bill Gates and his dad, and Buffett, and Soros and Corzine et al) feel so opposed to the concept of tax cuts to the really really rich, can't they just give the money to the government as a non-deductible patriotic donation? Why is this so problematic. Pay what you think is equitable and SFTU! Commies!

Penalizing the Cops
 

Partnerships and llcs also shield owners from liability. Go back to the benefits world, you have no idea what you are talking about.

Penalizing the Cops
 

I'm not sure why you see a connection between liabilities and taxes.

And it's not as though a corporation is all take and no give. Quite the contrary. Corporations and the private sector in general provide a whole hosts of benefits of the world. Who do you work for?

Penalizing the Cops
 

"double" taxation is just a catch phrase. The better question is whether it makes sense to tax corporate income at two levels, the corporate level and the shareholder level. There are a host of policy reasons and efficiency reasons why not.

Wonk makes the traditional argument that it's to pay for the privilege of becoming a recognized entity. It's a fair argument, but a lousy implementation. If there's some value for which society should be compensated for granting the privilege of incorporation (e.g., limited liability), why base it on income? Why not on gross revenue, or on asset value, or something going to the size of the entity (and hence the value it gets from society), rather than something that fluctuates wildly and bears little resemblance most years to any value the corporation has gotten from society?

And, if we go that far, why not do the more sensible thing and simply tax the dividends (and k-gains, and presumed dividends, if they don't distribute, if you must)? Wonk, I'm sure, will say that it's not fair to have some people pay more of the corporation's value than others, depending on their income. well, easily solved. Tax dividends at whatever personal rate, and then add a 5% (or something) corporate surtax on the dividend. Everyone pays that 5% regardless of whether they paid on the dividends--no offsets, deductions, hiding, etc. Pay it there.

Penalizing the Cops
 

I work for my clients, of course, who include corporations, partnerships, charities, and probably every other form of business conceivable. The form of organization I do this in is a limited liability partnership, a wonderful form of organization that does indeed let me have my cake and eat it, too.

The answer as to what the connection is is quite simple: we rely for limited liability on an entity theory of corporations (or partnerships, or limited liability companies). Yet, to reduce the tax bill of those who participate in these entities, we throw out the entity theory and rely instead on an aggregate theory. I believe our theories should be consistent.

This does not mean I think artificial persons should be taxed to the same extent or in the same manner as natural persons simply because they are each "persons", and I'll leave to economists (who shall never agree) the task of figuring out the relative pros and cons of higher or less high tax rates and differences in individual and corporate rates. I also see plenty of positives to corporations, and hope you didn't read my post as suggesting there were not. All my point means is that I don't believe the argument of "double taxation" has merit as a matter of principal, unless we wish to consistent treat these entities under an aggregate theory.

Penalizing the Cops
 

2.

Penalizing the Cops
 

I don't understand what you mean by this.

I don't understand how you get here either.

Penalizing the Cops
 

Thank you. Good summary. I have no idea why we don't base it on some of those things, or some combination of them. Except that income seems to be a good stalking horse for "ability to pay"; if a company fails to make money, is it really getting much benefit from its incorporation? (I know, the limited liability may be more valuable when it is losing money, but levying a tax on bankrupts does not seem to be a recipe for great tax collections).

Penalizing the Cops
 

Income would be good if there were a life-cycle element to it. As it is, companies engage in all sorts of accounting shenanigans (or, to Wonk, GAAP-approved accounting procedures) to shift income from one year to another, or to make it disappear altogether). It's just not a very good proxy in the real world. For the typical wage earner, it's not bad, but as soon as you throw in any kind of "lumpiness" to the income streams its usefulnes goes out the window.

Penalizing the Cops
 

Isn't the registration and yearly fees that all entities must pay to their state of incorporation/organization and any other state in which they do business a sufficient fee for having the privilege or incorporating/organizing?

Penalizing the Cops
 

The entity theory is that an entity like a partnership or corporation is a separate juridical person, and is to be analyzed as such. This is the basis for limited liability of different forms of entities, and the early days of corporate law are filled with discussion of the entity theory and its implications, which many people had real trouble fully comprehending.

The aggregate theory is the idea that an entity is simply an aggregate of its members, and is the basis for general partnerships and for organizations like Lloyds of London; under an aggregate theory, an entity is simply an extension of its participants.

Aggregations were considered the norm in business organization for centuries, until special purposes corporations were developed and became more and more popular. Since those corporations needed a special act to grant them, they were very limited to the privileged.

The Jacksonians were primarily responsible in the U.S. for the idea that there should be a corporate statute under which people could form corporations at will; they viewed this as a leveling exercise that would make available to ordinary people a privilege of the wealthy. However, in putting the first corporate statutes in place, there was much discussion of how to protect the public by ensuring adequate capital, by levying fees for the privilege, and by requiring corporations to submit themselves to public oversight.

What seems to have happened today is that we have lost sight of the fact that corporations are entities for virtually all purposes, and that this separate treatment is a privilege bestowed by the state. Now people are arguing "double taxation", in other words, aggregate treatment, without seeing that there is any other side to aggregate treatment.

Penalizing the Cops
 

OK, I see where you are coming from there. The problem with that view, regardless of the history, is that entity theory rests on the fiction that an entity is separate an apart from its members.

Penalizing the Cops
 

Exactly - it is a ficiton created by government! And that fiction is the primary benefit of being a corporation. It lets you dispose of interests as securities, it lets you have a corporation with limited liability, and it lets you have a decision making structure separate from your owners.

The federalists would have argued that corporations are horrific things that separate a business from those responsible for it. They would have argued that a corporate charter should only be granted for the public benefit for a project which some legislative body has vetted; they permitted, for example, the incorporation of the Erie Canal. A mere business would have an uphill battle. I always find it interesting how little many modern conservatives want to learn from the federalists. But, this was the time period when the principled federalists were giving way to the pragmatic and self-interested Whigs.

Penalizing the Cops
 

If you live in Delaware, perhaps. Not so much for me.

But what are these fees, how are they set, and why should they go only to the citizens of Delaware, as opposed to every state in which they do business?

Penalizing the Cops
 

To be fair, there are a whole hosts of policy reasons why entities are a good thing. Frankly, I think those severely outweigh the concerns of the federalists. The other thing to note is that, while it's true that a corporation has limited liability, it is not unlimited limited liability. See e.g., the piercing the corporate veil doctrine.