What does it *mean* for a corporation to evade taxes?

A corporation is not a person just because a law or statute says it is. It may have the exact same rights as a person under the law, but it is not sentient, or potentially sentient, or once sentient, or have any of the other qualities that distinguish a person from a sofa. When a corporation pays a tax, it is unaware of any loss or benefit gained from paying the tax. It doesn't say to itself "Unfortunately, I have $1 million less now than I did yesterday because of this tax." The $1 million payment though is a loss to the sentient creatures (people) that otherwise could have used that money to do something different. (Its not important what they do, just that they can't. That would also include someone who was happy to pay the tax because they think the taxing authority will put it to good use.) That is what is meant by the use of the phrases "...corporations don't pay taxes, people do..." The people here are everyone that has a stake in the corporation. Naturally, this includes the shareholders that are now entitled to $1 million less of dividends and/or gains in the equity value of the company. It also includes the employees who may have gotten a $1 million salary increase, the potential employees that were not hired, the customers who had to pay an extra cent to buy the widget to cover the tax, vendors who are delayed payment a day, bondholders whose interest coverage ratio has just declined a fraction, and everyone else with some sort of stake in the company who are now out some percentage of the $1 million. Of course the Left wing's rant that GE Corp specifically didn't pay any taxes is false. Putting away the issue described above for a minute (ie Corps. don't pay taxes, people do), certainly everyone of GE's 131,000 US employees paid some sort of tax. Likely all paid social security taxes and I would guess that over 95% paid some sort of income tax. While the Left likes to malign GE for not paying taxes on its profits, it might give them comfort that its very existence allows for 130,000 people to be taxed. Moreover, the $7.5 billion of dividends it paid last year were taxed and anyone that bought and sold GE shares for a profit were taxed or generated a tax liability to be paid in future periods. Sales taxes were collected and passed along to the taxing authorities no doubt as well. There are probably hundreds of other taxable events made possible by GE's existence.

It seems doubtful that either side of this question could be put so simply. Since the tax code generally only taxes profits to begin with, we start with scenario that a corporation has $100 of net income after paying all of its expenses. Taxing that $100 at 36% versus 35% is not going to make that company unprofitable. It will simply mean that it has $64 dollars left of profits, rather than $65. But, of course, that could be a big difference in the real world. If the cost of a critical new factory is $65, the company may not be able to compete as well, and that could result in a loss of business, and a loss of jobs. Take the opposite case--the company has $100 in net income, but there's no tax. Where does that money go? Maybe some portion to salaries, some portion to distributions, some portion to retained earnings or capital expenditures. Other than amounts paid as salaries to the highest earners (being taxed at 35%), the resulting tax collection is significantly less. Assuming that it matters, as Otto is saying, that the corporation is not a sentient being, maybe it's preferable that corporations don't pay tax. But the government needs money to function, and gains/dividends/most salaries aren't taxed high enough to make up the shortfall, notwithstanding the fact that the company has added a second shift; employees on the line (who are very happy to have a new job, and who go spend their money dutifully) aren't taxed at a high rate. The investors who hold the stock are happy because their stock price is up, but they're holding their shares for a long time, and get the benefit of tax deferral (or can bequeath their stock to their kids when they die, and the kids get a step up in basis, and no tax is collected at all (subject to the estate tax limitations). So, what to do? Raise taxes on gains/dividends/salaries (boo!). Cut services (boo!). Borrow money to run the government (boo!). It's incredibly complex, and the consequences are far-reaching. I don't think there's anyone who believes the current system "works"--people on the right think taxes are too high, people on the left think that there are too many loopholes. We're well overdue for an overhaul, but the overhaul is also going to be unsatisfactory to everyone. So that's something to look forward to.

"But a corporation is a person and the idea that it is unaware of any benefit from not paying tax is simply irrelevant." It is completely relevant. When many on the left think that taxing corporations is somehow not a loss of value because the entity being taxed does not perceive the loss, then it is relevant to point out that actual people perceive the loss. Ash3000 is apparently organizing for progressive causes. Maybe it would be helpful to his cause to realize that taxing Widget Co. at an X+1 rate instead of the current X rate will make the Fabrication Division unprofitable forcing the layoff of 300 employees (and the loss of the personal income tax revenue from those employees to the IRS.)

