Okay quick econ lesson for the folks struggling with my proposal to replace the corporate income tax with a requirement that companies turn over non-voting shares to the government. cepr.net/blogs/beat-the… (thread)
Let's say the government wanted to spend another $1 trillion annually on all sorts of good things like child care, health care, and clean energy. For the moment, assume no change in taxes, which means that it has to issue bonds to finance the spending.
The Fed could just buy the bonds, if there is slack in the economy, leaving interest rates little changed and output expanded as a result of the new spending.
However, let's assume that the economy is close to full employment, so the Fed doesn't want to buy the bonds for fears of causing inflation. This would mean, other things equal, that the new issued bonds will drive up interest rates, leading to less home buying and investment.
This is where taxes would come in. If the government doesn't want to see home buying and investment crowded out (or alternatively, more inflation, if the Fed does buy the bonds) then it raises taxes.
However, the point of the tax increase is to reduce consumption in order to free up space its additional spending. The goal of the tax increase is to reduce private spending, not to raise revenue.
If it raised $1 trillion in revenue exclusively from the very rich, who would not spend much of it anyhow, then it would not accomplish the goal of freeing up resources for additional spending.
Thinking about corporate taxes in this way, the point of corporate taxes is to reduce the money going to shareholders as dividends, capital gains, or share buybacks. This should reduce the consumption spending of shareholders.
Currently, we apply a 21 percent tax rate, which is widely evaded or avoided. Companies both spend resources in this effort (the direct opposite of the goal of taxation), and we end up with much less than the targeted 21 percent rate.
If we instead require companies to turn over non-voting shares, that are otherwise treated identically to voting shares (i.e. same dividends and buyback treatment), we can be assured that we have reduce the amount of money going to shareholders by 21 percent.
This means a corresponding reduction in consumption spending by shareholders. That is the goal of the tax. The government doesn't need the revenue, there is no reason to ever sell a single share, nor should it be allowed. (END)