I'm not sure if the point you're making is semantic, or philosophical, or what. If a corporation doesn't "pay" taxes because it cannot perceive the loss, then it would seem to follow that a corporation cannot have expenses, because it cannot perceive "cost." This is clearly true; a corporation is just a legal entity and has no powers of perception. But so what? A corporation can be a fiduciary, even though a corporation has no sense of honor. A corporation has, as I noted above, a right to free speech under Citizens United, even though it has no power of independent thought (and a longer standing right to commercial speech). Corporate-level rights and obligations are inherent in its legal organization, and have been as long as a corporate form has existed. I'm not aware of any jurisdiction that exempts corporations (and similar legal entities) from tax on the basis that they don't "perceive" profits. I'd be curious to hear if you know of any. Do they exist, or are you arguing from principles? If you're instead talking semantically--that regardless of the nominal payor (e.g., the corp), it is the shareholders (and other stakeholders) who bear the effect of the tax (smaller dividends, less gains, fewer jobs), I can't disagree--though the same could be said of all corporate expenses. It's the shareholders, the employees, the customers who suffer with high rates of tax--but they all suffer when utilities charge high rates, too, and suppliers, etc. Should public utilities be free, too, if taxes are to be done away with? And, of course, regardless of the argument you're making, the "brains" of the corporation are the human members of its board of directors, who can perceive (and who can exercise judgment as fiduciaries, etc.). Taxes may be higher or lower, and there are policy arguments on either side, but I confess I've never heard anyone assert that a corporation shouldn't be taxed because it is not sentient and cannot perceive taxes.

This is my understanding as well. I think it's entirely wrong, because it naively assumes that business owners will put increased after-tax profits into paychecks and infrastructure rather than their own pockets, but that's what people like Grover Norquist are stumping. posted by mkultra at 11:12 AM on March 28 [+] [!] Whether the extra $1.00 of increased profits from lower taxes is used to pay for a new employee, a new factory, or it goes into the pockets of the owners is irrelevant. In each case the stakeholder derives the benefit of the extra $1.00. This doesn't mean the benefit is stimulative, nor does it have to be. The extra employee might be incompetent, the factory might be inefficient and the owner might spend the extra dollar on hookers and blow. The point being that only people can perceive the benefit of the extra profits from a lower tax or perceive the loss from an increase in the tax rate. Since a corporation can not appreciate more hookers and blow and only a human can, it is said people pay taxes and corporations do not.

Many anti-tax arguments seem to characterize every dollar taken as being sucked out of the economy, never to return. I'd venture to guess that people who think taxes "Destroy Value" also think a dollar of government spending has a less stimulative effect on the economy then the dollar spent by a private entity. I personally don't agree with that, but it is logically consistent.

Odinsdream, there are two components to those taxes: a component withheld from wages (i.e., nominally paid to the employee but remitted to the gov't--this is what appears on your W-2), and a SECOND component that is due from the employer as an employer. This is a significant factor in why a lot of shady employers want to characterize employees as "independent contractors." An IC is going to pay the same amounts (more or less) to the gov't as FICA, FUTA, etc. but the employer won't have to pay the separate employer's share of those taxes.

http://ask.metafilter.com/211584/What-does-it-mean-for-a-corporation-to-evade-taxes#3052174: "I've always taken "corporations don't pay taxes, people do" to mean that the cost incurred to the corporation by taxes is ultimately passed on to any of a variety of people: the shareholders as lower dividends, the employees as lower salaries, and the customers as higher prices" This is my understanding as well. I think it's entirely wrong, because it naively assumes that business owners will put increased after-tax profits into paychecks and infrastructure rather than their own pockets, but that's what people like Grover Norquist are stumping.

Otto42 generally raised some concerns about corporate tax, but I would take issue with a few of the ways that he phrased the arguments. 1) Only profits are taxed. A profitable division will never become unprofitable from taxation. It will only become less profitable. Changing tax rates can, however, shift incentives on how to allocate money. 2) Taxation NEVER destroys value. It is a transference of value from one party to another. Every dollar "removed" from the economy comes back somewhere else as spending. Many anti-tax arguments seem to characterize every dollar taken as being sucked out of the economy, never to return. This is basically an economic fact. -- Or every dollar taken to be spent 50% on "good" things and "50%" wasted-- but the thing is that for every person who decries waste, half might have one program in mind as "waste" and half may have another. This is basically a political disagreement.